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Using Fintech to Improve Global Remittances, a Lifeline for the World’s Poor

When fully developed blockchain will be an enormous boost to the economy, one area where it can make a significant difference in the immediate future is the global remittance market.

When fully developed blockchain will be an enormous boost to the economy, one area where it can make a significant difference in the immediate future is the global remittance market. Remittances, or what is commonly known as money or goods sent by migrants back to family or friends in their origin countries, exceeded $680 billion in 2018.

The Remittance Market by the Numbers

According to data from the World Bank, the top 5 remittance-receiving countries are expected to be India (US$80 billion), China (US$67 billion), Philippines (US$34 billion), Mexico (US$34 billion) and Egypt (US$26 billion). Pakistan saw $20 billion in remittances last year, which is not much less than all the country’s merchandise exports.

In addition, for five countries remittances from citizens abroad are equivalent to a quarter or more of all economic output (as measured by gross domestic product). Nepal received an estimated $6.6 billion in remittances, equivalent to 31.3% of its GDP, according to a Pew Research Center analysis of World Bank data for 2016. Kyrgyzstan, also in Central Asia, received nearly $2 billion in remittances, equivalent to 30.4% of GDP; neighboring Tajikistan received about $1.9 billion (equal to 26.9% of GDP). Remittances from abroad also equaled more than a quarter of GDP for Haiti and Liberia; in nine other countries they were equivalent to between 15% and 25% of GDP.

At the moment, much of the money transferred is not going to family members, but in the pockets of banks and service providers. For example, the fee for sending $200 is about 7.2%, or as much as 9.1% if the money is going to Sub-Saharan Africa (and that ignores the exchange rate). The United Nations has declared the goal for remittance providers should be 3%. Another report by the World Bank blames the exorbitant fees on nervous banks scared of infringing anti-money-laundering and know-your-customer regulations and arrangements between money-transfer agencies and national post offices.

Blockchain and the Growth of WorldRemit

Blockchain is already deeply involved in this space. Ant Financial, an Alibaba affiliate, has inked 49 blockchain patents, more than any other company anywhere. Ripple has also made partnerships in this space and claims that 100 financial institutions worldwide are committed to deploying his firm’s blockchain technology. Western Union has also explored blockchain.

SWIFT, a Brussels-based service owned by 11,000 banks that handles more than half of all cross-border interbank payments, said more improvements were needed to actually deploy blockchain in large-scale, mission-critical global infrastructures, although many believe the service will eventually use the distributed ledger technology.

Without use of the blockchain, WorldRemit, a London startup, recently raised $175 million in a Series D round bringing the companies total valuation to $900 million, according to Tech Crunch. The company focuses on individual transfer through their app -using the phone as a substitute bank account – to enable quick money transfers from abroad back home and it now covers around 50 send countries and 150 receive countries.

“For more than eight years our core purpose has been and continues to be to help migrants send money to their families, friends and communities,” CEO Breon Corcoran said in a statement. “Our customers play a key role in the economies where they work and their remittances are important to their home countries. Our mission is to help them transfer money as securely and speedily as possible while reducing the cost to our customers. We will grow our business through differentiation on speed, service, security and value.”

The company has said it will use these funds to fully develop their remittance service for small to medium-sized business owners. At the moment, WorldRemit uses Swift to make their transfers happen, but they have been monitoring blockchain closely.

“We are working on a number of things but I can’t tell you too much,” Catherine Wines, co-founder and director started at a fintech conference in Uganda in late 2018. “We are monitoring this area but not doing anything for the moment,” she said.

In the same interview, Wines outlined hurdles ahead for developing fintech companies looking to shift the paradigm with blockchain. She explained the confabulation between bitcoin and blockchain technology in many developing countries stressing the fact that many operators do not want to change as they make money hand-over-fist by exploiting inefficiencies in the value chain.

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