The remittance industry is not a new customer of disruption. From the early days when the Chinese used ‘flying money’, paper vouchers issued by traveling businessmen to merchants to protect themselves against robbery, to today’s blink-of-an-eye instant money transfers across geographies; money transfers have come a long way. Along the way, disruptors such as mobile money, money transfer through social media, online money transfers and other pathbreaking disruptions have constantly reshaped the money transfer space. In fact, the remittance industry is often one of the earliest adopters of innovation in the financial services sector. Now, there is a new agent of disruption, with one foot in, on the doors of this industry; and this one is probably going to be one of the most transformative ones – Blockchain Technology.
Yes, you have been hearing about how blockchain is mutating every aspect of every industry; but its impact on the remittance industry is expected to be seismic. Simply put, a blockchain is a type of distributed ledger that keeps continuously updated digital records of transactions. Before we get into the details of the blockchain makeover that the remittance industry is gearing up for, we must understand the reasons behind adopting any new technology in the context of money transfer. One of the main aspects that defines a good medium of remittance is transportability – how effective is it to transfer money from here to there. Over the years, the industry has evolved with cutting edge technology to continuously advance the way this is done. New technologies have always helped money transfer operators to reach previously unserved populations, making it more convenient for the sender to send money and for the receiver to receive the money sent. Cutting the costs to send money is also a major aspiration for the industry. Above all, a new technology should offer a more secure platform than its predecessor. For a technology to qualify for adoption, it must fulfil the above requirements. So, does Blockchain meet the demands of transformation?
Safer, more secure
Blockchain, by far, is one of the most transparent platforms for payment transactions. A transaction once recorded on a blockchain’s distributed ledgers cannot be edited or deleted; and the record is instantly available to all users on that blockchain. This level of transparency effectively mitigates the risk of fraudulent transactions. Blockchain poses a highly impenetrable fort to hackers and fraudsters. The technology will offer a more secure platform for future money transfers.
Simplified process, faster delivery
By removing multiple parties, steps and processes from the transaction process, Blockchain offers a straightforward remittance process. Blockchain, being a public ledger that updates in real-time with every transaction, follows a simple transaction formula, which is time tested. With blockchain technology, instant money transfers are being redefined. Transfers on the blockchain platforms are almost instantaneous. While this is fabulous news for customers, who experience a whole new era of convenience, it’s great for businesses too. With a simple process and fast transfers, businesses can do more with the time they save and manage their transactions better.
Cost of transfer
In the present scenario, the remittance process is carried out through various models – pre-fund, post-fund and subsidy models. In the pre-fund model, which works on a corridor basis, sending agents can settle the amount with the beneficiary agent quickly, which allows the beneficiary to receive funds in short time. In the post-scenario, the receive bank settles with the beneficiary and later settles with the sending bank or operator. These complex models are one of the main factors that increases the cost of money transfer. By removing these intermediaries, blockchain technology has the potential to drastically reduce the cost of sending money.
Reaching the underserved
With minimal legacy infrastructure in place, in certain regions of Africa and Asia, businesses and individuals find it hard to connect to the global business environment. Remittances sent from abroad play a crucial role in the economies of many of these countries. Blockchain technology can help Money Transfer Operators offer new remittance products to the underserved populations around the world and, in the long run, connect them to the global economy.
Blockchain technology is still in its early days in the remittance sector. Many businesses and governments are still reluctant due to the uncertainty of people foregoing traditional money transfer processes. Another challenge, or opportunity, in the advent of blockchain technology is regulations. For blockchain remittances to become a global norm, governments around the world will have to rapidly make amendments to their current regulatory framework. Fortunately, the UAE government is quite positive about the adoption of blockchain technology in various sectors of government and business. This is a whole new world of money and payments that we are hoping to adopt, and like any other major transformation, this one too requires critical and creative thinking and timely actions by all stakeholders involved. Large players need to collaborate with fintech startups that are driving the blockchain revolution so that the transformation is all inclusive. Blockchain technology can transform the remittance industry, in a way that greatly benefits customers and businesses. All we need to do is take the right steps, in the right direction.
Written by – Arundhoti Banerjee, Associate Vice President & Head – Business Strategy & Digital, Xpress Money. (This article was earlier published in ITP.net)