Ripple's just the start of blockchain's takeover of cross-border payments
Bitcoin has been around since 2009. Since then a number of other cryptocurrencies such as Ripple, Ethereum, Golem and Litecoin have entered the picture. When it comes to facilitating cross-border fund transfers, it looks like Ripple is already taking the bull by the horns.
In a recent announcement, Ripple’s CEO, Brad Garlinghouse, said that three prominent overseas money transfer companies are to put the company’s blockchain technology to the test. MoneyGram was the first to start, and Western Union was quick to follow.
While banks have already turned to blockchain with the hope of creating a real-time worldwide network, a few are also looking at Ripple’s blockchain technology to make cross-border funds transfers more efficient. Examples include France’s Crédit Agricole, Latin America’s Itau Unibanco Holding SA and India’s IndusInd Bank.
Data released by the United Nations suggests that the number of international migrants stood at 244 million in 2015. This was an increase of 41% when compared with 2000. A cascading effect of the rise in migrants is an increase in cross-border fund transfers. According to the Pew Research Center, international remittances have increased by around 300% from 2000.
While people had to deal with banks and high street forex brokers to carry out overseas money transfer until a couple of decades ago, the widespread use of the internet has changed the landscape considerably. Now, fintech companies such as WorldFirst, TransferWise, OFX and WorldRemit give people more cost-effective means to make cross-border transfers.
The average cost of an overseas money transfer is around 7%. However, while the average cost of using a bank is close to 11%, the average cost of using a fintech alternative drops to 5.3%.
Blockchain can offer multiple benefits to the international remittance industry.
Reduce costs. Even fintech companies rely on banks to handle transactions at both ends. With blockchain, eliminating banks from the process is easy, and this can lower costs even further.
Increase security. Banks and traditional money transfer companies work in a centralized manner, making them vulnerable to hacking. Blockchain, on the other hand, is completely decentralized, and entries in the digital ledger cannot be tampered with.
Better speed. Transferring money to another country can take days, even if you use a fintech company. With blockchain, overseas money transfers can take place almost immediately.
Accessible by more people. Access to mobile phones is more common than access to conventional forms of banking in several parts of the world. In such places, blockchain can give unbanked people easy means to send and receive cross-border payments.
Anyone who is new to the world of blockchain and cryptocurrencies can expect to go through a slight learning curve. If the sender and the recipient do not use the transferred cryptocurrency often, the process will involve exposure to currency conversion twice. If the transfer involves using a fiat currency at any stage, it will add to the turnaround time.
Ripple’s foray into the overseas money transfer realm may well turn out to be a game changer. That the technology holds potential is plain to see given that the field is also seeing the arrival of other blockchain-based startups such as Abra, Circle, BitPesa, MOIN and Coins.ph.