The conventional wisdom of remittance services is being challenged by cryptocurrencies. Will they also influence how international payments are made in the future?
The need for quick and easy cross-border money transfers has grown significantly in importance in the current era of global economies, where cross-cultural interactions and international business transactions are more prevalent. Despite the market’s long-standing dominance by traditional remittance providers, the emergence of cryptocurrencies has created a disruptive force that is upending the status quo.
In this article, we’ll discuss traditional remittance services, problems with traditional remittance services and potential of Cryptocurrency transfers
Traditional remittance services being overwhelmingly used
In response to technology advancements and shifting consumer preferences, this shifting payments landscape has created new opportunities and forced us to reevaluate the conventional models of remittance services.
Traditional remittance services, like Western Union, have been the standard for sending and receiving money internationally for a number of years. Global remittances reached a startling $682 billion in 2022, according to the Migration Data Portal, with India, China, Mexico, the Philippines, and Egypt ranking as the top five destinations. This statistic highlights the scope of these exchanges on a global scale. Since 2008, these nations have regularly been among the top remittance receivers, highlighting how crucial cross-border money transfers are to sustaining livelihoods and economies around the globe.
In order to make it easier to transfer money to other parts of the world, these firms have built up a vast network of physical branches and partnerships.
The full potential of remittance flows is hampered by a number of drawbacks that traditional remittance techniques experience despite their widespread use. These drawbacks restrict their efficiency and accessibility.
Problems with traditional remittances
When considering the time-consuming processes required, the shortcomings of standard remittance services become more and more clear. A direct deposit to a bank, for instance, may take 2 to 5 business days, depending on the nation, according to Western Union. People who need money right away or who have pressing financial responsibilities face difficulties as a result of this transaction processing delay.
The costs associated with transactions can have a big impact on the entire cost of remittances in addition to how long it takes for transactions to be processed. Frequently, the sender is in charge of covering the transfer expenses, ensuring that the recipient gets the complete sum without any deductions. However, there are several circumstances in which the recipient may need to cover all or a portion of the costs. A fee might be charged, for instance, if the recipient decides to pick up the cash at a Western Union agent location.
For those in underdeveloped nations who depend significantly on remittances from their family members overseas, these setbacks to traditional remittance services are especially painful.
Many of these receivers depend on the money they get via remittances for their daily expenses, as well as for their education, healthcare, and general well-being. Their ability to make a living may be significantly impacted by any delays or reductions in the remittance amount.
These impoverished recipients’ financial difficulties are further exacerbated by the substantial fees connected with conventional remittance transfers. The fees reduce the amount actually available to them by eating up the overall amount sent. Due to this, they are unable to better their living status or make investments in the future with the expected financial support.
Potential of cryptocurrency transfers
Cryptocurrencies, as opposed to conventional remittance services, present a strong substitute that gets around many of the drawbacks of the latter.
First off, as cryptocurrencies are internet-based and accessible to anybody with an internet connection anywhere in the world, they are widely available. Due to this accessibility, people in underdeveloped nations can receive remittances easily without the need for complicated paperwork or access to conventional banking institutions.
The speed of transactions is a key benefit of crypto remittances. Cryptographic transfers are often quicker, especially during periods of significant network congestion, compared to traditional techniques, which can take several days for payments to reach recipients.
This is due to the fact that cryptocurrencies avoid middlemen and rely on blockchain technology for immediate transaction processing, guaranteeing that money reaches those in need swiftly.
Furthermore, typical remittance costs place a heavy financial burden on recipients, especially those who are less fortunate. The average price for traditional remittance providers is 6.4%, which lowers the amount that the recipient actually receives. Blockchains, which are typically more affordable than traditional services, impose reduced transaction fees on crypto transfers. Because crypto remittances are affordable, recipients can make the most of the financial assistance they receive, which increases their capacity to enhance their quality of life and make investments in the future.
Because cryptocurrencies do not require a bank account, they also promote broader financial inclusion. Traditional banking services are sometimes inaccessible to many people in underdeveloped nations, but with cryptocurrency, they can retain and transfer digital assets via self-custodial wallets. This makes it possible for people to take part in the global financial system without needing to obtain in-depth financial certificates or fulfil prerequisites.
Additionally, the speedy conversion of cryptocurrencies into stable fiat money or stablecoins reduces their inherent volatility.
By doing this, the effects of price fluctuations are lessened and receivers are guaranteed to get the full value of their remittances. Additionally, through self-custodial wallets, cryptocurrency transfers give users access to decentralised finance (DeFi) services, enabling them to use alternative financial services including trading, staking, and lending.
In conclusion, the popularity of cryptocurrencies as a form of cross-border money transfer will continue to rise as the obstacles and issues surrounding crypto remittances, such as legislative clarity, increased accessibility, and improved security measures, are solved. Cryptocurrency remittances have the potential to revolutionise the world since they can provide quicker transactions, lower transaction costs, financial inclusion, and less volatility. The trend towards using cryptocurrencies as a preferred remittance option is anticipated to pick up speed as more individuals learn about these advantages firsthand, ultimately influencing the future of international money transfers.