By streamlining the process of cross-border payments, make it cheaper & more efficient, decentralized cryptocurrencies powered by blockchain can play a major role in cutting costs.
For decades millions of migrants have been sending money to their homes through banking channels, wire transfers and other various methods commonly known as remittances, and this phenomenon has been increasing in volume year after year.
Today, 800 million people globally depend on remittances sent by migrant workers to support their families. However, over 8% to 10% of the money gets deducted as commissions for using remittance service.
According to a World Bank report, "Record High Remittances Sent Globally in 2018" released in 2019, remittances are an important source of income for developing economies and there is strong evidence of a positive relationship between remittances and socio-economic growth. In 2018, global remittances reached a record-high USD $689 billion, growing between 7% and 12% depending on different regions of the world.
In order to streamline the process of cross-border payments, make it cheaper and more efficient, decentralized cryptocurrencies based on blockchain technology can play a major role in cutting remittance costs.
Let us look at some of the important ways cryptocurrencies can disrupt and revolutionize the remittance industry.
By using peer-to-peer (P2P) transfer, a user can send funds from person to person within seconds or minutes, thereby saving days of the process required by banks to send the money from one country to another.
The P2P process is very fast, the users only need a wallet to receive the fund, which takes only a few minutes to set up. This is possible only due to blockchain technology. In states where government entities control banks and financial institutions, the freedom and independence provided by cryptocurrencies can be crucial for both businesses and individuals alike.
Globally remittances flow from developed countries to developing or poor countries. And naturally, the sender wants to send the maximum amount of money home, but in the current financial system, it costs them around 8% to 10% depending on the country they are residing in.
If cryptocurrencies are instead used, transferring money from one account to another will become cheaper, faster and more efficient. One can transfer millions of dollars by paying cents as commission. Imagine the benefit it provides to low income groups, who are sending USD $300 to USD $400 per month.
According to World Bank estimates, a customer making a remittance payment of USD $20 000 has to pay an average cost of 7.1%, or USD $1,420.
Blockchain removes multiple intermediaries that participate in traditional cross-border money transfers.
Money can be transferred directly via a blockchain protocol from User A’s wallet to User B’s wallet, eliminating the need to go through middlemen and banking processes, thereby reducing the time and cost of the transaction.
The cost savings a customer can make by using blockchain-based cross-border payment solutions are substantial. For example, by using a blockchain-based remittance provider, users pay less around 2%, or $400, to 3%, $600 on remitting USD $20,000. However, there are blockchains that are even cheaper to transact with.
One of the major reasons for using cryptocurrencies is that the technology is highly secure.
The money transfer process is encrypted and nearly impossible to forge or interfere by any fraudsters or cyber criminals. This security level is ensured as blockchain technology follows several layers of encryption upon which crypto payments creates ledgers, making crypto a safe process for people wanting to securely send funds globally.
As crypto uses decentralized, digitally distributed ledger technology, it can send payments in minutes or even seconds.
This means that, where banks and traditional money transfer institutions will spend days to review and authorize payments, using cryptocurrencies to transfer money globally is almost instantaneous.
Ease of accessibility
With the penetration of smartphones increasing, usage of blockchain business-to-business payments is also set to grow substantially.
During 2019, USD $171 billion was transferred by using blockchain technology, which is predicted to touch USD $4.4 trillion by 2024, according to a research firm, Juniper Research.
Even a big social media giant like Facebook has announced its plans to launch its own cryptocurrency, although the road ahead looks uncertain due to regulatory concerns. It’s estimated that around 3 billion people around the world have smartphones, and can therefore access the multitude of cryptocurrency trading apps that make it so easy to send money at the tap of a button. This ease of use and accessibility will facilitate the growth of cryptocurrencies, and the use of crypto for remittances.
For transferring cross-border payments, the Klever ecosystem can act as a support for this new movement away from centralized actors.
It’s a powerful combination when you allow a self-custody wallet like Klever to get in the hands of millions of unbanked who are taking their first steps into the world of crypto Klever App is currently used by over more than 3 million users worldwide, as it provides self-custody, unmatched security, profitable features, p2p transactions for all major blockchains and ease of use, all at the same time.