Research Insights — the need of a Blockchain Remittance Platform
Editor’s Note: Over the last few months, REMIIT’s UX Task Force Team went around researching on the need of a Blockchain Remittance Platform and its difficulties.
Each country and company are exposed to similar risks however deal with completely different problems. The issues were mainly around Regulations, Foreign Exchange, Time Lag, User Acquisition and more. Regardless of the fact that the problems lied under a certain category, the actions taken by the companies would be completely different. Thus building a unified platform is a bigger task than you may think.
Read on below to find out what type of insights the team had.
Why Remittance Platform?
Before diving in and sharing the results from our study, I’d like to address one potential question to the banks: Why work with money transfer platforms like Western Union (WU) and Moneygram (MG)?
The answer: Competes against SWIFT. Although some banks are moving away from the multi-billion dollar industry due to the lack of profitability arising from high competition, it is an inevitable service that consumers expect banks to provide. Where WU and MG provide their network, liquidity and compliance, it becomes an alternative to using the SWIFT network.
Let’s not misunderstand that WU and MG are as expensive or at times even more expensive that the old SWIFT system. What message does this convey? The network of money transfers is very complicated and difficult to fulfill all the aspects such as regulation, liquidity, trust required to provide a smooth customer experience (Speed, Cost, Security).
User Experience
The team is highly focused on building a dApp that is user friendly. REMIIT begins as a B2B service targeting money transfer service providers by delivering a variety of solutions to build a transparent and sustainable environment for cross-border money transfer operations. Therefore before the REMIIT Platform goes live for end-users, the main audience to activate and run through the testing and feedback stage will be businesses. For a better user experience for the businesses, the UX TFT conducted meetings with approximately 10 companies based in 6 different countries.
Challenge
Building a platform that resolves the operational, technical and regulatory issues of Money Transfer Service Providers. What is really needed?
As a company that has been in this industry for more than 5 years, the experience helped us to understand what the businesses in this space needed. Due to the fast changing environment of crypto, we wanted to ensure our expectations were on the right track and at the same time, gain new insights from the new players.
Our takeaways were mostly expected. However there were some new aspects and thoughts that the team needs to think about. The main takeaway was that each company is different in their regional regulations of course but also in terms of revenue channels, target audiences, technology and settlement.
Takeaway 1 — Regulations and Demographic Situation shapes the company the most
Although companies in the same country experience a similar remittance process due to the regulations, they do face varied issues in their operations. However, regardless, the companies are influenced the most by regulations or demographic situations.
The countries’ economic characteristics decide its fund operation flow. (Developed countries have more outbound while developing countries have more inbound transactions). This is expectable but the change in operations due to these characteristics are interesting. Countries like Japan or Canada provide a wide range of money transfers in amounts. Each person may send a different amount from a couple of hundred dollars to a couple of hundred thousand dollars. On the other hand, countries like Indonesia or the Philippines are mostly a money receiving country where each person sends around $400 per transfer which add up to 10 digits volume.
This sort of environment changes the way the companies operate. Starting from the KYC/AML procedure to the way they manage their funds. Companies in countries that deal with a large number of transactions do not have high level requirements for verification compared to companies in countries that have less transactions. Fund management is also a big issue as many MTOs choose to pre-fund (sending a lump-sum of funds expected to be paid out) which may be their working capital whereas MTOs on the receiving side are able to use these funds to their advantage. Some countries even regulate the period the companies are able to hold onto the funds. Therefore some may prefer pre-funding large amounts whereas some may prefer pre-funding in smaller amounts.
Takeaway 2 — Most Money Transfer Service Providers believe Blockchain can reduce their operation costs
Most of the MTOs are interested in the concept of blockchain and believes that it will benefit their business by reducing the settlement costs. Many MTOs are eager to enter the blockchain space to make their processes less costly and efficient but don’t really know how they can integrate it into their business both technically, legally and operationally.
If there are no regulatory issues in the use of blockchain or cryptocurrency, the MTOs and Banks are excited to participate in the platform. Main reasons are to reduce costs, grasp a better understanding of the technology, enhance the efficiency.
Takeaway 3— Many Money Transfer Service Providers do not fully rely on remittances for revenues
As the remittance market is growing, the level of competition is also becoming intense. The competition may not be so obvious to everyone but when you start checking the rates and fees, you would understand how difficult it is to only rely on remittances for revenues. Like many other businesses, MTOs also seek for other sectors that can generate revenue and it is all very different. Some turn to FX, some to technology SI, or even opening up a local restaurant to enhance synergy effects attracting more customers.
One key thing to take note is that although they are additional business models, it still leverages off the core which is cross-border money transfer. Providing another revenue channel that supports remittance operations is something that can be considered essential. However in many cases, the businesses are in the consideration stage of extending their business model. Most are still focused on acquiring more users and partners to enhance their remittance business.
No Platform Can Satisfy Everyone
The highly dispersed focus and needs of businesses in this remittance sector, a platform will not be able to satisfy all the businesses. It would be similar to a scenario when an MTO uses WU when they need liquidity in countries that they are not integrated with. Being a platform that serves all needs would be ideal but realistically, delivering a solution for a specific issue many businesses are facing would be REMIIT’s goal.
