Counting the Heavy Costs of Remittance: The BlockX Solution
The central characters in international money transfers are migrants and their families. Remittances, or the money or products that migrants send back to their relatives and friends, are critical to the prosperity of their home countries. They constitute, in fact, the most direct and well-known connection between migration and development. Many individuals rely heavily on remittances to survive, particularly in the third world.
Because of the economic crisis created by the COVID-19 pandemic, which significantly affected earnings and employment for migrant workers, remittance flows to low and middle-income nations were expected to drop by 20% in April 2020. However, according to the most recent data from the World Bank, remittance flows declined by only 1.7%, defying forecasted losses. In 2021, India, China, Mexico, the Philippines, and the Arab Republic of Egypt were the top five remittance receivers in US dollar terms.
The resolve of migrants to help their families in times of hardship has been a major factor in this growth. Migrants in all parts of the world extended their assistance for their families back home, particularly in nations afflicted by the COVID-19 Delta variant’s expansion. Their capacity to contribute was also made possible by an improvement in economic activity and employment in key migrant destination nations like Europe and the United States.
In 2022, remittances to low- and middle-income countries are predicted to surpass the sum of FDI (foreign direct investment) and ODA (overseas development assistance) yet again. This emphasises the vital role of remittances in supporting household spending on basic commodities during times of economic distress in migrants’ home countries. It also shows the enormous magnitude of the international payments sector, as well as the influence it has on individuals, businesses, and the economies of the nations to which payments are made.
Challenges in global remittance systems
While remittances have recovered very well from the effects of the COVID-19 outbreak, the remittance industry is hampered by exorbitant fees and long delivery periods. Despite the benefits of remittances, the expense of sending them continues to impede the flow of cash, limiting their development potential. These obstacles also significantly influence the amount of money received and the speed with which it is received by individuals in underdeveloped nations who rely on these funds to pay for important services.
In fact, fees on international bank transfers have become so high that the United Nations has set a target of less than 3% transaction costs for migrant remittances by 2030 as part of the Sustainable Development Goals. Even in 2021, however, the cost of transmitting money across international boundaries remains excessively expensive, averaging 6.4% of the amount transferred in the first quarter of 2021. This is more than double the 3% SDG target.
Typically, when remittances are made through banks, the expenses are often greater than those transmitted through digital channels. This is because the foreign payments process involves numerous participants, including the source bank, the central bank, correspondent banks, and, lastly, the destination bank. For their services, each bank along the road charges a fee. The time it takes to get money from the source to the destination is also considerable, taking several weeks.
Another major impediment to remittances being sent through official banking channels is that the receiver must have a bank account in order to receive the money. Financial inclusion, however, is almost non-existent in many regions of the world. The great majority of those who receive the funds do not have access to a bank account. Even if they do, many of them reside in rural regions and must drive considerable distances to the nearest bank location in order to get these funds.
As a result of the high transfer costs, households receive less money and are more likely to use informal channels. The predominance of informal channels not only impedes remittances’ contribution to the growth of domestic financial markets but also inhibits individuals’ willingness to save and invest in the official financial system.
Despite numerous initiatives and international commitments, the remittance industry faces exceedingly complicated issues. And, more often than not, the solutions to these problems are diverse and based on the circumstances in each transmitting and receiving location. This is where blockchain technology enters the picture.
Blockchain tech — Revolutionizing remittances like never before
Blockchain technologies have shown immense potential for financial inclusion and the formalisation of remittances. The use of blockchain technology to send and receive remittances promises to be a fundamentally unique solution that has been found to promote remittance formalisation rather than hinder it, and they are currently being integrated into existing infrastructures, business models, and regulatory systems.
The technology, as well as the numerous applications built on it, such as cryptocurrencies and stablecoins, provide multiple opportunities to reduce the cost of cross-border payments.
Some of the ways in which blockchain technology is transforming challenges in remittance are as follows:
- Blockchain eliminates the need for multiple intermediaries that are central to traditional cross-border money transactions. Money may be transferred directly from one bank to another via blockchain, removing the need for two additional correspondent banks and lowering transaction time and cost.
- Blockchain also enables the use of remittance tokens into the transaction flow, which allows the sender to buy remittance tokens instead of cash. These tokens can be denominated in a variety of quantities and currencies.
- Blockchain simplifies KYC requirements by storing the client’s details once on the blockchain, where the information can be stored, retrieved, and accessed whenever needed and eliminating duplication.
- Customers can also save a lot of money when they use blockchain-based cross-border payment systems. According to the World Bank, a consumer sending a $2000 remittance payment would suffer an average fee of 6.5% percent, or $130. In comparison, the cost of remitting the amount via a blockchain-based remittance service is anticipated to be between 2% and 3%, which will amount to only $40 — $60.
The BlockX solution
Certainly, blockchain technology has the power to transform global remittances positively. One company at the forefront of the global movement in using blockchain technology and cryptocurrency for remittances is BlockX — a blockchain-based Digital Assets Settlement and Payment Chain that promises to democratize investment and banking for everyone.
Individual investors’ and business organisations’ digital identities may be securely stored on the BlockX network, making KYC procedures easier. Users can also store their assets in BlockX’s on-chain digital wallet, which is already integrated into the ecosystem.
BlockX strives to be the pioneer in delivering efficient and reliable financial services by offering attractive staking incentives, multi-token, NFT, and chain support, low latency, and smart contract compatibility. $BCX is BlockX’s native token, which can be used to pay fees as well as earn staking and delegator incentives.
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