Globalisation opened up doors wider to people, willing to travel to other countries and work for a better prospect. Millions of people have moved from third world countries to developed nations for a better livelihood. Most of them send some money back home every week or month from their income. This money transfer is called remittance. There is a cost to this money transfer which varies depending upon factors like amount of money to be transferred, country of destination (poor and third world countries attract more fee) etc.
In 2014, global remittance market was $US 583 billion, out of which $436 billion moved to developing countries.
Below table shows the cost of remittance for $200 for select countries. There are agencies like Western Union Money Transfer, Money Gram, Ria and banks that people use for remittance.
Issues with current remittance: there are two major issues with current systems.
- Time taken to deliver the money
- High cost of transaction
Current popular agencies charge more for faster deliveries. Some FinTech start-ups are trying to transform this space using cryptocurrency – Bitcoin, Lumen, Stellar.
Crypto currency transaction is faster – The transaction happens immediate and it takes about 60 minutes to get 6 block confirmations for bitcoin and almost complete surety that the transaction is valid and there is no double spending of the same bitcoin.
Transaction is at very low cost – Crypto currency transaction is at a very low cost irrespective of the amount of the money being transacted. Transaction fee is paid to ensure that the miner pick up your transaction and it gets added to the blockchain in next block.
One can send bitcoin across geographical boundaries at speed of light at nominal cost, irrespective of the amount.
Anyone can send and receive bitcoins with access to internet. People who are unbanked can send and receive bitcoins with the use of a simple application downloaded on their mobile phones.
- Crypto currency as sandwitch currency: Currently people have to convert fiat currency to bitcoin and then bitcoin back to fiat currency for sending money back home. For example someone sending money from USA to India will have to convert first USD to bitcoin and then bitcoin to Indian INR. Agencies that offer these currency conversion services charge about 1% of the money. So someone using bitcoin to send money back home will be paying minimum 2% as conversion charges.
- Low usage and adoption: Still it will take time before good number of people become familiar with bitcoins and start using it. Most of the unbanked and underbanked people line in third world countries where the broadband and smart mobile penetration are low. At present only a very few people, out of global population, use bitcoin and most of them are educated and well banked. Mass adoption of bitcoin is still far and for it to happen all the stakeholders have to work towards generating confidence and encouraging people to start using it.
The real transformation will happen, when there is wider acceptance of bitcoin in the society globally and large number of people start receiving salaries in bitcoin and also start using bitcoin for buying and selling goods and services. Then there will be no need to convert fiat currency to bitcoin and vice versa and no conversion charges.
The remittance will be much faster at a very low cost !!
Note: Currently bitcoin network requires a a high fee for a bitcoin transaction. The bitcoin network is planning to increase the size of blocks that will result in lower transaction fees.