How Blockchain is Revolutionizing Global Remittances

Remittances are when migrants send part of their earnings in the form of cash or goods back to their families and communities at home. The global remittance market was valued at USD 738.62 billion in 2023, and is expected to reach USD 150.60 billion in 2024. The countries that top global remittance charts in 2024 so far are the United States, Saudi Arabia, Switzerland, China and Germany, and in 2023 that list also included India, Mexico, the Philippines and Egypt. There are other countries where remittances make a substantial part of gross domestic product, including Tajikistan, Tonga, Lebanon and Nicaragua. All of this data gives the wider picture of something that is a very day-to-day and highly personal transaction. Remittances are essential for the survival of many families globally. But it also comes with its fair share of issues. These cross-border transactions are often slow and expensive, with convoluted middle-men stages. This puts an undue burden on those sending and receiving the money. 

Blockchain technology can provide significant improvements to remittance processes. Below we list several key ways in which blockchain makes remittance payments faster and simpler, and how these will likely impact the GDP of particular countries and the industry in the future. 

Reducing cost 

One of the major flaws of the remittance industry is that it is expensive. The matter of a few dollars can make a difference for the families waiting for payments back home, and these high fees can have a significant impact. 

Blockchain reduces costs by reducing the need for intermediaries and middlemen. Blockchain technology better facilitates peer-to-peer transfers, which removes the intermediaries that raise fees in the transaction process. Blockchain technology can be accessed by anyone with an internet connection, and its decentralized nature means that no one else is involved in the transaction, which lowers fees. 

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Safety 

Blockchain uses cryptography to secure the transfer of funds. An immutable ledger creates a trail for each transaction that is transparent and uneditable. This is especially vital for such important funds as remittance payments. With increased safety, incumbent players in the market such as Western Union will be required to find new ways to attract customers and offer the same kinds of safety and security as blockchain peer-to-peer payments. It also reduces the risk of fraud or errors, whether human or by transaction protocols. 

However, safety is also an area of concern for the adoption of blockchain in remittances. Whilst the technology is objectively safer, it is not technology that is widely understood. Many people have been making remittance payments the same way for years, with bank or wire transfers, checks, or even sending cash with friends or relatives to the intended recipient, remaining popular forms of transaction. Slightly less than half of the current global remittance market happens through non-digital means. Research from Visa shows that 34% are using a physical bank or money transfer branch, 12% are sending cash, checks or money orders in the post, and 11% are asking friends or family to take money home with them. 

With new technology comes suspicion, and this can be especially hard to break when the transfer is as sensitive and important as remittance payments. Players in the blockchain remittance space will need to ensure that they incorporate user education in their marketing and highlight the safety protocols taken. 

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Efficiency and financial inclusion

Blockchain is hugely beneficial for the increased speed of settlement times. Blockchain transactions can be settled real-time or near-instant, and happen 24/7, therefore not being impacted by regional holidays or business hours. Existing remittance transactions can sometimes take days - these could be made in minutes with blockchain technology. 

Blockchain’s efficiency opens up the audience to access digital remittance payments. Lack of middlemen means that people do not have to rely on traditional banks to make these payments and stand as intermediaries. Mobile wallets can be created without bank accounts, which helps underbanked and unbanked populations who have significantly lower access to financial services. Traditional banking can be hard to access for migrants, and the paperwork and KYC for cross-border payments especially so. 

Crypto is another piece of blockchain technology that can assist migrants send their earnings back home. Crypto is currently being used globally to sure funds against volatile fiat currencies and political and social instability. It is also being populations as a means to hold or send money from countries such as Russia and Iran, to swerve international financial sanctions. 

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Blockchain’s future with remittances

So blockchain is hugely beneficial for remittances - but what does that mean in reality for the industry? As we’ve already seen, just because the technology lowers cost, reduces intermediaries, and offers wider financial inclusion and efficiency, that does not mean that every migrant will choose blockchain. Whether that’s because they don’t feel technologically literate enough, they simply don’t know it is an option, or because they do not trust it. These hurdles are high and will require significant input from the industry to rectify. With that being said, blockchain offers a wide range of benefits for remittance payments and with several countries seeing a significant portion of their GDP going to remittances, it benefits even traditional financial institutions to look at how blockchain can increase efficiency and adoption in this space.   

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