Introduction
Cross-border money transfer is a huge market. According to World Bank statistics, the scale of global cross-border payments has grown at an average annual rate of 5%. Global remittances grew to $689 billion in 2018 and $717 billion in 2019 and projected to reach $750 billion in 2020.
Remittances represent a steady supply of foreign funds for many low- and middle-income countries and play a vital role in lowering the level of poverty (Digital Financial Services, 2018). Remittances support demand for local consumption and complement the volatile flows of other types of international funds, such as foreign direct investment and aid. At the household level, remittances are associated with increased spending on housing, education, and income-generating activities. Thus, remittances play an important role in the economic growth of low- and middle-income countries.
However, due to the large number of intermediaries involved, the cost of cross-border remittances is prohibitively high, the average commission rate per remitter is as high as 7.68%. In addition, the remittance cycle is long, from a few days to weeks or even months. Moreover, existing cross-border remittances also suffer from other issues such as frauds, exchange rate losses, counterparty risk, red tape and more. On top of that, an estimated 2 billion people are unbanked and therefore being excluded from the existing global financial services, including cross-border money transfer. As a result, a large proportion of remittances are still sent through informal channels, which lack consumer protection mechanisms (Digital Financial Services, 2018). In short, transferring money across international borders is still complicated, time consuming and expensive.
Fortunately, the proliferation of innovative digital technologies is rapidly transforming the remittance landscape. Innovative technology-based remittance models are slowly replacing incumbent, clunky and costly models. On the one hand, these new models help to reduce transfer costs and time and improve access at both the sending and receiving ends. Let us examine several emerging business models for cross-border money transfer.
Emerging Models for Cross-Border Remittance
| Remittance Model | Description |
| Mobile Money | Cross-border remittances are sent through mobile money or e-wallet accounts. The transfer can happen between: – Providers owned by the same group holding company.- Different providers working in cooperation. -Multiple providers connected through a “hub” operated by a third party. -Mobile money/e-wallet accounts can be used by the senders and the receivers. |
| Online | Users transfer money through an online remittance platform. The transfer can be made through the provider’s mobile phone app or website. Senders can use their online banking account, debit card, credit card and more to link to the platform to send money. Receivers can receive funds in several ways, such as mobile money, bank account deposit, airtime top-up or cash pick-up. |
| Peer-to-Peer | This is a fully online model as no cash is accepted or sent out. Transactions can happen only through a bank account, card or closed loop wallet offered by the provider. As the cross-border movement of money is low, the cost of remittances is also relatively low. |
| Blockchain | This blockchain-based model enables money transfer in the form of cryptocurrencies like bitcoin, Ethereum and more. Funds are sent and received in the respective local fiat currency, but the cross-border transfer of funds happens through blockchain in the form of digital cryptocurrency. For examples, platforms such as Ripple and Ethereum enable cross-border payment services through their own cryptocurrencies (XRP and Ether, respectively) or through their platforms based on blockchain technology. Blockchain provides a decentralized ledger of transactions (blocks) distributed among all members of the network (chain). The ledger is updated every time a transaction takes place once verified and approved by the nodes in the blockchain network. |
Among the emerging remittance models, blockchain-based remittance is the most promising and has the greatest potential to disrupt the conventional cross-border money transfer business.
The blockchain-based remittance model has the potential to enable the unbanked people and migrant workers to send money fast and at low cost back home.
Blockchain technology can solve the pain points of high cost and delay of cross-border remittance. Indeed, blockchain-based remittance can simplify the entire process, removing unnecessary intermediaries and other barriers. The idea is to provide frictionless and near instant payment solutions. Unlike traditional services, a blockchain network need not rely on a slow and tedious process of approving transactions, which usually goes through several banks and intermediaries.
A blockchain remittance system can perform worldwide financial transactions based on a distributed network of computing devices known as nodes. This means that several nodes participate in the process of verifying and validating transactions which can be done in a decentralized and secure way. The encryption feature of blockchain provides security and an easily verifiable public audit trail. Better security means less frauds that are rampant in traditional banking. Overall, blockchain technology can provide faster and more reliable payment solutions at a much lower cost.
Let us examine some blockchain architectures and use cases pertaining to cross-border money transfer.
Stellar
Stellar is an open-source network for currencies and payments. Stellar makes it possible to create, send, and trade digital representations of all forms of money—USD, SGD, Euro, Bitcoin, ETH, and more. It is designed so all the world’s financial systems can interoperate on a single network. Stellar is a borderless, limitless, and powerful open network for storing and moving money
Stellar has no owner; it is owned by the public. The software runs across a decentralized, open network and handles millions of transactions each day. Like Bitcoin and Ethereum, Stellar relies on blockchain to keep the network in sync, but the end-user experience is more like cash—Stellar is much faster, cheaper, and more energy-efficient than typical blockchain-based systems.
Stellar makes it possible to create, send, and trade digital representations of all forms of money: dollars, pesos, bitcoin, pretty much anything. It’s designed so all the world’s financial systems can work together on a single network.
Though Stellar is cryptocurrency-centric, it has always been intended to enhance rather than replace the existing financial system. In contrast to the Bitcoin network that was made for trading only bitcoins, Stellar is a decentralized system that was designed for trading any kind of money in a transparent and efficient way.
Stellar has a native digital currency, the lumen, that is required in small amounts for initializing accounts and making transactions. However, other than those requirements, Stellar does not privilege any specific currency. It is specifically designed to make traditional forms of money more useful and accessible.
With Stellar, you can create a digital representation of a fiat currency of any country. Essentially, you can set up a 1:1 relationship between your digital token and fiat currency. Every one of your tokens out in the world is backed by an equivalent fiat deposit. So while people hold the tokens, they can treat them just like traditional money, because they know that they’re exchangeable for traditional money in the end.
Everex
Everex is a global blockchain fintech company headquartered in Singapore with offices in Bangkok/Thailand. It facilitates the application of Stablecoins for peer-to-peer money transfers, merchant payment settlements and fiat to digital asset exchange. Exverax focuses on fiat and asset pegged Stablecoins that represent units of national currencies and international investment assets that are powered by smart contracts and exist in Ethereum blockchain token format.
Everex is operating on Euro, British pound, Thai baht and Stablecoin markets with the main office in Bangkok, Thailand. Its solution allows 25x faster seamless transaction settlements for global and domestic payments with virtually zero cost, providing users with more efficient access to funding. Everex implements Ethereum blockchain technology as a new rails for financial transactions to challenge existing legacy payment system solutions and also to address the growing global financial inclusion problem.
Everex enables transparent cross-border financial transactions, bringing individuals and SMEs – with or without bank accounts – into the new global economy powered by the distributed ledger technology. The blockchain technology eliminates the need of any third-party or central authority for financial transactions, by encrypting and storing transactions in participants’ account ledger, making it almost impossible to tamper.
The main product is a blockchain-based mobile wallet which enables end users to instantly convert and send money abroad – for which the company offers a white-label solution to any interested parties like banks, central banks, and many others, which offer cross-border money transfers.
Furthermore, Everex deploys blockchain technology using smart contracts to digitise national fiat currencies in order to enable instant money transfer over the blockchain. It has created a price-stable coin called eFiat which is a full representation of a national currency on the blockchain, fully-pegged by its fiat value (meaning that 1 EUR = 1 eEUR). This solution enables cryptocurrency exchanges to better deal with their liquidity and cash-in/cash-out options.
MoneyFi
MoneyFi addresses the growing and emerging market demands for a better alternative in remittance based on the deployment of the secure credit cards. Its non-traditional approach, using blockchain technology, is purpose-built to drastically reduce transaction fee costs, providing financial inclusion for underbanked and unbanked people, leveraging the worldwide ATM’s platform’s rapid expansion rate of its network.
MoneyFi intends to disrupt this market with blockchain. The MoneyFi platform is a communication channel for cross border currency remittances based on digital assets trading. Users will be able to remit money via the MoneyFi App that uses its native cryptocurrency token “Nemoo” for settlement. The App is integrated into an existing infrastructure consisting of a global ATM processing network that will facilitate newly developed fiat-crypto hybrid ATMs.