Enhancing remittance services in Asia using Blockchain
The Migration and Remittances Factbook 2016, produced by the World Bank Group’s Global Knowledge Partnership on Migration and Development (KNOMAD) initiative, predicts that international migrants will send US$601 billion to their families in their home countries in 2016 with developing countries receiving US$441 billion. India was the largest remittance receiving country, with an estimated US$72 billion in 2015, followed by China (US$64 billion), and the Philippines (US$30 billion).
In 2013, the East Asia and Pacific region hosted 9 million migrants, 69 percent of whom were from within the region, mainly from Thailand, Malaysia, China, Indonesia and the Philippines. Remittances to the region amounted to $129 billion in 2015, while remittances flowing out of the region were $24 billion in 2014.
George Harrap, co-founder and CEO, bitspark, says blockchain is a good fit in remittance. His company, bitspark, provides remittance service providers a platform for sending (remitting) monies to select countries in Southeast Asia, instantly and at low transaction fees compared to traditional money transfer operators (MTOs) such as Western Union and MoneyGram.
Bitspark, and others like it, are updating the remittance model and gaining a foothold in the market by lowering overhead costs and passing savings on through lower fees. These companies use mobile and online channels to send money while meeting compliance standards. Using bitcoin, money transfers are conducted in real time as the network is responsible for validating the transaction. The transfer itself is almost free with typical fees in the range of 0.0001 bitcoin per transaction.
There continues to be room for innovation, and disruption, even within the digital remittance marketplace. To date some digital MTOs use the peer to peer model to provide remittance-like service by connecting buyers with sellers to arrange currency exchanges. The three most prevalent methods for remittance using bitcoins include:
- Bitcoin-to-bitcoin: Both sender and recipient send and receive bitcoins directly using e-wallets and exchange platforms. The onus is on the recipient to convert the bitcoin into fiat currency.
- Bitcoin to fiat currency: The sender uses his bitcoin to send money to the remittance operator that sends fiat to the receiver.
- Fiat currency to fiat currency: The sender pays fiat currency to the MTO that sends fiat to the receiver. Bitcoins are used to transfer money from one currency to another.
Across Asia, particularly in developing markets, bitcoin-based MTOs are springing up to capture the opportunity. Companies like bitspark (Hong Kong), Coins.ph and Rebit (the Philippines) and CoinPip are just a few of these new startups that have sprung up to capitalize on the opportunity.
George Harrap, co-founder of bitspark in Hong Kong, says in many emerging markets a lot of people don’t have bank accounts so conducting remittance via bank accounts online doesn’t make sense. “In the growth regions in Asia many of the MTOs are small businesses that may be using their own proprietary systems and processes to conduct remittance, or using the systems of a large third party as in the case of a franchise model. For customers, they don’t really need to know or care what technology is being used to send and receive the money. They just need to know that the money is going to arrive at the other end,” he explained.
For companies like bitspark that use bitcoin to conduct remittance business, blockchain is the underlying technology that allows them to track, manage, and initiating transfers.
“Bitspark uses blockchain to convey payments to other countries quickly, instantly and with little friction. The user doesn’t need to know anything about the intricacies of the technology in order to send the money. For them, its simply a cash-in and cash-out transaction,” said Harrap.
Traditional financial institutions are not standing idle in the sidelines either. In November 2015 Visa Europe announced a blockchain proof-of-concept leveraing blockchain technology for remittances. In September, Visa and Citigroup invested in Chain, an enterprise platform for developers to build on top of the blockchain. American Express has invested in Abra, a blockchain app focused on remittances. In an article on Fortune, Visa executive VP of innovation Jim McCarthy was quoted as saying "We have been evaluating blockchain technology for some time, seeing its potential to create new ways to transfer non-traditional currencies, such as gift cards or loyalty points."