Recently, 2 Money Transfer giants; Western Union, and MoneyGram, began working with the cryptocurrency Ripple. Ripple is a blockchain based solution that could have been purpose built for the money transfer industry. It is part real-time-gross-settlement (RTGS) operation; a genuine SWIFT payments rival; and part currency exchange mechanism, capable of using its distributed ledger technology to move money across all of the world’s remittance corridors on behalf of businesses, or individuals.
At the time of writing this, website CoinMarketCap reveals that Ripple is the third largest cryptocurrency in terms of market cap, worth approximately $27.1 billion. At number one, by some distance, is Bitcoin, with a market cap of $145.1 billion. Bitcoin is also seen as a potential money transfer solution.
In fact, according to a recent article in Gadgets Now, bitcoin is already being used in certain remittance corridors, where the price of the digital currency in destination countries is unusually low. This occurs when bitcoin is not in high demand in a region, and means that it is possible that, by using bitcoin to perform a money transfer, remittance receivers can receive more than the amount that was originally sent!
This kind of anomaly will probably not last long, as bitcoin becomes a more universal product, and the effect is rarely seen in the most popular money transfer corridors, where increased demand and competition amongst MTOs means that margins are low and remitters tend to get a good deal on their money transfer. But even so, bitcoin’s unique, decentralised, operating mechanism is becoming more and more popular with MTOs.
Often, bitcoin is used by the MTO, as opposed to a traditional banking network, because fees are lower and transaction times can be extremely quick. The customer may not even realise that bitcoin is being used, as the money is converted from fiat home country into bitcoin, then into the destination currency when it reaches its destination.
So, could bitcoin, or the more purpose built, but inferior sized Ripple really represent the future of the money transfer industry?
In truth there is a long way to go before all remittances and international money transfers are carried out using blockchain, or decentralised ledger, technology. For one, despite its market capitalisation, bitcoin’s entire value represents just one third of the size of the global remittance market, and only two-thirds of the Asian remittance market alone.
It can still be hard for exchanges to get hold of large amounts of bitcoin at short notice, and the international money transfer market cannot afford to have bottle-necks occurring while agents try to find spare, available bitcoin.
Another issue is the time it may take to process a cryptocurrency transaction. The way that transactions are processed, by “miners”, who turn a profit confirming transactions on the blockchain, can be slow, not to mention energy intensive. In fact, the amount of energy required to process transactions and mine cryptocurrencies, in the form of computer processing power, is probably the biggest challenge that the industry faces at this time. Either miners must find a less energy intensive way to process transactions, or the global energy supply will start to be affected, analysts have warned.
Then there are the regulators. Bitcoin, Ripple and all cryptocurrencies are intended to operate in a decentralised way without the requirement for regulation, but this dream seems to be slowly fading.
Governments and international agencies like the IMF and the SEC, not to mention Financial authorities across Asia and Europe, are insisting that the crypto world’s dream of being self-regulating is unrealistic. If we look at what is happening with social media platforms like Facebook, increasingly under siege for not self-regulating with enough vigour, then it is hard to see how the crypto industry will successfully sidestep the issue.
But having said all that, there is no doubt that money transfer operators cannot ignore cryptocurrencies. At the very least, all MTOs should have a view on using the likes of Ripple, Ethereum, Bitcoin, Litecoin, NEO or any other cryptocurrency.
Try talking to your broker or MTO about their blockchain strategy and ask them what their policies are. The answers may well be enlightening and if you are looking for the very best deals, you want to be dealing with a company that is considering all of the available options. After all, if MoneyGram and Western Union are pursuing a blockchain strategy, then disruptive firms and brokers that have risen to prominence on the strength of their superior technology, should certainly have some interesting developments planned!
This content is sourced and brought to you by The Money Cloud – comparing the best rates for sending money overseas offered by hand-picked, regulated brokers and money transfer agencies.