The World Bank projects global remittances growth to about $616 billion in 2018, low to middle income countries are expected to account for about 72% of the market share of remittances. Brick and Mortar remittance providers account for a large percentage of the transactions with estimated transaction fees of 7-10% of total amount remitted. The associated high cost of transmitting funds is partly due to the operational complexity in international funds settlement and the cost of operationalizing regulatory compliance in each jurisdiction. The current model also is prone to the volatility in currency exchange due to the conversion to and from US Dollar and eventual payout in non-US currency.
Using the Blockchain protocol, Money Services Businesses can reduce fees and complete transactions more efficiently. All transactions can be tallied, encrypted and saved on blocks within the ledger, accessible to all within the network. MSB’s can demonstrate regulatory compliance mandates in the area of fraud prevention using blockchain.
In developing countries, the absence of a centralized identity database provides an opportunity for anyone to assume the identity of a recipient of a money transfer. This is a live issue in countries like Nigeria, where people who work in local cash pick-up locations such as Western Union and MoneyGram often illegally provide information about the identity of recipients to a network of fraudsters, those fraudsters within hours are able to create fake identity of the receiver and effectively proceed to withdraw the funds.
Advantages of Blockchain
Efficiency
Brick and mortar remittance providers rely on wire transfers backed by financial institution. While this works for today, the complexity in completing transactions is delayed due to the time involved in processing. Using the blockchain protocol, companies such as SureRemit can offer peer to peer transactions globally. Today, companies like Western Union have to convert the local currency to US dollars, forward the funds to the recipient’s country and then convert to that local currency. There is a loss of value due to the duplicity of conversions, Blockchain being peer to peer within the network, guarantees efficiency.
The Unbanked
As mentioned earlier, the lack of identification serves as an entry barrier to millions globally into financial inclusion. While developing countries attempt to solve the issue of identity, one might propose leveraging already existing infrastructures such as telecommunications – more people have access to cellphones than landlines and or computers in Africa and Asia. Using blockchain powered mobile applications can provide immediate access to not only means of identification service but also applications that enable receiving funds or value through remittances.
Processing Fees
Blockchain does not come with the overhead of a traditional bank or financial services company. The average remittance is about $200, between 7-10% of that sum total is spent on transaction fees. Blockchain, either token to fund or token to value is significantly cheaper.
Security
Blockchain is decentralized, making it challenging for malicious actors, such as hackers to penetrate the platform. Ledgers are protected from fraudsters, making it impossible to create fake data or identities. The openness of the record provides the opportunity for the public to verify the ledgers. Already existing frameworks like Know Your Customer (KYC), can leverage digital security as a means of identification and customer verification. The associated cost of global compliance KYC programs can also be simplified using the blockchain digital ledger.
Blockchain guarantees security of transactions, as no transaction can be altered without
changing every single block, providing the confidence required within the peer to peer network.