How blockchain technology can give people more control over their financial lives
The first blockchain-based cross-border remittance service in Bangladesh was announced recently. Standard Chartered Bank, in partnership with bKash of Bangladesh and Valyou of Malaysia declared a service that has the potential of revolutionizing instant transfers of money across national borders of the country.
The service will initially operate between Bangladesh and Malaysia. This blockchain-based service is in its final stages of commercial testing and will soon be available to customers.
Blockchain literally means “a chain of blocks” that function as a shared register via the internet. The system records any transactions performed using the technology as data. It saves all data simultaneously on all nodes of the network. This decentralized and distributed authority allows creation and management of a large chain of blocks that are verified by all the users. It thus also becomes an archive of all transactions.
Moreover, cryptographic tools ensure that it remains unmodifiable and therefore immutable. The shared nature of the archive also complements its secureness and makes sure that anyone can view it anytime.
Because of a secured means of ledger maintenance, assurance of anonymity, as well as negligible possibilities of information tampering, blockchain technology has been used for years in the “dark web,” the World Wide Web content that use the internet but require specific software, configurations, and/or authorization to access, arguably for illegal activities. However, in recent times, blockchain-based currencies and cross-country remittance services have gained popularity worldwide.
A blockchain-based remittance service in Bangladesh will facilitate financial inclusion as remittance inflow is the lifeline for many rural families. In a developing country like Bangladesh that suffers from high youth unemployment, overseas migration is one of the ways out for the low and middle-income groups.
At present, over 10 million Bangladeshis work in more than 160 countries and regularly remit money into the country.
Foreign remittance has become one of the major boosts to our economy. It constitutes as much as 40% of foreign exchange earning only second to the garments sector. The remittance inflow was $18.32 billion in 2019. However, an estimate revealed that 30-40% of remittance comes through informal channels that eventually deprive the country’s economy. Remittance is bound to come through informal channels as less than 50% of the adult population in Bangladesh is under the umbrella of formal financial services as a 2018 report of the World Bank has stated.
Therefore, many of the families lying outside the formal financial services continue to rely on non-secure/informal means and/or bear exorbitant fees. Blockchain-based technology will cater to the international migrants’ need for a simple, fast, and cost-efficient money transfer medium. It requires a short transaction time and no mediating bodies -- one can transfer money in a few minutes devoid of any intermediaries such as banks or agents.
Thus, blockchain will benefit the customers by significantly reducing time, cost, and number of visits (TCV) for remitting money.
A revolution in transactions
A recent policy report published by the European Commission’s Joint Research Centre (JRC) revealed, the use of blockchain-based technology in cross-border transactions reduces costs by up to 60%. It has the potential of revolutionizing cross-border remitting service the same way Uber or Airbnb have unsettled traditional business models in the transportation sector and hospitality industry.
The benefit of blockchain technology is diverse. Compared to the centralized system of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), blockchain-based technology will take much shorter time to process a transaction thus, possibilities of fraud are very slim. Chances of fraud eventually increase the cost of the traditional banking service. Due to risks of fraud, banks must insure their service and capital, which are eventually passed down to the customers in the form of service charges.
A blockchain based cross-border money transfer would make sure that all the parties in the transaction instantly receive the same information. If there are inconsistencies, the transaction will not be executed. Thus, any platform based on a blockchain technology will ensure “truth and trust” as Alex Tapscott and Don Tapscott argued in the book Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Business, and the World (2016).
Besides limiting chances of swindles, blockchain will also empower customers as transactions are fully traceable. Customers will know where their money is, and if the intended receiver has accepted the payment. This is quite the contrast compared to the current systems, where money apparently disappears for a few days after someone sends it.
The technology thus has inherent egalitarian possibilities. In short, the benefit of blockchain-based technology is provision of real time secured transactions, and it will eliminate the need for businesses to have cash reserves in destination countries.
People in emerging and remittance-dependent economies are now turning towards remittances services that use blockchain technology and cryptocurrencies. For instance, Abra -- a fintech firm -- now runs across more than 150 countries just five years after it enabled instant money transfer between the US and the Philippines in 2015.
Among many of its services, it allows users to instantly send or receive fiat or cryptocurrencies. The innovation that was key to its success is the possibility of “peer to peer” exchanges -- the Abra wallet enables a customer to find nearest “human ATM” -- other customers using the app. In this way, the company has built a wide-ranging network of agents without having to invest much in infrastructural development.
Distributed ledger technologies could become a real breakthrough for achieving the Sustainable Development Goals’ target of reducing the transaction costs of migrant remittances to less than 3% and eliminating remittance corridors with costs higher than 5% by 2030. Thereby, this technology will aid improving the lives of the over 250 million migrants in the world.
Despite many benefits, one can accuse the technology of lacking the robustness of formal financial infrastructures and adherence to the anti-money laundering and counter terrorism financing regulations. Nonetheless, the possibilities of this technology are enormous and Barclays -- the British financial services company -- has been involved in blockchain since 2015 in partnership with US-based payment company Circle.
Likewise, the Bill and Melinda Gates Foundation launched an initiative in 2017 -- Mojaloop -- that would deliver financial support to people underserved by conventional banks. These initiatives have thus side-lined the fear of being associated with a technology that is often allegedly linked with the “mysterious” activities of the so-called “dark web.”
If we can initiate a blockchain-based remittance service, it will not only financially include millions of people currently inadequately catered by the existing financial service providers, but it will also bring down transaction costs and enable competition in the industry.
For this to happen, we must first reduce the digital divide in the country. We must provide adequate digital access to the nearly three-quarters of rural households in the country having low level digital access and skills, as revealed by the recent “Digital Literacy in Rural Bangladesh” -- a survey of 6,500 households conducted by the Brac Institute of Governance and Development (BIGD).
If the blockchain-based distributed ledger technology is mainstreamed -- running simultaneously on millions of devices, offering a cheaper and more secure record-keeping than the banking system -- the ordinary idea of cross-border remittance will cease to exist, as in today’s world there is no such thing as cross-border email or cross-border web browsing.
Potentially, the technology may redesign our businesses and societies by challenging the conventional centralized authorities while calling for an open decentralized system of accountability.
Blockchain is the future -- if we want a decentralized system where people have more control over their own financial matters.
Mohammad Tareq Hasan is an anthropologist and teaches at the University of Dhaka.
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