Blockchain-based remittances will lead to a revolution in financial inclusion
Up to $42B in annual global remittance fees could be saved as smartphones spread and cryptocurrencies go mainstream.
Blockchain technology has given birth to a new class of cryptocurrency millionaires, as tech junkies and libertarian idealists ride the wave of Bitcoin, Ether, and other digital tokens. But behind the buzz of miners and investors exist an estimated 2 billion un- and underbanked individuals — 42 percent of the global adult population — who can personally benefit from the financial inclusion that blockchain offers. For the developing world, in particular, a blockchain-based revolution of the international remittance market could become one of the technology’s killer features for economic prosperity.
According to the World Bank, global remittances reached US$575 billion in 2016, with remittances to developing countries accounting for a staggering US$429 billion of the total. The largest remittance destinations were East Asia/Pacific (US$129 billion) and South Asia (US$112 billion), with India the largest single recipient (US$62.7 billion) of remittances. Transaction fees average a whopping 7.45 percent on average, with some remittance corridors facing charges of up to 15%. Even using the lower figure, that’s US$42.8 billion in remittance fees alone last year.
In Don and Alex Tapscott’s landmark blockchain primer Blockchain Revolution, readers are introduced to a potential poster child for blockchain-based remittances. Analie is a Filipina nanny living and working in Canada who sends CAD$200 to her mother in the Philippines each month. She walks to the bank, deposits a physical paycheck from her employer, withdraws the $200, catches a bus to a “bad neighborhood,” waits in line at a brick-and-mortar iRemit store, fills out a paper form, and finally hands the money over to be transferred. For the $200 transfer, iRemit charges a $10 fee at an exchange rate of roughly 2 percent — losing 7 percent of the initial value in the process (and still somehow below the 7.45 percent average). But the real cost is much greater, as Analie had to leave work early in order to make it to the iRemit before closing time — the two-hour journey was equal to another $40 in lost wages. For her elderly mother, who also has to take a series of buses to receive the money, the physical toll is perhaps worse than the financial one. The $10 fee alone could have bought her a week’s worth of food in Manila.
Western Union and MoneyGram alone process 20 percent of global money transfers at physical locations. Startups have taken note and are already at work disrupting the remittance space, with London-based Transferwise perhaps the most notable of the pack. It has raised more than US$116 million in funding to speed up international remittances at a fraction of the cost of incumbents.
Using the example above, Analie could send CAD$200 via Transferwise with a fee of just $4 (or 2 percent), using a more attractive mid-market exchange rate. With a linked and verified bank account, the transfer could arrive as early as the next day.
Blockchain-based remittances have the potential to be faster and cheaper, saving users billions in fees and countless hours of wasted time at physical banks and payment processing stores (or simply waiting for a transfer to clear online). All users need is a smartphone and a cryptocurrency wallet.
Take Abra, a bitcoin-based wallet that enables mobile-to-mobile money transfers in both cryptocurrency and 50 fiat currencies. The startup doesn’t charge transfer fees and users can act as “tellers” when another user wants to withdraw cash from their digital wallet (at an agreed-upon commission for the teller). Abra users can top-up their wallet with an American Express card and spend their digital tokens at a number of partner merchants across the globe.
In the case of Analie and her mother, transferring Canadian Dollars to Philippine Pesos from smartphone to smartphone happens almost instantly and without fees. Because her mother prefers cash, she searches her app for nearby Abra users and finds four within a four-block radius of her home. One “teller” offers a 3 percent commission, two offer 1.5 percent, and the fourth offers 2 percent. She chooses the person offering 2 percent because he offers to meet her halfway and has a five-star review on the app. The teller’s “fee” ends up being the same as Transferwise, but Analie’s mother has cash-in-hand faster and without having to travel to the bank.
Banks themselves are also examining the potential for blockchain-based remittances as a way to provide better service to existing customers. The Commercial Bank of Qatar, in conjunction with regional bank partners from Turkey, Oman, and the UAE, recently completed a blockchain pilot for real-time bank-to-bank transfers. In June, five blockchain-based remittance startups received awards at the UN Global Forum on Remittances, Investment, and Development in New York.
Blockchain remittances do face challenges, namely the accessibility of cryptocurrency. Creative solutions like Abra’s solve the accessibility problem by connecting remittance recipients with crowd-sourced “tellers” with access to cryptocurrency. Increased proliferation of smartphones and growing acceptance of cryptocurrencies could allow more conventional and seamless blockchain remittance options to emerge.
There are currently 2.6 billion smartphone subscriptions globally — a number that’s expected to hit 6.1 billion by 2020. Blockchain-based remittance services are already proving to reduce both time and cost when it comes to sending and receiving money. By educating the global community about blockchain and its potential economic benefits, a revolution in financial inclusion could be just around the corner.
Telcoin Website: telco.in
- PWC. DeNovo Q2 2016 FinTech ReCap and Funding ReView. The un(der)banked is FinTech’s largest opportunity. https://www.strategyand.pwc.com/media/file/DeNovo-Quarterly-Q2-2016.pdf
- The World Bank. Measuring Financial Inclusion Around the World. http://documents.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/15/090224b082dca3aa/1_0/Rendered/PDF/The0Global0Fin0ion0around0the0world.pdf
- The World Bank. Remittance Prices Worldwide. http://remittanceprices.worldbank.org
- Don Tapscott. Blockchain Revolution. https://www.amazon.com/Blockchain-Revolution-Technology-Changing-Business/dp/1101980133/
- The Globe and Mail. Massive money-transfer industry disrupted by startups. https://beta.theglobeandmail.com/report-on-business/massive-money-transfer-industry-disrupted-by-startups/article30193454/
- Crunchbase. Transferwise. https://www.crunchbase.com/organization/transferwise#/entity
- Coindesk. Qatar’s Commercial Bank Unveils Blockchain Remittance Pilot. https://www.coindesk.com/qatars-commercial-bank-unveils-blockchain-remittance-pilot/
- Techcrunch. 6.1B Smartphone Users Globally By 2020, Overtaking Basic Fixed Phone Subscriptions. https://techcrunch.com/2015/06/02/6-1b-smartphone-users-globally-by-2020-overtaking-basic-fixed-phone-subscriptions/