Will Blockchain’s Effect on the Overseas Money Transfer Industry Limit to a Ripple?

A considerable amount of money flows across borders regularly. Data released by U.S.-based Pew Research Centre indicates that migrants from the world over sent in excess of $570 billion to their home countries as remittances in 2016. Until now, older players such as Western Union, MoneyGram, and Ria account for around a quarter of the entire market share. The last couple of decades have seen the entry of some FinTech players, and it appears that blockchain might soon offer a viable alternative.

The FinTech Effect

People who wished to send money overseas until the turn of the last century had to choose from banks or a handful of high street forex brokers. The scenario began to change with the arrival of FinTech players such as OFX, TransferWise, WorldRemit, HiFX, and TorFX. Overseas money transfers soon became more cost-effective, and turnaround times reduced as well. In addition, FinTech players began offering their customers different payment and transfer methods from which to choose.

The Ripple Effect

Given the potential that the blockchain technology has to offer, it comes as no surprise that some of the top cross-border remittance companies are already looking at ways they might benefit. MoneyGram was the first to announce testing of blockchain using Ripple’s technology. Next in line was Western Union.

More recently, a tie-up between Singapore-based InstaReM and Brazil-based BeeTech, after both companies signed up with Ripple, aims to make cross-border fund transfers between Asia-Pacific and South America quicker and more cost-effective.

It appears that banks do not wish to be left far behind. Some of the banks that are already testing Ripple’s blockchain technology include Crédit Agricol (France), Itau Unibanco Holding SA (Brazil), and IndusInd Bank (India).

Benefits of Offer

Benefits that blockchain has to offer may have a noticeable effect on the way people carry out overseas money transfers.

• The cost factor. According to data released by the World Bank, the average cost of carrying out a cross-border fund transfer is over 7%. Data also suggests that while using the services of a bank comes at an average cost of around 11%, it drops to around 5.3% with online money transfer companies. This is despite the fact that the latter depends on the former to function as intermediaries. Blockchain holds the potential to eliminate banks from the picture completely, which should help reduce costs even further.
• Wider reach. People in several parts of South America, Africa, and Asia remain under-banked. This makes sending or receiving money to or from a foreign country a challenge. Incidentally, mobile phone usage in these regions has increased considerably. This leaves room for using digital cryptocurrency wallets to carry out cross-border fund transfers.
• Speed. An overseas money transfer carried out through a bank may take days to process. The location of the sender and the receiver tend to have a bearing on turnaround times when using FinTech money transfer companies. However, a cryptocurrency does not rely on locations or intermediaries and can process in near real-time.
• Security. Banks and most FinTech money transfer companies operate in a centralized manner, which makes them vulnerable to online threats. Blockchain’s decentralized system, on the other hand, offers increased security against a range of online attacks. Besides, each blockchain-based transaction comes with a unique entry made in a digital ledger that is impossible to falsify.

Is There Any Disadvantage?

A downside will remain until blockchain-based transactions become a part of everyday life. This comes in the form of exposure to currency conversions twice. Consider this example — an individual wishes to send money from the U.S. to the Philippines. First, the sender needs to convert U.S. dollars to a cryptocurrency. Once the transfer is complete, the recipient will need to convert the cryptocurrency to Philippine pesos.

Who Offers Cryptocurrency Cross-Border Transfers?

While not many of the established overseas money transfer companies have turned to blockchain yet, there are a few startups that are relying solely on blockchain to facilitate cross-border remittances. Some of them include Ripple, Abra, Circle, MOIN, BitPesa, and Coins.ph.

Conclusion

While the benefits that blockchain has to offer to this realm are plain to see, it is too early to determine if this technology will act as a disruptor. Its future, in essence, depends on how quickly the global population adopts the use of cryptocurrencies.