TransferTo, Stellar ready a blockchain for the unbanked

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Singapore-based money transfer platform TransferTo is working with to facilitate low-cost blockchain-based cross-border remittances for underbanked and unbanked consumers in emerging markets.

The Stellar Development Foundation is a U.S. nonprofit which acts as the governing body and primary code contributor for the Stellar network, an open-source, public distributed ledger platform connecting multiple financial systems. Patrick Collison, CEO of Stripe, is one of Stellar’s advisors; and Stripe’s former CTO, Greg Brockman, is a member of Stellar’s Board.

“We’ve been supporting the TransferTo team in understanding and launching initial cross-border payment tests on Stellar. However, it’s ultimately TransferTo which will launch services, execute transactions and build partnerships with other remittance companies using Stellar," said Lisa Nestor, director of partnerships at Stellar Development Foundation.

TransferTo operates a cross-border mobile payments network for emerging markets, which interconnects financial institutions and digital financial service providers and facilitates real-time international remittances, mass payouts, e-commerce payments and mobile airtime top-ups. It is regulated by the U.K.’s Financial Conduct Authority as an Intermediary Payment Service Provider and by the U.K.’s HM Revenue and Customs as a Money Transmitter. Privately-held TransferTo’s investors include Ingenico.

Nestor said she expects to see TransferTo sending regular payments across the Stellar network by Q4 2018, based on the two organizations’ discussions.

Lumens — also known as XLM — are the native asset of the Stellar ledger, and a small number of lumens are required to fund any transaction sent on the Stellar blockchain network.

“In addition to the use of lumens to pay for transactions fees, institutional users of the Stellar network commonly use the cryptocurrency for liquidity and/or transaction settlement,” said Nestor. “This is because use of lumens as an intermediary exchange currency ... can help remittance companies to eliminate pre- or post-funded accounts by enabling real time settlement.”

There are some drawbacks to this approach. Blockchain is not a simple deployment, Nestor said. "Technically, the lift may not be that high, but strategically it does require coordination and effort.”

Another issue is the regulatory uncertainty surrounding the blockchain.

“However, the non-bank money transfer industry has been dealing with the issue of regulatory uncertainty for decades,” she noted. “For the most part, the advantages to a blockchain platform like Stellar are many.”

At the start of this project, TransferTo plans to use Lumens as its main settlement currency, with alternatives coming later, according to TransferTo’s money transfer chief customer officer Aik-Boon Tan.

This approach "will also allow us to on-board partners which are already in the same blockchain network,” he said. “But the disadvantage of the blockchain is that scalability becomes harder with a blockchain component in the chain. So we chose Stellar, as we believe in its technology and scalability capabilities.”

TransferTo’s target is emerging markets where general penetration of banking services is low.

“We’re both on a mission to drive financial inclusion for un- and underbanked populations, so our partnership with Stellar was a natural fit,” he said. “TransferTo will be open to further blockchain-related partnerships as a natural extension of this initiative with Stellar.”

In April 2018, TransferTo partnered with PayPal and Safaricom, the operator of Kenya’s M-Pesa P2P payments platform, to enable Kenyans to move money between their M-Pesa and PayPal accounts for purchases on e-commerce marketplaces. “The M-Pesa/PayPal service has been live since April 2018, but we’re not able to disclose transaction numbers,” said Tan.

The partnership with PayPal and Safaricom is an example of how TransferTo provides alternative digital payment services for international e-commerce marketplaces in emerging markets, especially in areas where the penetration of banking services is low.

In July 2018, TransferTo said that GSV (gross sales volume) for its international money transfer business reached nearly $800 million in the first six months of 2018. TransferTo, which launched the money transfer platform two years ago, saw a GSV of $310 million in calendar 2017 for the business. It expects the final 2018 GSV for its money transfer business to exceed $2 billion.

In the first quarter of 2018, TransferTo’s international mobile airtime top-up business processed 18.6 million transactions, representing a 45 percent growth in revenue for the business compared to the same period in 2017.

In Q1 2018, the majority of mobile airtime top-up transactions originated from the Asia-Pacific, closely followed by the Middle East. Both these regions, especially countries such as the UAE and Malaysia, have become a popular choice for migrant workers. The Philippines and Indonesia were amongst the two biggest recipients of mobile top-ups, as both have a large migrant diaspora living and working overseas, particularly across the two biggest sending regions.

In September 2018, TransferTo announced an investment in OXIO, which operates a blockchain-based mobile Internet exchange offering fast, affordable mobile Internet access worldwide. According to TransferTo, only around 30 percent of the over 5 billion mobile subscribers worldwide are able to stay consistently connected to the Internet with enough data to satisfy their needs.

OXIO’s mobile Internet exchange leverages blockchain technologies to ensure users are always connected, and pay less for mobile data, while helping carrier networks run more efficiently.

TransferTo will leverage OXIO’s exchange network to deliver more cost-effective services across its digital value services portfolio and to provide TransferTo’s network of carriers with improved connectivity.

Following the investment, TransferTo’s chief technology officer Bruno Premartin will become a technical advisor to OXIO.

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Blockchain Cross border payments