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Blockchain-based Mobile Payments Aim to Boost International Remittances

By Tim Moran

International remittances to low- and middle-income countries reached a record high of $529 billion in 2018, according to the World Bank. It went on to say remittances to those countries are expected to reach $550 billion in 2019, becoming their largest source of external financing.1 Meanwhile, a June 2019 Juniper Research analysis suggests that the combination of blockchain remittance platforms and surging mobility—mobile payment systems are expected to account for 41 percent of international remittances by 2024—will help lower the high cost of sending international remittances.2

While viewed as progressive and unreliable in some other markets, blockchain shows real potential regarding international remittances, Juniper wrote in its report, partly because the basic concept of blockchain is similar to the general innerworkings of international money transfer. Given the similarities, blockchain deployment seems suited to the task, and new blockchain-based services from fintechs promise lower-cost remittance services, pushing traditional providers to adapt.

 

By utilizing a blockchain-powered network for international remittance, operators should be able to offer customers a faster, cheaper, and more transparent service, contends Juniper. Several new solutions appear set to transform the area by connecting diverse sets of partners in different markets to enable more effective payments. But to succeed, blockchain platforms must focus on gaining as many partners as possible to increase the reach of their networks, according to the research firm. This is an opportunity for traditional money transfer operators to change the way they operate, reorienting their business models around the benefits blockchain enables.3

 

Disruption in Mobile Payment Systems

 

The financial industry, experts say, is already aware of blockchain’s disruptive potential—and there are multiple reasons such disruption seems inevitable. Blockchain promises a more secure way of saving and securing data, which can cut down on fraud, and it can also cut down on transaction times and processing fees.

 

As explained by Kevin Rands, founder of Disruptor Daily, “Our current financial system relies largely on wire transfers, which are backed by traditional banks and other financial institutions. It’s a reasonably good system, but one of the problems with it is that it takes time to process transactions. Blockchain-based mobile payment systems companies can outmaneuver traditional wire transfer companies by offering a fast, cheap, and secure system to transfer money from one part of the world to another.”4

 

Emerging Technologies are Changing International Remittances

 

In a recent keynote address at a launch ceremony for international remittances through blockchain technology, Tariq Bajwa, Governor of the State Bank of Pakistan, spoke about emerging technologies and how they could reshape the way financial services are delivered to ordinary citizens.

 

Bajwa said, “The ubiquitous proliferation of mobile devices and enhancements in tele-density is now enabling customers to demand services not just on their doorsteps but from the comfort of their living rooms.… Blockchain will introduce a new era of disintermediation leading to openness, decentralization, and global inclusion that will give us unprecedented capabilities of efficiently creating and trading value in society.”5

 

Blockchain-Based Remittance Services Would Cut Intermediaries

 

Blockchain technology is the foundation for cryptocurrencies, such as bitcoin. The decentralized nature of bitcoin is the basis for much of its growing popularity.6 Cross-border remittances using blockchain technology are similarly decentralized and aim to enable both the sender and recipient to know exactly where their money is. They also aim to minimize lags during the transfer process because the decentralized blockchain technology effectively removes intermediary banks and provides guaranteed, real-time transactions across borders.7

 

Today, sending remittances usually involves a network of correspondent banks or specialized money transfer services. There may be multiple intermediary banks in between any given sender and recipient, each one of which takes a portion of the fee.8

 

The World Bank found that fees average nearly 7 percent of the amount sent.9 Blockchain platforms promise to reduce those fees and transfer international remittances more quickly.

 

Blockchain Remittance Services No Panacea—Yet

 

Not everyone is quite so sanguine about blockchain as the mobile payment system for international remittances. Blockchain systems for interbank clearance and remittance might not be as efficient as centralized systems—at least not yet, according to an analysis in Chinese released by the Central Bank of Taiwan and reported in English in Coindesk.10 Based on a proof-of-concept utilizing distributed ledger in interbank remittances, initial results suggest that the distributed system, so far, is not as efficient as the existing centralized Automated Clearing House (ACH) system already in use in Taiwan.

 

But because blockchain technology is still at an early stage and is developing rapidly, the Taiwan central bank doubled down on its commitment to widen efforts to conduct more testing with the clearing house and financial institutions.

The
Takeaway:

With international remittances in low- and middle-income countries becoming their largest source of external financing, finding quicker, safer, and cheaper mobile payment systems would be a boon for them. By tapping into blockchain-powered networks for mobile payment systems, operators can provide that boon. Blockchain is still in an early development stage, however, and, to succeed, blockchain platforms are seeking as many partners as possible to increase network reach.

Tim Moran - The Author

The Author

Tim Moran

Tim Moran is a veteran business-technology journalist. He has most recently been involved in brand publishing startups, including creating CMO.com for Adobe.

Sources

1. “Record High Remittances Sent Globally in 2018,” The World Bank; https://www.worldbank.org/en/news/press-release/2019/04/08/record-high-remittances-sent-globally-in-2018
2. Why Blockchain Will Revolutionise Money Transfer, Juniper Research; https://www.juniperresearch.com/document-library/white-papers/why-blockchain-will-revolutionise-money-transfer
3. Ibid.
4. Ibid.
5. “Keynote address by Mr. Tariq Bajwa at launching ceremony of international remittance through block chain technology,” Bank for International Settlements; https://www.bis.org/review/r190115b.pdf
6. “Blockchain the future for remittance payments?” Deutsche Welle; https://www.dw.com/en/blockchain-the-future-for-remittance-payments/a-42375862-0
7. “How blockchain could change the global remittance industry,” BankingTech; https://www.bankingtech.com/2018/06/how-blockchain-could-change-the-global-remittance-industry/
8. Ibid.
9. Remittance Prices Worldwide, The World Bank; https://remittanceprices.worldbank.org/sites/default/files/rpw_report_june_2019.pdf
10. “Blockchain Remittances Face Efficiency Hurdle, Says Taiwan Central Bank,” CoinDesk; https://www.coindesk.com/blockchain-remittances-face-efficiency-hurdle-says-taiwan-central-bank

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