What is wrong with the foreign remittance market?
International Remittance if explained in the simplest of terms is the transfer of money from a foreign country into the home country usually by a foreign worker. Money transfer in some form or the other has existed for about 3000 years but foreign remittances have made a tremendous impact with the advent of industrialization and globalization.
In the last 150 years, there has been a huge advancement in the payments industry but it is astounding that the foreign remittance service has not advanced as much as the industry demands. There hasn’t been any major technological advancement in an industry with an annual turnover of $600 billion.
Moreover the transaction fees have not gone down any further.
So, what exactly is wrong with the remittance market? To understand this, we need to look at the different ways remittance happens today. The most preferred methods of money remittance today are:-
Bank transfers (This could be from the international branch of a bank to the local branch or different banks)
Online money transfer with the help of a host of websites and apps which are either direct bank transfers or could also involve a physical cash pick up point.
Offline-Offline which is a widely used system especially in corridors like UAE-India which involves the presence of a physical teller at one end and a physical teller at the other end.
What is fundamentally wrong with the remittance industry is three pronged:-
Exchange rates are not the same
In a glorious time of the internet where we can find who was the first president of Djibouti (Yes, it is a legit country) in less than 0.73 seconds on Google, there is no way you can find the exact exchange rate between two currencies as every source quotes a different number. So, how much is your money worth exactly at any given point in time depends on which website you trust the most. To illustrate this, I have taken a screenshot of different exchange rates at the same time.
And this varies at any given point in time and therein lies the crux of the problem. Since, the exchange rates differ depending on the site you visit, the money remittance companies quote different rates as well. At the office of the biggest money remittance firm in the world, three employees with top hats, monocles, sipping tea decide in the morning how much your money is going to be worth for the day. So, it is safe to say that if you received a dollar every time you thought about how the ‘Big Guys’ take advantage of you, they would still get to decide on how much that dollar is worth.
Why don’t they do away with this system of different exchange rates? This is where the money part kicks in. Apart from the fees charged to the user, all the international remittance firms make a profit playing the market.
So, essentially every transfer includes the fees and also playing the market in the form of exchange rates. For example:-
In essence, your exchange rates differ from any of the currency conversion sites you would visit. And this is true to any of the online sites you might use for money remittance. If you lose close to 70 paise for every dollar you send. You will not be laughing your way to the bank.
To illustrate my point, I shall take you through the exchange rates and fees for the Canada-India and Singapore-India Corridor.
So, for every $100,000 Singapore Dollars transferred, $1,400 Dollars is gained only on the change in the exchange rates over and above the exchange fee. Does not make sense? Damn right it does not.
Although it does not look like you lose a lot of money in exchange, the point is you do lose some money and some money lost by a lot of people is a lot of money lost.
The Speed — Cost Gamble
We are forced to believe and this fact is constantly bombarded to us in the form of advertisements that cost is directly proportional to the speed of the remittance. So, an online Bank to Bank transfer in the most widely used service takes 4–5 business days whereas the company which advertises that we remit your money in 4 hours charges a fee of $4.99 for transactions below $1000.
Why hasn’t technology mastered the art of international remittance which can be both instant and at a negligible cost? Most of the banking options to transfer money are fast but they cost you a leg and an arm to complete the remittance.
The mantra is if you want to remit money instantly (4 hours minimum for the USA- India Corridor), you have to pay a fee which is a significant fee.
If you believe that time is not money. Then, prepare to wait for 4–5 business days assuming there is no bank holiday in both the sender and the receiver’s location.
Nothing great about the service
The biggest remittance firm says, ‘Sending money to almost anywhere in the world from anywhere in the world’ highlighting their network of agents across the world. The service which claims to be the fastest in the US-India corridor says ‘The easiest way to send money’ and the one which claims to be the cheapest says ‘Send money with the real exchange rate’. So, we have — Send from anywhere; Easiest way to send money ; Send it with the real exchange rate. It really begs the question, why are all of these mutually exclusive?
Why cannot we have a service where you can send from anywhere in the world with the “Real” exchange rate and send it easy?
Conclusion
The concept of currency has advanced a lot in the past one hundred years. From the time period of 1917–2017, we have seen so many technological and design advancements in “Money”, why have we not extended the same courtesy to Money Remittance.
With the advent of blockchain in currency, it is not a utopian concept to think of a platform that marries speed, trust, cost effectiveness and convenience for transferring your money across geographies. That time of change is here. And that rate of change is gonna be here faster than we think.
Come to think of it, blockchain has already revolutionised the way we handle our money. It is time that we see what ripple effect does it have on the foreign remittance market.
The writing is on the wall for all the ‘Big Boys’ who have manipulated the system to their advantage. It is time to introduce democracy in a field that has always favored the monopolies.
Blockchain is the ultimate tool for mankind today to democratize trust. Nothing is more trustworthy than money today and there in lies the solution to this problem.
P.S. This is in anticipation of that utopian foreign remittance service. Watch this space for more!
