Peter Osher, chief revenue officer of MoneyGram International does not see the Bitcoin Blockchain as having disrupted the global remittance industry. Traditional systems are still reliable because of regulatory and usability concerns confronting crypto-currencies. Meanwhile, the $US40 million worth of remittances the Digital Currency Group reported through its start-ups hardly matters considering that this is a$US600 billion marketplace.
According to Mr. Osher, the Bitcoin as well as other virtual currencies are controversial applications (Napster) that enables consumers to share music over the worldwide web without buying their own CD versions. Bitcoin is risky and offers minimal benefits for the operations of regulated entities. Traders whom opt for Bitcoin will only lose their banking relationships worldwide. MoneyGram continues to be fascinated by the virtual currency’s proof of concept since the technology is making an impact. The crypto-currency model is not changing as it remains at the back-end of financial systems that is full of ineptitude.
Cross-Border Commerce minus Go-Betweens
The CEO of MoneyGram International perceives the existing correspondent bank model as out of date. Besides, it leads to financial exclusion which is the insufficiency of baking services for people without any income or do not have sufficient earnings. Correspondent banks provide services for financial institutions whether equal or unequal. The correspondent bank makes possible wire transfers, perform business deals, accept deposits, and collect documents for other financial companies.
Broader utilization of “permissioned” Blockchain platforms is a more effective method for banks to integrate in cross-border trading which at this time is not viable. The Blockchain is different even as different Internet protocols are connected to come up with a general consumer platform. It is not likely to become open due to controls of all infrastructures. Is the Blockchain capable of providing benefits for its target market? At this time, paper currencies cannot be taken out of the formula because Blockchain is not capable of impacting consumers with regards to the conventional remittance business. MoneyGram is working with banks in moving data, ensuring finances and delivering value to people in terms of 120 physical currencies.
Mr. Osher recognizes the attempt of Bitcoin to merge exchange of data and values. Yet, the digital currency is not yet the proper solution for MoneyGram. Ripple Connect, which is a distributed ledger service that transcends borders, is an alternative. However, the network is not potent enough to create an impression. Ripple has no capacity to modify or affect the cost structure of MoneyGram. It does not make sense for a leading remittance company to deal with inadequacies of Blockchain.
He cited the case of Abra, the first digital currency peer-to-peer network that makes it possible for users to send or receive cash and pay for goods privately, immediately and safely with or without any bank accounts. This new player put up $US12 million for an Uber-like strategy in sending remittances. According to Mr. Osher, this is an ill-advised approach which tries to evade standard legislations by using apps to serve as money exchange outlets. It is very expensive and regulators will not likely permits mobile phone users to act as money tellers.
As an example, the MoneyGram CRO talked about the current developments in Russia where the Finance Ministry is working to prohibit the Bitcoin under a specific law relating to money alternative. There is also the case of Australia where banking institutions closed corporate accounts of industry companies.
The Bitcoin Blockchain remains a convoluted model unless it is connected to a legal currency or domestic mobile money system. It has no value whatsoever. There is no value to people without access to monetary services unless there is an environment where in this crypto-currency is accepted universally as dependable and accessible form of value. Yet, Bitcoin can help develop accessibility to economic services.
One is through remittances with an average of around 8.4 % worldwide. It is compelled mainly by the spin-off traditional distribution platforms and multi-bank payment chains such as MoneyGram and Western Union. Bitcoin Blockchain may be effective as a back-end system for transacting local currencies that will make users feel more comfortable with said technology. Use of the Bitcoin Blockchain provides more value buildup for remitting clients. At the same time, the value proposition can attract more customers and lead them away from the customary approaches to receiving and sending money.
Blockchain used for remittances can promote transparency in pricing. It secures money transfers. The platform is also applicable for technology-powered financial services. The downside is Blockchain cannot ensure the success of a remittance firm even if it makes transactions more efficient and reduce capital outlay. There are other important factors that remittance start-ups need to consider like cash in and cash out points as well as exceptional client acquisition strategies.
People can have digital identities as well as transact value domestically and globally with no difficulty through Blockchain. At OneName, It is easy to create a username with open namespace functionality. User data is put into the platform directly so individuals who want to be identified can do so easily. This allows anybody left out from the system to open his or her own bank account, apply for loans, and send money to any part of the world. OneName is a provider of an open-source identity protocol.
Traditional Remittance Companies
The money transfer service is controlled by remittance giants such as MoneyGram and Western Union. New players make the market more competitive by offering various forms of remittance services. Some of these companies are looking at Bitcoin technology to facilitate international transfer of funds. They try to address problems like high cost of transfer, restricted trademark choices, and limited procedures in payment processing. The digital currency market remains in a growing stage but offers bright prospects in the years to come.
Some other companies engaged in money transfers using Blockchain are the following:
- Align Commerce is classified as a Payment Service Provider or PSP that allows enterprises as well as payment platforms to remit and get payments in local currencies. It uses the Blockchain as settlement method.
- Abra offers person to person transfers using an application. It permits users to keep digital currencies on their mobile devices by using the Abra Teller or debit cards. No back accounts are required for users to avail of this service. Users can send money immediately to persons with smartphones. Recipients can withdraw money from the applications through tellers. Abra uses Bitcoin as the back-end infrastructure although finances are denominated in USD that goes through the system.
- Bitspark is based in Hong Kong and offers end-to-end payment and remittance services anchored on Blockchain technology.
- Hellobit Company makes use of Bitcoin remittance to dislocate international remittance in emerging economies. Its objective is to reduce fees by at a least 12 % through virtual currencies. Hellobit is planning to build a model that allows mobile phone owners to sign up as delivery agents or exchange brokers. Applicants’ backgrounds are checked. After approval, they can earn Bitcoin by transmitting currency to recipients of funds. The company informs recipients through SMS.
- ph was established in the Philippines two years ago. The Bitcoin exchange offers a wallet application that enables users to trade the virtual currency. It functions as mobile remittance provider by converting the crypto-currency to the local currency of this country. Users can choose from among the application’s list of payment processors and commercial banks. Coins.ph sends notes about charges. The money can be sent door-to-door or through pickup. For overseas remittances, Bitcoins can be sent directly from existing balances.
- CoinPip in Singapore makes sure money is sent securely and fast through the Blockchain platform. Covered countries are China, India, Indonesia, and the Philippines. All users have to do is log in and enter the email address of the recipient along with amount and currency. It charges a flat fee of only two percent.
- Transfer B is a remittance start-up facility that utilized the payment network of Bitcoin for inexpensive and prompt payments all over the world. The fee is two percent and transfers are completed within one day. Transfer B is looking at leveraging Bitcoin and Blockchain technology to bring down the cost of international remittances. The founders are students and their aim is for the technology to benefit other students in different countries.
- BitPesa in Africa is designed for small businesses. It is a simple platform for making and collecting payments. Employers can remit funds to their workers, distributors and suppliers in the region with a single remittance from any part of the world. Payments are processed in 24 hours thereby minimizing FOREX risks.
Executives of the leading remittance providers believe Bitcoin cannot address most of the financial issues not until it becomes an international currency. The existing banking system continued to work despite some flaws. There are benefits in fixing defects against total disruption. Slight or minor improvements will benefit people and slow down the growth of true interference. Then, Blockchain and Bitcoin will still be relegated to the background.