Page 12 - EngineerIT December 2021

ICT BLOCKCHAIN

Blockchain and the future of

remittances

By Ramtin Mesgari, Synthesis Software Engineer

very year, hundreds of billions of dollars are sent across borders by emigrant workers This is precisely how the traditional
who have moved away from their home countries. Global remittances in 2018 alone remittance payments can benefit from
Etotalled over $600 billion and the number of migrant workers continues to increase blockchain technology. Traditionally,
every year. And yet, migrant workers who leave their homes are never able to send the full remittances are not transferred directly
amount to their families – or even close to the full amount. The estimated transfer charges from remitter to the beneficiary in a
to facilitate cross-border payments amounts to 7%, with many African countries charging single-step process. Rather, remittance
fees over 30%. payments tend to follow a multi-step
Crypto assets, however, are not restrained by country borders and can allow for process like this:
money to be transferred with minimal costs. In the case of the Bitcoin network, the less 1. The remitter communicates with the
congested it is, the cheaper it is to send money to another party (regardless of geography). local bank to which he/she wishes to
The fee in this case does not depend on how much is being sent but rather on the data make a cross-border payment;
size of a transaction and the network conditions at the time. 2. The local bank transfers the money to
This isn’t an attempt to posit Bitcoin as a solution to remittances, because it – along an intermediary bank;
with most crypto assets – is extremely volatile; and with its volatility comes unexpected 3. The intermediary bank transfers the
spikes and drops in transaction fees as well. Rather, the attempt is to highlight the money to the beneficiary’s bank;
potential in the future of remittances. 4. The beneficiary’s bank finally transfers
Using traditional methods of making cross-border payments are extremely costly, the money into the beneficiary’s
especially for lower-income migrant workers. The average cost of sending money from account.
the US to Mexico is $8.91, from Germany to Turkey it’s $12.83, and from South Africa to
Botswana it’s $36.60. But if you were to use the Bitcoin network as it currently stands, the At every step of this process, the
transaction fee, regardless of location, is under $3. intermediaries will all charge a service
At the very least, if the blockchain revolution doesn’t solve this issue, it will fee for processing the transaction. If
yield enough competition in the industry that will result in the indirect disruption of one were to conduct the same process
remittances. through a blockchain, the money would be
transferred directly from the remitter to
Blockchain as a solution the beneficiary in a single-step process –
Blockchain is often presented as a solution to the traditional banking process because thus greatly reducing fees.
it cuts out the intermediary stages in a value transfer. The best implementation of what
a blockchain can truly achieve is in the form of smart contracts. A smart contract self- Blockchain versus traditional banking
executes an agreement between two parties without the need for a central authority, Once crypto assets become inter-operable
while still complying with regulatory processes. and integrated into the traditional banking
world, we can expect their prices to
stabilise and their usages to provide a
viable solution to remittances.
With smart contacts, the existing
financial systems can be simplified by
embedding banking protocols, validation
processes and data verifications to
enforce the legitimacy of a transaction.
On top of this, banks and financial
institutions must comply with regulations
such as Know Your Customer (KYC) and
Anti-Money Laundering (AML). In this
regard, smart contracts again prove they
https://www.blockchain.com/charts/fees-usd-per-transaction can be a benefit to banks.

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