Given the potential that blockchain holds and the benefits it has to offer to people who carry our cross-border fund transfers, it is safe to say that the technology is here to stay. Just how long it takes to become part of our everyday lives, though, depends to be seen.
Consider this – migrants from around the world sent over U.S. $570 billion to their home countries in 2016. Money that moves across borders between governments and businesses is a whole different ball game. Banks and a handful of high street brokers dominated the international remittance industry until the turn of the last century, but that is no longer the case.
Western Union and MoneyGram are among the oldest players in this realm, and with Ria, the three account for around a quarter of the market share. The older players, though, have faced tough competition in recent times, mainly because several FinTech companies have entered this space.
FinTech and Overseas Money Transfers
Several FinTech alternatives to companies such as Western Union and MoneyGram have seen significant growth in recent times. UK-based TransferWise, for instance, is a unicorn that became profitable within six years of starting operations. In 2017, the company saw around £8 million in revenue per month. Other prominent FinTech companies in this realm include WorldRemit, WorldFirst, InstaReM, and CurrencyFair.
Blockchain Enters the Picture
Data released by the World Bank shows that people who send money across borders still end up paying over seven percent as fees. This is despite using the services of FinTech money transfer companies, because banks still handle transactions at both ends.
Eliminating banks from the process is easy by using blockchain technology. With banks out of the picture, there is a possibility of saving on currency conversion and transfer fees. In addition, cryptocurrencies such Bitcoin and Ethereum are completely digital and decentralized in nature, so their use for overseas money transfers makes perfect sense. This, though, will be the case when cryptocurrencies are used widely, and there’s no need to convert them to mainstream currencies.
Blockchain’s Wide Reach
Of the U.S. $570 billion that moved across borders as remittances in 2016, around U.S. $429 billion was sent to third-world countries in parts of Africa, South America, and Asia. A problem that blockchain can effectively address in these regions is that of people who remain unbanked. This is because while access to conventional forms of banking remains a problem, mobile phone access has become rather prevalent. Besides, since blockchain has the ability to make international remittances safer and more cost effective, it will find increased acceptance globally.
How is Blockchain Safer?
Banks and international money transfer companies operate in a centralized manner, which makes them susceptible to cyber attacks. Blockchain technology, on the other hand, is completely decentralized. A unique entry marks every transaction in a digital ledger that cannot be tampered with in any way. While blockchain has encountered some problems in the past, they have predominantly been user-generated, and have been addressed in quick time.
The New Players
Until MoneyGram and Western Union announced that they will test Ripple’s blockchain technology to carry out overseas money transfers, none of the older companies seemed open to integrate this technology into their existing operations. Some of the new players that are relying on blockchain technology to carry out overseas money transfers include: