Inward remittances have made remarkable contributions to
Most legal cross-border payments are made via a network of correspondent and intermediary banks or money transfer operators (MTOs). There is no central clearing system, and these transactions can only occur during regular banking hours. Transactions are subject to processing fees from multiple intermediary banks. MTOs such as
Blockchain technology changes all of this. Based on distributed ledger technology (DLT), each transaction that occurs on a given network is recorded. A perfect, identical record of each transfer is maintained on each network's computers or "nodes". Transactions are grouped in "blocks" and chronologically recorded in a "chain". All parties on a network can review prior entries.
Blockchain provides irrevocable, real-time, cross-border transmission. With low banking penetration, strong demand for financial services, extremely high mobile penetration, and a developing financial infrastructure, the case for remittances using blockchain in
Traditional expense
Safe cross-border money transfers rely on banks and MTOs. Unregulated, alternative remittance channels (meaning the Hawala system) have long existed, but these are based strictly on trust.
According to the
Blockchain has major advantages over banks or MTOs. Onn
MTOs do not require access to a bank account but are both inconvenient and expensive to use. Workers who send their salary home often queue up for hours. The fees incurred are significant.
Blockchain powered transactions using DLT reduce costs by removing multiple intermediaries. Blockchain-based remittance providers, like Coins.ph, have been successful in
How it works
A blockchain remittance can take many forms. For example, a sender with a bank account begins by loading a crypto wallet (essentially an app) provided by the remittance company.
If either party does not have a bank account, the flow changes. In some circumstances, an unbanked sender or receiver can interface with a cash point (for example convenience store chain, telco top-up card), bitcoin ATM, and even traditional ATMs. Recipients use codes which allow them to withdraw cash without a card and even without a bank account.
No matter the flow, issues which involve knowing your customer and anti-money laundering rules are real and must be addressed. Regulators take different approaches and, of course, the legal framework varies by jurisdiction.
With blockchain, users can easily and very safely remit money to family members or business partners in a matter of minutes, at a fraction of the cost. The remitter, in an instant, can confirm his transaction, without any third-party intervention, assured that it cannot be changed. When compared to traditional bank transfers, with slow processing times, working hours, and transfer fees, the value proposition is stark.
Market players are already moving into the space. Most notably, MTO market leader
The value to
The key remittance corridors are topped by the US, which is home to around 2.2 million overseas Vietnamese.
Meanwhile,
If blockchain remittance solutions can save overseas Vietnamese, overseas workers between 6 and 9 per cent in fees, then in 2019 the net additional remittance received in
The regulatory landscape
An "international payment" is defined as one made between an offshore payment service provider and a payment service provider in
Under the draft decree, parties to an international payment transaction are subject to Vietnamese laws on cyber security, tax, anti-money laundering and anti-terrorism financing, consumer data protection, laws on foreign exchange control, and treaties signed by
The path forward
Crypto-fiat conversion (the exchange from crypto to state issued money and vice-versa): The worldwide economy is still based on fiat currencies. By including a third currency (meaning crypto) in a foreign exchange transaction there is a conversion expense. But peer-to-peer transactions by blockchain removes the need for a bank transfer, so bank fees are saved, greatly reducing the overall transfer costs. Private solutions with seamless onramps and offramps (meaning converting from fiat to cryptocurrency and back to fiat) will be critical to mass adoption - this is an opportunity for investors. One example is strike.me, which allows users to send and receive instant and secure borderless payments from a smart phone, with no added fees.
Complexity: Understanding and using cryptocurrencies and DLT is complicated. But experience will teach consumers to navigate using cryptocurrencies. With time and experience, frankly, the need for users to understand how it works will diminish - an ideal solution just works without necessarily knowing how (think email or your mobile phone - most people do not know how they work; they just work). This too presents an opportunity for investors.
Policy recommendations: There appear to be no major roadblocks for blockchain-based remittance providers to provide a route for inward remittances. However, the legal framework is not stable and not complete. Existing law does not expressly prohibit DLT powered remittances in
Even so, regulation of cryptocurrencies is incomplete. We are optimistic that additional government guidance and a legal framework will be provided in the medium term. In the interim, the government should fast track implementation of a fintech sandbox for innovative technologies including crypto/blockchain.
As first appeared in
Footnote
1. https://ripple.com/insights/tpbank-uses-ripplenet-to-drive-transparent-global-payments-between-vietnam-and-the-world/
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