The international remittance market is huge. In 2016, migrants from the world over sent in excess of $580 billion to their home countries. The scenario has changed considerably in the last two decades, before which the field was primarily the domain of banks and a handful of high-street brokers. Now, people get scores of FinTech overseas money transfer companies from which to choose. Customers, it appears, are set to gain even more going forward, mainly because of the benefits blockchain has to offer.
The Ripple Effect
Some of the leading money transfer companies have already turned to blockchain. Market leaders Western Union and MoneyGram have started testing the blockchain technology offered by Ripple. InstaReM, an Asia-based money transfer specialist, has tied-up with Brazil-based BeeTech, also an international remittance company, soon after both signed up with Ripple.
Incidentally, even some prominent banks have jumped on Ripple’s blockchain bandwagon. Examples in case include the Latin American Itau Unibanco Holding SA, the French Crédit Agricol, and India’s IndusInd Bank.
International money transfer companies can benefit by adopting blockchain technology in different ways, and then pass them on to their customers.
- Making transfers more cost effective. Data suggests that the average cost of making a cross-border money transfer through a bank is around 11%. With fintech companies, the average drops to around 5%. Only, even the fintech players rely on banks to function as intermediaries. With blockchain comes the possibility of doing away with banks completely. This would make overseas money transfers even more cost effective.
- Increased reach. Large populations in Asia, Africa, and South America remain under-banked, and this has an adverse effect on their ability to send or receive payments to or from overseas. However, given the widespread usage of mobile phones, cryptocurrency wallets hold the potential to simplify how they deal with cross-border remittances.
- Faster turnaround. Most banks take days to process overseas money transfers. With international companies, you still have to rely on banks to do the needful. Cryptocurrency transfers, on the other hand, can go through in near real time.
- Increased security. The centralized manner in which most money transfer companies and banks operate leaves them vulnerable to online attacks of different kinds. Blockchain, on the other hand, functions in a decentralized way, which makes attacks much more difficult to execute. In addition, every blockchain-based transaction is recorded in a digital ledger that is impossible to fudge.
Are There Downsides?
There is one drawback that may well stay in place until the technology becomes common place. The sender typically needs to purchase a cryptocurrency using a fiat currency, and the receiver then needs to sell the cryptocurrency to purchase a fiat currency. In such a transaction, currency conversion takes place twice. There’s also the fact that most people still need to deal with a basic cryptocurrency learning curve.
There is no doubt that blockchain technology holds the potential to bring about significant changes in the international money transfer market. With increased security, better cost effectiveness, and quicker transfers, the benefits are rather plain to see.