You may have heard about how cryptocurrencies are set to reshape the way the remittance industry works. But while it’s easy to get excited and caught in the hype, if you’re interested in investing in cryptocurrencies like Zephyr that will drive this radical change, we need to answer a few critical questions.
Cutting through all the blockchain and crypto hype, we can address the question that truly matters: what is the real value cryptocurrency can deliver in this market and what does it take to achieve this?
Let’s go into what makes the remittance industry the perfect target for cryptocurrency to disrupt, what a successful crypto service looks like, and, most importantly, what it takes to build consumer trust – because in the end, it all depends on consumer trust to drive adoption and usage.
A market desperate for change
Throughout history, direct hand-to-hand exchange of currency has been the most popular method of transacting anything of value. But as people have started to increasingly move around the globe, moving to different countries in search of better opportunities, the need for sending money around on a global scale has become greater. Over time this has created the remittance industry as we know it today. A global industry that plays a vital role for the 250 million immigrants worldwide that sent over $444bn in 2017 across borders to support their families back home.
The remittance market is a significant source of funding for many individuals in emerging markets that rely on it for basic living expenses like shelter, food, medicine, clothing and utility bill payments. At a higher level, remittances are often an important part of the GDP for many countries in emerging regions. Nepal for example receives 32% of its GDP in remittances, which is similar to other countries such as Tajikistan (29%) and Kyrgyzstan (26%).
But as you probably expected, that’s not the end of the story. Individuals are faced with significant challenges when sending and receiving money across borders. The most pressing challenges are the costs of remittances and the reliance on banks.
High Cost: Transferring money through banks and traditional money transfer companies like Western Union is incredibly expensive with fees ranging from 7-12% of the value transferred. This is especially true when it comes to ‘exotic’ currencies - thinly traded currencies that lack market depth and have large bid-ask spreads – typically associated with developing nation economies.
Bank Reliance: Intricate webs of banks and intermediate banks have sprung up which now play a central role in the transferring process. As you might have expected, this makes the process inefficient, expensive and slow. But there’s another negative aspect of the reliance on banks: nearly 2 billion people around the world do not have access to banking services. This means that any innovation put in place that maintains bank reliance simply doesn’t reach the unbanked citizens in the developing world.
And to make matters worse, banks are increasingly disengaging the remittance industry to de-risk their positions leaving independent Money Transfer Operators (MTOs) unable to offer reliable services.
The perfect opportunity for cryptocurrency
All these issues have led to the launch of innovative solutions that are using cryptocurrencies to unlock transformational change to solve the current issues that consumers face today. The desire and need for better, more efficient and cost-effective ways to send and receive money has only accelerated the boom of crypto-enabled solutions. The promise of a better world has brought together consumers, merchants, companies and a growing league of investors worldwide. Since you’re here reading this article, you can count yourself as part of that community.
So what are the benefits of moving to cryptocurrencies for remittances?
- Speed: Transactions using cryptocurrencies are completed in seconds regardless of where the sender and receiver are in the world.
- Access: Cryptocurrencies allow remittance networks to bypass the banking infrastructure and completely sidestep the biggest challenge for the 2 billion unbanked. All you need is a mobile phone.
- Reach: Building on the previous point, there are more mobile phones than there are people in the world. Even in developing nations, phones are everywhere. A mobile app enables instant crypto remittances with just a few taps.
- Transparency: All pricing and fees can be displayed upfront, and the money sent through the network is easily traced as it travels, building on the inherent features of Blockchain technology.
- Security: There is an absolute guarantee that the money sent will be received by the intended recipient, and any errors would be easily detectable. Again, thanks to Blockchain.
Removing banks and other intermediaries from the process with cryptocurrencies will make it possible to reduce costs to a minimum and increase access worldwide. The World Bank expects lower transaction fees could spur an additional 10% in remittances worldwide. That increase could potentially lift another 30 million people out of poverty according to the UN Center for Trade and Development. That’s a seriously good reason to unleash cryptocurrency in this market wouldn’t you agree?
But what will it take for crypto to really transform the remittance market? Two things: a great service and consumer trust.
A great application accessible to everyone
Cryptocurrency benefits alone are not enough to transform an industry. If you want to change the behaviour of millions of people, you need to offer a service that is sensitive to real world needs and fits in with the way people prefer to work. It needs to be inclusive for everyone, regardless of having bank accounts or not. It needs to be exponentially better than anything else that came before it. Bitspark has designed a platform and a service that offers just that.
As part of Project Zephyr, we recently switched over to the BitShares Blockchain and decentralised exchange. You probably heard of BitShares because of its lightning speed (3300 transactions per second) or because its decentralised model lowers risk in a way that no other centralised exchange could. But there’s another reason why we made the switch: pegged cryptocurrencies.
Pegged cryptocurrencies enable Bitspark to remove banks from the process and create a streamlined version that is compatible with the real world needs of the individuals sending and receiving money worldwide. On the BitShares Blockchain we can create a cryptocurrency that has its value pegged to that of a fiat currency. Over time, we will do this for the 180 currencies that currently exist to create a service that is accessible to anyone, anywhere. All the world’s currencies in a single platform.
The fiat-pegged cryptos will serve as vehicles for fiat cash to travel across borders at a higher speed and at a much lower cost. MTOs buy and sell fiat currencies which increases or decreases their digital fiat-pegged-crypto balance. To encourage MTOs joining our network, we offer native token Zephyr which as a 25% buy back mechanism for certain activities. Users have mobile app ‘Sendy’ to locate MTOs near them, top up their balances and transfer money. Cash goes into the system, travels as fiat-pegged crypto, and is taken out in cash at the destination point. No waiting, no banks and minimal costs.
In this new world, MTOs no longer need banks to provide liquidity in local currencies and users across the world have access to the cryptocurrency benefits using only their phones.
Building consumer trust to drive adoption
Ultimately, if cryptocurrency is going to achieve its transformation of the remittance industry, consumers need to have trust in it as a reliable vehicle. This is not about understanding it, although that helps, but rather about cryptocurrency having a positive image.
Recent moves made by governments and corporations certainly help. In July 2017, Japan declared bitcoin to be legal tender and removed the 8% consumption tax on cryptocurrencies to encourage adoption. Japanese retailer Meganesuper Co. Ltd. started accepting bitcoin for payments that same July. Australia soon followed to also recognise bitcoin as legal tender and removed its 10% consumption tax on cryptocurrencies.
It’s that type of high-level acceptance that can put people who might be unfamiliar with cryptocurrencies at ease. The fast-growing acceptance of bitcoin in the Philippines, a market where remittances sent by foreign workers accounted for 9.8% of GDP in 2016, exemplifies the importance of trust. Once there is a sufficient level of trust, services like ours have the solid foundation it takes to grow a network that truly does transform the industry.
To answer our question at the start of this article: the massive opportunities that cryptocurrencies present is real and imminent. Millions will join the crypto community which will lead to positive change in the remittance market and increase financial inclusion worldwide.
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