Every year, millions of migrant workers send money back home to their families. As more and more people migrate, so does the total amount of remittances grow each year. The World Bank estimated that in 2017, a total of $440bn was sent back home to families in remittances. If you have ever sent money from one bank account to another account overseas, you will no doubt have noticed the high fees placed on such transactions by banks. Not to mention that they impose additional costs by setting exchange rates that make the transaction even more expensive.
For that reason, most foreign workers will send their hard-earned cash back home to their relatives through remittance retail networks using Money Transfer Operators (MTOs). MTOs play a vital role in the remittance industry, yet their position is under increasing threat. The Bitspark remittance network has been designed to empower both MTOs as local entrepreneurs as well as the people sending and receiving money. But let’s first look at the biggest challenges
MTOs are facing in the remittance industry and the underlying reasons.
The biggest challenges for MTOs in the remittance industry
De-risking is considered the biggest threat to the position of MTOs as local entrepreneurs. This refers to banks exiting relationships with MTOs amid concerns about breaching laws on money laundering and terrorist financing. However, it’s far more likely that banks have an ulterior motive for cutting off the lifeline for MTOs - commercial bank transfers are often the most expensive remittance channels.
Besides, money laundering and funding terrorism could happen through any payment channel and banks disengaging from the remittance industry is likely not going to have a significant effect on illicit money flows. In fact, some of the most dramatic cases of money laundering and terrorism funding have happened through banks.
When these institutions shut down the bank accounts of remitting organisations they achieve nothing but putting remitters at a disadvantage. Remittances will likely move underground and regulators will lose visibility and the audit trail. In what you could consider a vicious cycle, regulators are moving in tandem with banks disengaging from the industry and are placing an increasing regulatory burden on MTOs in the remittance industry. This makes it even more difficult for local entrepreneurs to carve out a market position for themselves in what is an industry dominated by only a few players.
However, remittances will not stop being important for the 250 million migrants worldwide sending money back home. Many families in developing parts of the world rely on remittances to pay for basic living expenses such as food, clothing, shelter and education. Closing down non-bank remittance channels will do nothing but leave those families at risk. Especially considering that for the 2 billion unbanked people in developing nations who often live in rural areas, non-bank remittance channels are often the only way for them to receive the money they need to survive.
Bitspark recognises the importance MTOs play in this industry and we have designed a network that empowers them by removing the reliance on banks altogether.
Why MTOs are key to increasing financial inclusion
You already know that MTOs relying on banks puts them at risk as banks are disengaging from the industry, but removing banks from the equation is important for several other reasons as well such as high costs and financial inclusion.
The high transaction costs of sending money through the legacy systems of the cross-border banking infrastructure are simply too high. If you need to send money back home to Sub-Saharan Africa, most remittance corridors will have transaction fees above 10%. While there are many different initiatives in place and start-ups working towards creating a more efficient and cheaper banking system, for many people in in the developing world, a better banking infrastructure won’t mean much as they live in rural areas and don’t have access to bank accounts in the first place.
That’s where MTOs come in!
With the global remittance network that we are extending throughout different markets, we are lowering the barrier to entry for MTOs and democratising access to money transfer services for everyone, anywhere. Our service complements the existing remittance networks that MTOs operate in and provides them with a new way of sending money across borders that makes it faster, cheaper and, most important of all, they can do it all without using bank accounts. This makes it possible for us to reach the millions of people in rural areas who at the moment do not have access to banking services.
Project Zephyr: using cryptocurrencies to transform the remittance industry
As part of Project Zephyr, we are rolling out fiat-pegged cryptocurrencies to bypass the expensive transaction systems that are needed for fiat currency remittances. Using the BitShares Blockchain and Decentralised Exchange, we have the ability to build a specific fiat-pegged cryptocurrency for each of the 180 fiat currencies that currently exist in the world which means our system is compatible with any remittance corridor or currency pairing. All you need, either as an MTO or person sending and receiving money, is a phone and an internet connection. In the developing world, both phones and internet have high penetration rates with countries like Tajikistan boasting a 100% mobile phone penetration rate.
In the Bitspark system, fiat-pegged cryptos act as vehicles for fiat currency to travel across borders much faster and cheaper. MTOs buy and sell fiat cash by topping up and redeeming digital balances of users’ fiat-pegged crypto balances. As this happens on both ends between the senders and receivers of money, fiat cash goes in one end and comes out the at the destination point without ever passing through bank accounts. It’s a cash in, cash out network with fiat-pegged cryptos as the bridge in between.
It’s the only way for fiat cash to travel at the speed of crypto.
Together with Bitspark, MTOs are making change happen
Currently, our remittance network covers eight countries in the Asia Pacific and African regions including Hong Kong, Malaysia, Philippines, Indonesia, Vietnam, Pakistan, Ghana and Nigeria. In collaboration with the United Nations Development Programme, the next country to be added is Tajikistan. Each year, around 1 million Tajiks migrate and use money transfer systems to send money back home to their families. Most of the people back home are unbanked and rely on non-bank services to receive those payments. It’s the perfect environment for a system like ours to increase financial inclusion using just phones, internet and the existing network of MTOs.
If you’re wondering why MTOs across the world are eager to join our network, then you should probably read up on incentive token ZEPH. Essentially, MTOs earn extra money by joining the system, and we have designed a 25% buyback mechanism to sustain the long-term value and utility of ZEPH to benefit both users and traders on the BitShares DEX.
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