The Shuttle Pilot: 3 Impacts The Blockchain Brings to the Remittance Industry
This is an on-going series to provide the industry and community regular updates on the Shuttle Pilot Tests as part of ShuttleOne’s Go-To-Market Results in ASEAN. This is meant for our general community and readers, for the full statistical result, please contact us at the end of this article.
ShuttleOne is an integrated fintech blockchain platform that delivers the experience of remittance, loans and provides for a virtual savings account to our ecosystem of partners and users in Southeast Asia. As we envisioned the early semblances of what our product will look like, we took on ourselves to reach a group of users that the blockchain and digital assets will have greatest impact in.
In our July & August updates, we figured that the folks in the rural regions of Indonesia would be one of these group of users. Nothwithstanding that, while yes, the blockchain does have strong impacts onthese groups of users, we quickly realized we were at the wrong place! Social demographics of these rural areas are usually more elder folks and the younger ones. The able bodied economically viable adults are usually in cities such as Malaysia, Singapore, Hong Kong within ASEAN.
Success through Collaboration
ShuttleOne is founded on several philosophies, one of such is strong collaboration. We were fortunate enough, some of the largest financial institutions within South East Asia would give us a stab in potentially transforming their businesses digitally. We are unable to name the collaboration publicly at this stage due to regulatory and privacy agreements in place. We do beg our readers’ pardon for this.
The Shuttle Pilot Program
In terms of our technology roadmap, ShuttleOne applies a highly pragmatic approach in what the market present and future (as we hypothesize) needs. This is done through extensive consultation with partners within the space. As such, we’ve over the course of 2019 built a rather extensive pilot program for both partners and users to understand and interact with ShuttleOne.
As we trialed early versions of ShuttleOne in our earlier pilots where we did transactions of varying sizes internally, we were challenged to do a bigger pilot test with our partners over the course of October to December 2019. The first layer to a successful redesign of financial infrastructure is access to capital and value transmission. It is within this backdrop, we envision the first layer to attack remittance.
The Pilot Design
Working with financial institutions is never a straightforward affair. Apart of regulatory concerns, where our team from day 1 envisioned to comply with, we quickly realized, their understanding of the blockchain and digital assets needs a quick “software update”. To bring the blockchain into mass adoption, we needed to balance these needs:
- Financial Institution (they either need to make more money, or reduce costs)
- Users (benefits)
- ShuttleOne (we are not a charity)
- Regulators (benefits to the country, jobs, bad actors etc)
How ShuttleOne Handles Data
Data is a contentious issue, in future internet businesses, and especially so in the age of the internet of finance, how an organization handle data is of top priority. While how ShuttleOne handles data is poised for a much longer post, for the sake of this one, all KYCed users data were taken out by our financial institution partner before providing us with the financial transactions for us to conduct this pilot. In ShuttleOne, we view the European Union’s key laws and policies as one of the highest standards. We’ve built our technology with the philosophy of “private but not secret” to comply with laws of the highest standards. We note, in the latest update of the 5th Anti-Money Laundering Directive from the European that:
Virtual currency exchange platforms convert real currencies into virtual currencies, and the 5MLD will clamp down on virtual currency regulations to help combat money laundering and terrorism financing.
With 5ALMD, cryptocurrencies will face regulation for the first time. Like traditional financial institutions do, cryptocurrency exchanges will now have to submit suspicious activity reports and perform customer due diligence. So, if cryptocurrency exchanges know or suspect any money laundering or terrorist financing, it is their duty to report this to authorities.
The Pilot Program: Hypothesis
After obtaining data, we came up with a few hypothesis for testing before we ran the pilot on the blockchain.
- Utilizing the blockchain as a distributed ledger and digital assets will bring down costs of transactions to 3% or below, while maintaining the average margin of our partners at 1.5%
- Cost of Capital for our partner reduces against current costs
- Users are able to obtain their remittances finality within 1hr in the destination country
- ShuttleOne Oracles are able to handle large amounts of data in real time
The Pilot Program: Numbers & Data
- Number of Transactions: 25,806
- Average Transaction Value: US$338.16
- Gas Costs: US$232.54
- ShuttleOne Wallets Opened: 3687
- Contract Address: 0x0b2a0b8d37261b0e838b56d185616b80c89060d8
- Blockchain Used: Ethereum Kovan
The Results: 3 Impacts the Blockchain Brings to the Industry of Remittance
Lower Cost for Users
The predatory nature of remittance is a widely publicized one. In ASEAN, as from our earlier research, the average fees regionally is estimated at 7.3%. In our pilot test, we evidently show case we alongside our partners are able to keep costs at 3% for the users. This is important as it balances ShuttleOne’s business (to be profitable) and also it allows the partner to see its other potential impacts which can benefit their users.
Reduction in Cost of Capital
In fact, in our dealings with these financial institutions, we realized its not entirely their fault for the issue of high fees. These FIs, they too want to cut costs for their users to provide a more competitive service. They too, want to reduce their burden in their cost of capital. Remember, the foundation of a remittance house is their ability to get foreign currencies at a much cheaper rate and usually this is done in bulk. This is also why smaller and medium sized players tend to charge more, its simple economics — they don’t have the demand or supply to reduce their cost of capital. The notion of too many middlemen also stems to increase the cost of capital
In ShuttleOne’s ecosystem, they only ever have to deal with one base rate. In this pilot test our oracles are programmed to the $Dai USD rate. We utilize $Dai as a stablecoin and we deal with the supply of $Dai also from regulated sources.
Within the ShuttleOne system, our partners were able to be more sensitive to their cost of capital and settlement needs internationally as they are exposed to lower forex risks in general.
Quicker Settlement, Faster Remittance
In this pilot, while we did not simulate destination country withdrawals, the average time to remit monies was reduced to an average of around 18 seconds (wallet to wallet). This can be further reduced should our technical team be able to optimize transaction blocks within our value transmission mechanism. In practice, another partner at the destination country will be notified of a transaction and the user (also KYCed) withdraws the local currency on the other side as soon as the transaction hits their wallets.
As we move forwards to Phase 2 of the Shuttle Pilot Program, we are beginning to do larger real money transaction. It is highly evident in this pilot test the impacts of the blockchain is real and impactful, we also concluded that our systems are able to run large amounts of transactions and are all systems go. We look forward to what’s coming up next in 2020 as we progress.
In 2019, we would like to thank the guidance of our supporters, the angels and institutions that have provided valuable business and technical advice. Without these insights, it’s highly likely we will be a headless chicken running around.
In 2020, we look to bring the benefits of the blockchain in ASEAN to more partners and also users alike. If you would like to get in touch with us to see how our products and services impact your ecosystem and businesses, please get in touch below: