The international remittance market has witnessed significant changes over the last couple of decades, mainly because of the arrival of several FinTech companies. Now, it appears that blockchain is also making inroads in this seemingly lucrative realm.
In 2016, more than U.S. $570 billion was sent across borders as remittances. Surprisingly, three of the older overseas money transfer companies still dominate this field, accounting for around 25 percent of the market share between them. Incidentally, two of them are already looking at what blockchain has to offer.
Some prominent overseas money transfer companies have expressed interest in the Ripple payment protocol and exchange network provided by Ripple Labs Inc. In early 2018, MoneyGram became the first big name to announce a tie-up with Ripple, and Western Union did not take long to follow suit. InstaReM and BeeTech announced their tie-up using Ripple’s technology by mid 2018.
Ripple has partnered with more than 100 financial organizations from the world over. Some of them include UBS, American Express, Royal Bank of Canada, Crédit Agricol, the Japan Bank Consortium, IndusInd Bank, Itau Unibanco Holding SA, and National Bank of Abu Dhabi.
International money transfer companies may look forward to multiple benefits by adopting blockchain technology. The move will also be beneficial for people who use their services.
- Lower costs. Data suggests that the average cost of sending money through an online money transfer company is around 5.7 percent lesser than turning to a bank. Only, even the online companies depend on banks to function as intermediaries. Blockchain-based cryptocurrency transfers can eliminate the need of banks completely, thereby further reducing transfer costs.
- Quicker turnaround times. A cross-border money transfer carried out through a bank may take days to process. While online money transfer companies tend to process transfers faster than banks, they still rely on factors such as where you and the recipient live as well as payment and transfer methods. A blockchain-based transfer, on the other hand, may process in near real-time.
- Wider reach. Under banked populations in parts of Africa, South America, and Asia often face challenges when sending or receiving money to or from foreign countries. They typically have to depend on companies that have cash pickup locations, and end up paying steep fees in the process. Given the widespread usage of mobile phone even in these areas, they might benefit significantly by turning to cryptocurrency-based digital wallets.
Are There Drawbacks?
If you have never dealt with cryptocurrencies in the past, you need to spend some time to understand how they work. Regulatory guidelines surrounding cryptocurrencies are in the nascent stages, so it is best to err on the side of caution. Exposure to currency conversion twice is another possible con. For example, if you need to send money from the U.S. to the UK, you will need to purchase a cryptocurrency using U.S. dollars. The recipient will then need to exchange the cryptocurrency for pound sterling.
Like various other fields, the world of overseas money transfers also stands to benefit by adopting blockchain technology. While some of the big names have already put the technology through a testing phase, it appears that more will hop on the bandwagon in times to come.
Jon works as a researcher with iCompareFX. The website gives its users easy means to compare top overseas money transfer companies from different countries, while also giving them access to promotional offers and in-depth reviews.