How cryptocurrency will revolutionize remittances
Imagine you're a migrant worker in New York, and you need to send money home to your family in The Philippines. The traditional process involves locating a money transfer operator such as Western Union, paying in cash or card, and then waiting for days, even weeks, for the money to arrive. It's a system fraught with barriers and intermediaries resulting in high fees, long delays, a lack of transparency, and limited accessibility for recipients in hard-to-reach areas. This is the reality for many people sending international remittances daily.
What many don't understand is the sheer scale of remittances. In fact, over 200 million migrants send remittances to family back home, with remittances serving as a vital source of income for hundreds of millions of people in low- and middle-income countries. In fact, in 2022, $626 billion in remittances were sent around the world, with an estimated 800 million people worldwide being supported by remittances.
What's wrong with traditional remittance systems?
Let's go back to our friend in New York. Each Sunday morning, they head to their local money transfer service, only to be hit with massive fees, long wait times, and outrageous exchange rates that eat into their hard-earned cash. This is the reality of traditional remittance systems, with average fees of 6% on a $200 USD transfer, or about 3.5% for mobile transfers, although these fees can vary drastically. Despite mobile transfer fees being lower, less than 1% of remittances are done through digital channels.
But it's not just the fees and time that are the issue. There's also a lack of transparency. It's often unclear how much the recipient will actually receive due to fluctuating exchange rates and hidden fees. Plus, many people in developing countries don't have easy access to banking services, making it even harder to send and receive money. The remittance system, as it stands, is riddled with pain points, largely effecting the financially underserved and unbanked.
How cryptocurrency can revolutionize remittances
Imagine a world where our friend in New York no longer had to wait days for the transfer to go through, didn’t have to pay exorbitant fees, and didn’t have to stress about fluctuating exchange rates and hidden fees, given them confidence in knowing exactly how much money their family would receive back home. This is the world of remittances that cryptocurrency promises. By leveraging blockchain technology, cryptocurrencies allow for instantaneous, secure, and low-cost international transfers. This can be vital, as many recipients, especially refugees and internally displaced persons, may need funds urgently for life necessities such as food, shelter, and fuel.
Cryptocurrency aims to revolutionize the remittance sector by eliminating middlemen, providing real-time transaction visibility, and reducing costs. The decentralized nature of cryptocurrencies means that transactions can be processed 24/7, providing convenience and flexibility unlike any traditional banking service.
Case Studies on crypto remittances
A great example of a company making crypto remittances possible is Leaf Global Fintech. Currently, Leaf Global Fintech operates in Kenya, Rwanda, and Uganda, and allows anyone to send money to family and friends across borders, with a smart phone of even just a feature phone, without banking fees. One of the biggest challenges around crypto remittances is creating fiat offramps for users, especially those who are unbanked, and Leaf addresses this by partnering with all the major mobile money providers in the countries in which they work, meaning that users can "can cash in and out of any mobile money number, across borders and networks." They also eliminate the pains caused by currency exchange rates, allowing users to send and receive money in any of the local currencies they support.
Coins.ph, the largest cryptocurrency exchange in the Philippines, with more than 16 million users, is another company making crypto remittances a reality. One of the unique features of Coins.ph, which addresses the off-ramping issue mentioned above, is that they allows users to pay 120 different bills from their phone using cryptocurrencys. This includes utilities, credit card bills, government services, and tuition. This means that if an individual in the Philippines were to receive cryptocurrency to their address from someone abroad, they could then use the services of Coins.ph to pay bills directly, as opposed to going through numerous intermediaries, each with their fees.
Next steps for crypto remittances
It's still early days for digital remittance solutions, with less than 1% of remittances being sent digitally, as highlighted above. There are incredible opportunities for the growth of crypto remittances, but there are also many important considerations when building crypto remittance solutions. Most importantly, the user experience of these services must be extremely low barrier and as simple as possible. Over 200 million people send remittances each year, each with varying technological knowledge and understanding of cryptocurrency, and platforms must be designed in a way that is easy to understand and access, and is compatible with legacy mobile phones, such as feature phones with SMS capabilities.
Furthermore, for crypto remittances to really take off, there must be a focus on educating communities that can benefit from these services. This includes targeted outreach and education to migrant workers and their families back home. One project doing this is RemittDAO, a Web3 project dedicated to providing education on digital remittances to migrant workers and asylum seekers.
In conclusion, the legacy remittance system, with its high costs and inefficiencies, is ripe for disruption. Cryptocurrency, with its decentralized nature and ability to make fast, low-cost transactions, presents a compelling solution that can take billions of dollars in fees out of the hands of unnecessary and outdated intermediaries, and put it in the hands of those in low- and middle-income countries who rely on remittances for their livelihoods.
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