Can Bitcoin Put Billions Back In The Pockets Of Migrants?

The search for sustainable opportunities has led human beings to migrate since ancient times; the present day is no different. People from across the world travel or migrate to different parts of the globe to work and support their families back home.

More than 250 million people, or 3.6% of the world’s population, are international migrants.

These migrants toil hard by overcoming multiple barriers, such as language, culture, and separation. However, there is yet another burden that falls on them, and it is the fee – exorbitant in certain cases – which is charged while remitting money to their families. Can bitcoin and its underlying technology, the blockchain, save billions of dollars for migrants?

Volume & Cost of Remittances

In 2015, international migrants remitted an estimated $600 billion to their families in their home countries, with 72% of it directed towards developing nations.

As per the World Bank’s report on cost of remittance services, the global average cost for sending remittances was 7.5% during 2016 while this figure was as high as 17.88% in South Africa, 11.7% in Japan, 9.52% in Australia, and 10.31% in China.

Among the various instruments used for making international remittances, bank account transfers remained the most expensive option at a global average cost of above 8%.

A transfer of $250 would cost a migrant about $18.75 at the global average rate of 7.5%. Considering that many of these migrants belong to low-income categories, this cross-border payment charge amount is a huge financial drain.

The World Bank has been working to address this problem, and has managed to bring down the cost of sending remittances over the years which has translated into savings of approximately $42.48 billion from 2009 to 2013 at the global level. However, much still needs to be done.

The global payments ecosystem is complex, moving through multiple layers of internal books across financial institutions resulting in procedural delays and settlement time. Cross-border payments involve a significant infrastructure cost for banks in the form of liquidity costs, back-office operations, currency hedging, and regulatory compliance costs. A recent Accenture report noted that successful adoption of blockchain technology could result in an annual cost savings of around $12 billion.

Bitcoin & Blockchain

The revolution brought about by bitcoin and blockchain is giving an alternate to remittances, which has been dominated by big banks, and money transfer operators (MTOs) such as Western Union and MoneyGram.

Bitcoin exchanges and start-ups, mostly in developing nations, are offering faster and cheaper alternatives to international bank transfers. Driven by the fundamental need to stay competitive, even traditional banks are exploring this technology to reduce high costs and offer faster and lower fee payment services to clients.

In November, South Korea’s Shinhan Bank, in collaboration with Streami, announced the launch of a Bitcoin remittance service between Korea and China. The movement of money in bitcoin will be initially routed via Hong Kong until the use of digital currency becomes legal in South Korea which is expected to happen sometime in this year.

In May 2016, Santander became the first UK-based bank to introduce blockchain technology for around-the-clock international payments with the launch of a new app for payments between £10 and £10,000. The app was rolled out as a staff pilot and is powered by Ripple.

Ripple provides an alternative, low-cost remittance option that enables banks to send real-time international payments across networks in a transparent way with delivery confirmations. Ripple's global network includes 15 of the top 50 global banks.

In India, ICICI Bank executed a pilot transaction in remittance via its blockchain network with Emirates NBD on a custom-made blockchain application in October 2016 while in early 2017, AXIS Bank announced that it will be using the blockchain technology for facilitating a faster and affordable remittance channel.

Even the United Nations is exploring bitcoin and blockchain for remittances in specific regions. A UNDP blog reads, “In Serbia, we’re working with superstars from AidTech (to reduce fraud in cash transfers for refugees) to design a proof of concept for remittance transfers over blockchain that would be cheaper (in looking to cut out an intermediary a la Western Union) and targeted toward specific needs (think using remittances to pay energy or phone bills and purchase food).” It further says that “blockchain could provide a more effective way of transferring and tracking funds.”

Final Word

Although there are multiple regulatory and legal issues that need to be resolved for a full-scale adoption of bitcoin and the blockchain, these revolutionary technologies are forcing traditional players to turn innovative and bring down the costs of remittance. Thus, bitcoin and blockchain will benefit migrants across the world by paving a way to a road that needs to be traveled sooner than later.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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