After the popularity of AI (Artificial Intelligence); the fintech sector is turning towards cryptocurrencies and their underlying blockchain technology. Blockchain, a type of distributed ledger technology (DLT), has the potential to completely transform any established financial institutions with lower expenses, faster payment execution, enhanced transparency, and verifiability of transactions.
In today's financial world, the word remittance is frequently used across the globe. Cross-border payment transactions between an immigrant and his or her native country are referred to as the remittance economy. In many developing countries, it is the source of economic growth and an important part of the nation's Gross Domestic Product (GDP). By 2026, the size of the global digital transfer market is expected to reach $33.9 billion, which is estimated to increase by CAGR of 17.2% in the predicted period.
Currently, a cross-border payment is very expensive and tedious process that can involve a few people on both sides of the transaction. The high fee for international bank transfer led the UN (United Nations) to set up a Sustainable Development Goals 2030 target to reduce migrants' transaction costs to under 3% of their current estimated average of 7.1%. The high fee can be linked with the presence of multiple players in a foreign fund transfer, including the source bank, the central bank, corresponding banks, and the target bank. Every bank along the road charges an amount for the services making the process a lengthy one.
Blockchain technology makes this process faster and more efficient enabling the transfer of money without the involvement of any third parties. Cryptocurrencies carry the possibility of creating a new native digital asset market that is decentralized. Imagine sending money to the family in the home country to be as simple as sharing a photo on an instant message. Major players in the finance sector consider blockchain solutions to soon offer the preferred user experience.
What is Blockchain Remittance?
Blockchain remittance is a financial system that integrates blockchain technology with the diverse requirements of cross-border payments. In contrast to the traditional international remittance methods, blockchain remittance doesn't depend on centralized institutions such as payment systems, currencies, and banks. Rather the transaction happens between the two parties with a mobile wallet or a bank application and blockchain network as the only mediators.
This is a chance for traditional transfer payment operators to adapt and reorient their business models with blockchain advantages.
The Blockchain Remittance Advantages
Here are three prominent benefits of blockchain remittance as a replacement to the traditional remittance routes:
Although the remittance transactional value is likely to exceed trillions of dollars over the next few years, the conventional methods lacking advanced infrastructure are still in use. In most circumstances, a regular transaction might take up to a week due to several mediators and verification processes causing delayed transactions. People are not ready to wait for such a prolonged timeframe to send and receive funds from overseas.
Blockchain eliminates the various intermediaries involved in conventional transfers of cross-border money and permits the transmission of real-time money between two parties. Funds are sent directly from bank A to bank B using blockchain, which eliminates the requirement of any additional banks thereby cutting the processing time.
Banks are usually not directly associated with different countries and are bound by in-country regulations. Therefore, an indirect transfer can only be made possible by one or more intermediary banks. The bank charges an intermediate fee, normally subtracted from the entire amount of the transfer. Another layer of transaction cost is added due to the currency exchange.
International remittance fees normally range from 5% to 20% of the transaction amount. Blockchain can cut the overall cost of the transaction by around 2% to 3%.
The blockchain encryption feature ensures the safety and a public audit path that is easy to verify. Better safety means fewer financial crimes and fraud that are widespread in traditional banking, increasing the regulatory costs to be borne by the customers subsequently. By implementing blockchain-based smart contracts, banks can help consumers save up a lot in additional charges.
The Way Forward
The implementation of blockchain solutions for international remittances is beneficial for both customers and banks who are early adopters of this tech-innovation. Customers will enjoy faster and secured settlements with blockchain remittance and banks will reach underserved markets while also reducing operational expenses connected with traditional international payment system.
Panamax's MobiFin International Remittance solution enables you to implement national and international remittance via a cost-efficient and cashless model. It's simple to integrate with international remittance providers like MoneyGram, Western Union, and RIA, among others. To meet statutory obligations the system also provides full traceability and transparency as well as integrated KYC and anti-money laundering functionality.