Hundreds of billions of dollars are transferred every year, via cross-border payments, by either businesses or individuals who have emigrated from their country. The remittance industry holds quite the place in affecting a nation’s economy, predicted by the World Bank, remittances are on their way to becoming the largest source of external financing but it is often muddled with great personal and economic costs.
Due to the involvement of numerous players: the source bank, the central bank, the correspondent banks, and, finally, the destination bank, the fees on international bank transfers have been enormously high. So much so that the UN has set a Sustainable Development Goals target of 2030 to reduce the transaction charges of remittances to less than 3% from their current estimated average of 7.1%.
An axing of charges in remittances by just 5% will result in $16 billion in annual savings.
Talking about the time that each transaction requires, it takes about a week before the money finally lands in the hands of the recipient. And don’t even get started on the complications faced by those in rural areas. Consequently, a lot of remittances are made through informal channels.
How can Blockchain Help?
Blockchain technology has proved promising in the financial sector and it surely has the power to transform the remittance industry too. In what ways? Let’s discuss that.
With the advent of Blockchain, international transactions can be made at record speeds, and its secure structure allows a reduction in instances of fraud and illegal channels. Cryptocurrencies can be easily and instantly transferred across borders, and they are secure -probably even more than regular money.
Bitcoin reports estimated that using it is 250x cheaper than forex agencies and banks. Many banks and fintech companies are already exploring the use of blockchain and cryptocurrencies for cross-border payments.
There are 11 BTC providers who have established BTC remittance services. These include BitPesa, Abra, and Ribbit.
What allows blockchain to make international transactions so simple, speedy, and secure is the fact that it is based on distributed ledger technology (DLT).
It removes the multiple intermediaries that participate in the whole process, and money is transferred directly from A to B. Everex, a Singapore-based global blockchain firm, enables peer-to-peer transfers using Ethereum-based tokens called Stablecoins.
According to the company, transactions are 25x faster than traditional transfer methods at virtually zero cost.
35% of B2B buyers and suppliers are interested in blockchain-based payment networks, and 26% believe blockchain is the “preeminent payment technology of the future.
Must Read: What is Blockchain Security Audit
Founded in 2012 as OpenCoin, Ripple has now become the most popularly used blockchain technology for cross-border payments among financial institutions. They have successfully created an inclusive financial system that harnesses the power of decentralization to improve the speed, cost, and reliability of how people transact around the world.
They’ve developed the XRP cryptocurrency and distributed ledger technology (DLT) alongside a suite of payment protocols that function as the bridge currency underlying Ripple’s liquidity and exchange product, xRapid, offering financial institutions a channel for transfer between various traditional currencies.
Blockchain, thus, certainly has the potential to reform the remittance industry and is already on its way to doing the same. More and more fintech companies are placing their bets on blockchain to be the solution to all the problems faced by them, and the future is definitely bright for new innovative modes of remittance.