Cross-border Remittances Must Come into the 21st Century with Cryptocurrencies

April 7, 2023

two people discussing bank partnerships

A young art buyer sights a painting from a French artist and wants to purchase it, but at the time of purchase, she discovers she has to send the money cross border to the artist’s bank account in Paris. She tries to make the payment via her online banking platform but is thwarted by the strict regulations. When she speaks to her bank’s representative, she’s informed of the complications: conversion rates, wire fees, taxes and more. Worse, there’s a daily limit on the amount she can send. But the artist’s bank also has strict anti-fraud measures that require additional documentation. At the end of an arduous and frustrating process, she finally gets the painting she wanted, but with cost of time and frustration, she vows never to do this again.

A young man working in the US wants to send money to his struggling parents in their village in India. He is shocked at the fees charged by the banks and money transfer services. He has to provide a lot of documentation to prove his identity, which takes time to complete, which delays getting this much needed money to his parents. He discovers how the exchange rate can fluctuate, and how the amount of money he wants to send his parents can vary month to month. And again, there are restrictions on the amount he can send. The young man perseveres in sending the money to his parents but wonders why anything that does so much good should be so hard.

There are thousands of stories of the problems and costs the traditional processes of cross border remittances cause both individuals and business – big and small – every year. The cost to Americans of sending money to family and friends abroad every year is over $12 billion. According to the United Nations Department of Economic and Social Affairs, the increase in international migrants worldwide went from an estimated 258 million in 2017 to 272 million in 2020. In 2022, there was 26.8 million nonimmigrant admissions to the United States. Migration patterns can be influenced by a variety of factors, including political instability, economic opportunities, and climate change, and the need to be able to move currencies efficiently and more easily across borders is increasing every year. The time has come to increase economic freedom and opportunity around the world by implementing cryptocurrency and blockchain solutions.

The legacy process of remittance no longer works. It’s too expensive, too slow, and enriches the wrong people. Banks and money transfer services need to embrace crypto, supported by blockchain, to move into the 21 st century and meet the needs of global economic realities. The pain points must be reduced so that adoption will increase. The remittance process must be efficient, fast and as accessible as possible, especially to some of the third world countries that count on the cross border flow of monies.

Cryptocurrencies like Bitcoin and Ethereum can greatly reduce costs of sending money cross borders. For example, sending Bitcoin to a digital wallet costs $1.50 per transaction. Ethereum even less. Compare that to the banks charging 10% on fees, post offices charging 5%, and pretty soon, $12 billion a year is strafed off the top of all payments. It resembles usury, which we thought was against the law.

But if TIME is money, the legacy system of remittance is highway robbery, as it can take 1 to 10 days for a transaction to be completed. With crypto? 10 minutes. With crypto, which doesn’t rely on intermediaries working banker’s hours, there is no delay.

In a summery, let’s review the glaring benefits that cryptocurrencies have over the traditional remittance system:

  1. Low transaction fees: This will SIGNIFICANTLY reduce the cost of sending money across borders, especially for those all-important, smaller more personal amounts.
  2. Borderless transactions: Crypto is NOT bound by geographical borders or currency exchange rates.
  3. Increased security: Blockchain is the pipe that protects, making it difficult for fraudsters to intercept or alter transactions. When you have fewer middlemen, you have less middle meddling.
  4. Reduce fraud: Crypto currencies are recorded on decentralized ledger, visible to all network participants. This provides transparency and accountability.
  5. Financial inclusion: With the efficiencies and reduced cost of cryptocurrencies in cross border remittances, previously ignored recipients are given greater financial stability.
  6. Globalization: Cryptocurrencies deliver on the positive economic impact that is the promise of globalization.

With so many benefits, it’s no wonder the promise gets push back.

Because cryptocurrencies have the potential to disrupt the traditional banking industry by providing an alternative means of storing and transferring value, it’s seen as a threat to the banks’ revenue streams. But cryptocurrencies and blockchain companies welcome a partnership with traditional banks and money transfer services because the need is great and so is the solution to meet it.

Remittances are, in essence, personal transactions with global implications. Innovative financial institutions must partner with responsible crypto services to update an antiquated system. Already, policy makers in Washington are making decisions about the future of crypto. Let’s hope they make the wisest ones. But due to crypto’s speed, lower fees, accessibility, global adoption, elimination of unpredictable currency fluctuations, and blockchain transparency, the time has never been more right to provide the space and support to allow this solution to strut its stuff.

Digital wallets will allow parents in third world countries to receive funds from their working children on their mobile phones instead of having to travel great distances to get to the rare bank in the area. And since Americans sent about $67 billion to Asia and $52 billion to Mexico in 2022, the need is already there and could be better satisfied by a simpler, cheaper way of doing this. These remittances are a boost to the economy and the stability of countries, and so why shouldn’t there be a vital partnership with traditional financial institutions?

Enter a few of the Big Dogs

But the good news is that some major forward thinking players are already testing the waters. In 2019, JP Morgan became the first major bank to create its own cryptocurrency called JPM Coin. BBVA uses Ripple’s blockchain-based payment platform for their cross border transactions. In 2020, DBS Bank launched its own digital currency exchange, allowing customers to buy and sell cryptocurrencies using fiat currencies. The bank has also been using blockchain technology to facilitate cross-border payments and trade finance transactions.

When the Big Dogs enter, its time to take notice. After period of wait and see, there will be even more, hopefully pulling more transactions away from the traditional, more widely acceptable method of using SWIFT, for the faster and cheaper offering of cryptocurrencies. Yes, there are issues with such a new form of payments, but nothing that can’t be easily overcome when the promise is great and the partnerships collaborate. It’s time for cross border remittances come into the 21 st century with cryptocurrencies.

Howard Davidson is the CMO at AlmondFinTech .

Almond FinTech is a B2B technology company making financial services affordable and accessible to people around the world, regardless of income. Through our multi- blockchain cross-border transfer protocol, we remove financial barriers and deliver transfer and credit scoring tools that empower everyone, everywhere.