When it comes to cross-border remittance, factions on both sides of fintech innovations and traditional financial institutions can attest to the fact that the blockchain has so much potential in changing how global payments are conducted. This premise has prompted many financial institutions to reassess their money transfer infrastructures and develop in-house solutions to augment their current banking protocols.
However, while the world waits for these banks and traditional payment processors to catch up with Bitcoin and many of the payment-based altcoins out there, these emerging technologies are playing banks, and are allowing money transfer seem effortless.
The peer-to-peer remittance design should be considered one of the most fundamental and yet astounding financial innovations to date, and we have Bitcoin to thank for that. The areas where cross-border payments through cryptocurrencies best the traditional systems include speed of transactions, relatively cheap fees in sending money via peer-to-peer systems and processors, and the convenience of having to transact in the simplest and easiest financial frameworks possible – buy digital currency from an exchange, get beneficiaries crypto wallet address, send to the other party, and in a matter of minutes or more, the transaction is confirmed on the blockchain, and viola – payment is done. The protocols in the conventional banking system require too many hoops to jump, and more financial entities which are rather unnecessary, hence the punitive cost.
Many poor migrants must pay exorbitant fees to send money home to their families. It is time to drive these costs down https://t.co/yHHT1R6lEk
— The Economist (@TheEconomist) April 27, 2019
Bitcoin, along with a host of other payment-based cryptocurrencies, is striving to make a difference in the financial world and cross border payments has proven to be a sufficient use case so far. This is because the blockchain and all of its properties make it easy to transact in ways the current traditional banking system falls short, although there’s a catch – further discussed in this article.
Cross-Border Payments in Developing Countries
Earlier this year, the World Bank reported significantly high remittance transactions borne to low- and middle-income countries reaching USD 529 billion in 2018, this was a 9% increase from the previous year. In the report, it was further stated that:
“Remittance costs across many African corridors and small islands in the Pacific remain above 10 percent… Banks were the most expensive remittance channels, charging an average fee of 11 percent in the first quarter of 2019.”
From the World Bank’s report, sending USD 500 across the border could leave the sender parting with more than they are willing, in this case, as much as USD 55 if they were to go through banks. An alternative would be to go through online payment processors such as PayPal, however, it’s been discovered that Bitcoin can cut through PayPal international transaction fees by as much as 30 times. Although, there may be discrepancies to such claims when viewed circumspectly, as far as ‘transfers’ go Bitcoin may appear to be in the lead.
Transfering abroad $100,000 in $BTC through the Blockchain: fees of $5-50.
Transfering abroad $100,000 of value through Paypal: fees of $1,500-4,000 + PayPal is able to lock the amount for some period
— Crypto Michaël (@CryptoMichNL) May 4, 2019
The Emerging Trends
Crypto-based payment processors are taking on the spotlight as they facilitate the payments done through cryptocurrencies. An example of growing usage of Bitcoin payments can be observed in their numbers as Africans and Asians now turn to cryptocurrencies to receive funds from their loved one overseas. BitPesa, a Bitcoin transfer service provider had at one time recorded an increase in its user base to as much as 60% as Bitcoins are transferred to say Kenya or Ghana. And this service is provided for a flat fee of 3%.
To make it even better, digital currency payments are increasingly being preferred by internet-based freelancers who normally through traditional payment processors would have to wait days or weeks before payments arrive, and this is without factoring in huge fees levied on users. Some have had it worse as they have been denied their earnings countless times as a result of chargebacks. Therefore, in a huge way, crypto is shutting out middlemen and streamlining payment processes.
Still A Long Way for Bitcoin
There appears to be a ton of roadblocks towards achieving a reality solely dependent on Bitcoin as a seamless payment infrastructure. This includes volatility and regulation, the two dreadful opponents to world-scale adoption of cryptocurrencies. Many believe that once these obstacles no longer exist, cryptocurrencies will eventually replace the current financial systems. It’s gradually happening, there are already crypto-based financial instruments, and many startups are currently racing towards providing suitable custody solutions to a growing number of forward-thinking institutions.
Another problem that seems to beset the cryptocurrency industry is the issue of scalability. In late 2017, Bitcoin transaction costs were seen to have skyrocketed as the load on the network was overwhelming. The repercussion was high volatility in the Bitcoin market, as Bitcoin price hit astronomical highs in just a short time.
This TPS problem stems from the native structure of the Bitcoin blockchain which allows it to process only 7 transactions per second. Apparently, a far cry from Visa’s network which handles about 1,736 transactions per second. However, layering with the Lightning Network has made it much easier to use the Bitcoin blockchain.
At least, if digital currencies don’t take over the world, they would have paved a way for traditional financial instructions to evolve and still it would perhaps be a win-win. This should be a non-negotiable mission for any institution that seeks to live through the current age as the world settles for an economic era built on the industry 4.0.
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