Why Blockchain needs to tackle King Cash
“BLOCKCHAIN holds great potential for improving payment systems, but for the moment that potential remains largely unrealised” ran the opening sentence of The Economist’s report “The Battle for the remittance market” published in May 18. Undoubtedly the global remittance market, which according to the World Bank will top $616 billion in 2018, is ripe for digital disruption with the traditional market leaders offering slow and expensive services. Blockchain technology can simplify and speed up cross-border payment processes, reduce intermediaries and mitigate fraud thereby both lowering the cost of remitting money and providing guaranteed, near real-time delivery.
So why have we not yet seen any real challenge to the market dominance of Western Union and MoneyGram from Blockchain based startups?
It is certainly not due to a shortage of contenders. Abra, Align Commerce, Bit2me, Bitspark, Bitso, Bitpesa, Bitremit, Coins,ph, Rebit, Coinpip, Bitwage, Uphold, hellobit, igot, Palarin, Romit, Volabit, Zipzap, TransferB, Hive and many others currently provide blockchain-based money transfer services at lower cost and greater speed. In addition, many Banks Financial providers (Santander being the first, UBS and my old employer American Express are others ) are exploring and using blockchain and Ripple in particular for cross-border payments.
The answer is a simple one. It is that the vast majority (at least 80–85%) of global consumer remittances are conducted using cash.
Regardless of whether blockchain provides the underpinning ledger and payment rails or not, if a key requirement for using a transfer service is that the sender and/or receiver of the funds must be “online” then that service will at best appeal to a small percentage of the market. With such a large (and growing) remittance market this does not mean that FinTech challengers cannot create valuable businesses. In the non-DLT space TransferWise is a great example. But what is does mean is that the market leaders, who provide almost ubiquitous, easy to use, cash (and digital) channels are not losing much sleep. As Khalid Fellahi, SVP and General Manager at Western Union Digital, said earlier this year “We are always looking for blind spots…but we do not feel threatened.”
At this point it might be worth tackling the argument that we are fast heading towards a “cashless society” and that the move from cash to digital is going to render the last paragraph redundant. I would point to a great article by Hugo Cuevas-Mohr published last month and entitled “Digital vs. Cash: are we getting it all wrong?” (https://imtconferences.com/digital-vs-cash-are-we-getting-it-wrong/)
In this Hugo points out that, for all the statistics showing increased use of digital money running at 11% annually cash is also growing (at around 8% pa). In other words the real rate of transition globally from cash to digital is in low single digits (obviously this varies widely per country). This also explains why Western Union have only seen a cannibalisation rate of their existing “offline” customers to digital of c2% pa.
So, if the mass remittance market is going to predominantly remain cash based for some time (and by this I mean that either the sender or the receiver or both require a cash channel for depositing or receiving their funds) then it follows that any Blockchain-based remittance provider is going to have to make it as simple and easy to pay cash in and out over the counter as it is for a MoneyGram or Western Union customer today.
How do we achieve this when, by their very nature, blockchains only deal with “digital” information? Of course the worlds of fiat and crypto already meet today but we are talking here of physical banknotes not cards and bank accounts.
In my next article I’ll explain how we can do this and also talk about what opportunities this opens up in the wider market for financial products in the migrant worker and underbanked space…