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By definition, remittance is the sending of money to a recipient at a distance. Global remittance is a process that is done every day as money is sent across borders, it is one of the largest financial inflows to developing countries.
The process for migrants to send money to family and friends in their original countries has become easier in our interconnected, globally nomadic, and technologically innovative world. Global remittance contributes to income generation capabilities of many developing nations, spurring economic growth, increasing aggregate demand, reducing income inequality, and ultimately helping shape national GDPs.
The global remittance environment will require a significant boost in the coming years. This growth will be backed by a rise in global migration, an increase in the global refugee population, urbanization, and a positive economic outlook. Additionally, the advent of financial technologies, allowing people to send and receive money seamlessly no matter their location, will serve as the backbone of the next generation of global remittance ecosystem.
Statistically, the remittance market did not see a huge rise between 2015 and 2016, but bounced back in 2017. According to the World Bank, remittances to low and middle-income nations hit $466 billion in 2017, representing an 8.5 percent rise from the 2016 figure of $429 billion. On a global scale, the entire remittance market also grew from $573 billion in 2016 to $613 billion in 2017, a 7 percent increment over a one year period. This growth is expected to continue and would reach $642 billion with a 4.6 percent increment by the end of 2018 according to the Bank.
Issues With the Current Remittance System
The mobile money market has quickly grown, and although global remittance provides many benefits, the entire ecosystem has a lot of challenges. Many countries place heavy restrictions on global remittances in their quest to check money laundering and financial crime; this ultimately hinders economic growth and income generation capabilities of many developing nations.
The ecosystem also suffers from high costs of sending and receiving money. The average cost of sending $200 in Q1 2018, according to the World Bank, stood at 7.1 percent, double the 3 percent mark set by the Sustainable Development Goals. Regional-wise, Sub-Saharan Africa bears the most costly remittances globally, with the average cost of sending money in the region surging to 9.4 percent. A report by the World Bank blames the high cost on special engagements between national institutions and money transfer companies, as well as banks.
On a more serious note, global remittance is rife with security problems, issues of centralization, and legal glitches. These issues prevent the industry from innovative, real-time, and secure payment processing solutions. Swift, which is an example of a centralized system, is held by 11,000 banks and processes over half of the global cross-border transactions. To undertake global payments, it requires participating financial institutions to have prior agreements – stifling seamless global payments.
Cryptocurrencies and Blockchain as a Solution
Blockchain technology is an important innovation that would be used to build decentralized payment solutions for a global audience. At the Money 20/20 conference in Singapore last year, where players in the payment industry gathered to share ideas, the managing director of the central bank of Singapore made it clear that the best use of the blockchain is to “facilitate” global settlements. Additionally, Swift has also said that the blockchain would be an ideal solution to cross-border payments, though further work would be needed. But cryptocurrencies are bypassing the slow inefficiencies associated with government and are have quickly become the means for remittance for many.
Bitcoin is “money for the internet” it does not belong to one single country and is not restricted by national borders. Moreover, cryptocurrencies do not subscribe to exchange rates, as they are globally accessible. This lack of restrictions means that the high costs of global remittances, which stems mainly from exchange rates and cross-border transaction processing would be eliminated.
Cryptocurrencies are equally not tied to any financial institution and are thus decentralized. Therefore, they are capable of bypassing many issues that fiat currencies face, including corruption, inflation, the collapse of a major financial institution, and economic crisis. Blockchain technology’s features provide secure payment means, and since they are pseudo-anonymous, this makes them ideal in preventing digital identity theft.
Crypto-base remittance is already here
The ability of cryptocurrencies and blockchain to power international remittance is already happening. Though the network is still facing some scalability issues, Bitcoin has proved over the years to be a reliable, low-cost means of sending money across the globe, helping relieve many of the current problems.
Beyond Bitcoin, many platforms and cryptocurrencies have also created better global payment solutions than current systems. BitPesa, available in Ghana, Kenya, Nigeria, Senegal, Tanzania, Uganda, and the Democratic Republic of Congo, is already providing near-zero, low-cost, and daily transaction processing for the African and global markets. Ripple is another global payment giant and digital currency that is using its cryptocurrency and blockchain to provide secure and real-time international payment processing. Today, Ripple has many partnerships including Coinone, Santander, MoneyGram, American Express and over 15 banks.
As the market grows, many other cryptocurrency platforms are creating cheaper, more secure, and robust global remittance payment systems. An institution such as XinFin is creating an ecosystem for near-zero, secure global transactions that does not just use cryptocurrencies alone but blends with fiat currencies. It allows users to store both fiat and crypto on its XDC Wallet, enabling the integration of blockchain-based systems with traditional business processes for cross-chain transactions both for the individual and the business.
The Future of Global Remittance & Cryptocurrencies
According to the Global Financial Inclusion database from the World Bank, about 2 billion people do not have access to a bank. High costs, regulations, and a cumbersome process exclude many from participating in the financial sector.
The unbanked lack of access to financial planning resources, face income inequality, and increased poverty, especially in developing nations. These groups would benefit the most from the power of the blockchain. Cryptocurrencies would drastically reduce the cost of global remittance to enable the average Joe to send and receive payments anywhere, anytime, at a comparatively cheap rate.
This development will not just create a level playing field for all; it will take power away from the select few payment platforms. When these 2 billion people gain the ability to participate in the global economy – the method of value transfer will quickly shift.