Money transfers, in essence, are transfers of finances from one country to another, most often by individuals. The most common example is an immigrant sending money to his homeland, but recently there have been situations when remote workers from less developed countries receive payments from companies from more developed countries for which they work remotely.
According to World Bank reports, such transfers already exceed foreign investment and various types of material development assistance. For example, in 2018, the share of such transactions from the total number of incoming finances amounted to approximately 9.6 percent.
For some countries, however, this figure is even higher, since their own economy is at a rather low level, and the number of migrant workers is unusually high. A good example of this is Haiti, where in 2018 the share of private international transfers amounted to about 30.7 percent of the country's GDP.
What is the problem?
According to the World Bank, on average, when sending a small money transfer (within $ 200), the commission is about 7 percent. And considering that in 2018 the total value of such transfers amounted to 689 billion dollars, the intermediaries were able to enrich themselves by almost 48 billion. A very large amount, especially for developing countries.
The second problem is the need to use the services of third parties. Simply put, if a migrant from Africa wants to transfer money home, then he will be forced to use not only the services of the bank in the country where he lives now, but also an intermediary in the one where he transfers the money. All of them not only take their part of the commission, but also require a certain amount of time to confirm the transactions. In the worst case, up to several weeks.
Not to mention the fact that in developing countries intermediaries can dictate their terms to users, taking advantage of the complete lack of competition from the outside and the regulation of antitrust services.
Obviously, the use of decentralized financial systems based on the blockchain can seriously improve the current situation.
Why blockchain can be a solution to a problem
The problem with transaction speed is solved automatically - there are no unnecessary confirmations and approvals. Of course, this means that any translation will be irreversible, but for many, this is an acceptable risk. Plus, everything runs without the participation of human operators, so the speed of such transactions is extremely high.
The absence of operators and intermediaries automatically means that the cost of such transactions will be significantly lower. In addition, the risk of abuse of authority by local intermediaries is reduced. So in general, the main problems of international money transfers are eliminated.
How can this be done?
Mobile applications. A great way to work without bank accounts and cooperation with intermediaries. If all the necessary information is in the client’s personal wallet on the phone — he will be able to manage his digital assets anywhere in the world without any problems - he just needs to have access to the Internet. An example of such an application is Coins.ph, which allows you not only carry out international transactions, but also buy some digital currencies and pay bills.
- Digital platforms. Illustrative examples are BitPesa (2013), which provides users from Africa with the possibility of exchanging crypto for fiat, albeit through the mediation of traditional financial systems, and the Stellar protocol (2014), which provides crypto transfers and conclusions around the globe. And despite the fact that they still have to work with local financial institutions, their transactions are much faster and cheaper than with traditional transfers.
- How can this be done?. Fully automated system. There is a global network, there are specific access points to it. The course is calculated automatically. Such ATMs are produced by Bit2Me and MoneyFi. It is extremely convenient for countries where there are big problems with the Internet and traditional banks.
Possible difficulties
- Crypto fiat exchange. The global economy is still sceptical about cryptocurrencies, preferring to work with a more stable and predictable fiat. And surely in third world countries too. Therefore, users have to look for ways to exchange cryptocurrencies for the currency operating on their territory. Peer-to-peer networks in this, however, can help.
- Network access. In developing countries, access to the Internet is more a luxury than a common phenomenon. However, stable access points, such as ATMs connected to the blockchain, solve this problem.
- Legal regulation. Few countries in the world have succeeded in regulating the cryptocurrency market. Not to mention the fact that in some places this is strictly prohibited. So users have to interact with cryptocurrency at their own risk, not being able to seek help in case of cheating or fraud.
- Technical difficulties. In developing countries, many people are not even able to use simple smartphones. And cryptocurrency is, nevertheless, an asset for those who are a little versed in the economy and digital technologies. Not to mention the fact that many cryptocurrency exchanges were created by enthusiasts for enthusiasts, therefore they are quite complicated for everyone else.
- Instability. High market volatility does not allow to accurately predict the value of each particular cryptocurrency. You will never say how many tokens exactly will be needed to pay a standard rent, for example. The same goes for cash transactions. However, stablecoins tied to real assets help to solve this problem.
Due to the increase in the number of migrants and the more active use of distance workers from developing countries, the number of international transfers will increase further. And blockchain technology provides users with an effective, faster and cheaper alternative to interact with traditional banking structures. In case if it will deal with the possible practical difficulties of its implementation, of course. However, experts are optimistic about this.