Across the Asia-Pacific region remittances are big business. With millions of workers leaving their native lands to seek better wages and working conditions abroad, much of those earnings eventually find their way into the pockets of families back home.
In 2018, these international wage earners sent nearly $300bn in remittances to Asia-Pacific countries. The Philippines alone received $34 billion worth of remittance in 2018, accounting for nearly 10 per cent of its nominal GDP.
Despite the large size of the remittance industry, until recently, remittances have been complex in nature and costly to transact. Banks offer remittance services but transfer fees are often expensive and given that weekly or daily amounts sent back by workers may not be very large, the fees may eat up a large portion of the remittance.
Besides, many workers and their families are ‘unbanked’, which is to say many have no access to bank transfer services. Instead, they rely on a network of remittance traders, bringing cash to counters and receiving a quote for the exchange and the fee, which again can be quite onerous.
Another issue is that while the cash leaves the hands of the workers instantly, their families back home are usually unable to receive the payment for several days. On average, wire transfers take 3-5 days to process and in situations where money is tight, this can add a further burden on finances.
Telecoms natural fit
Despite the large market for remittance, there are still plenty of inefficiencies. For a few years now, telecoms players in these markets have been attempting to tackle this issue.
While many workers from South and Southeast Asia remain “unbanked”, in a parallel development, GlobalData estimates that mobile subscription penetration of the population will reach 108 per cent in “Emerging Asia” in 2019.
In these markets, people are used to transacting with mobile operators to top up their call and data services. Telecoms companies also have long-established networks of agents who sell top-ups and SIMs, similar to the network of agents that remittance companies have who accept cash payments. In addition, mobile operators in the Asia-Pacific such as Norway’s Telenor, Malaysia’s Axiata and Singapore’s Singtel, among others, have operations across multiple markets or at least partial ownership across multiple markets.
These three factors make telecom operators natural fits to compete in the remittance game. In fact, many operators have remittance licenses in their respective markets and have been offering these services for years. Companies such as Smart in the Philippines, and Ooredoo in Indonesia, Myanmar and the Maldives, have robust remittance platforms. These companies offer competitive fee schedules and when both sender and receiver are members of their remittance service, the time to complete transfers is reduced.
Despite their natural fit, telecoms companies still face many of the same challenges presented by traditional remittances. While operators tend to be large international organisations, they do not deal in foreign currency exchange on the same level as dedicated financial institutions and often cannot offer the best exchange rates. Also, if both the foreign worker and their family back home are using the operator’s money services, then transfers can be cleared in hours, if one of the parties involved is outside the operator network, then the lengthy transfer process comes back into the equation, delaying completion of payment.
A blockchain opportunity
New technology is emerging that can help reduce both cost and time to complete international remittances. Blockchain has made headlines around its impact on cryptocurrencies, such as Bitcoin, as well as the concern it has attracted from regulators and the law over its use in black markets, such as the dark web.
But beyond the hype and concern, blockchain is simply a system of record, or ledger, that is stored across networks of computers with transactions assigned a unique key, and any time a change is made to this record, it is simultaneously replicated across all ledgers stored on the network and a new key is generated. This means ownership or transfer of money can be recorded on a blockchain with little to no potential for fraud, and a change of ownership is recorded instantly.
A new trend is starting where blockchain is being used to enable low-cost and instantaneous remittances. Cryptocurrency transfer fees are generally a fraction of the cost of traditional wire fees. For example, the average fee of an international wire transfer is around $15-$25, meanwhile, the cost to exchange a standard currency into cryptocurrency Ripple (XPR) is .00001 XPR per transaction. This allows a remittance provider to trade the currency of one country into XPR at a fractional cost, then again transfer out of XPR to another country, again for a minimal fee. These savings can be passed on to consumers to offer remittance services at very low prices. Due to the instant nature of blockchain transactions, remittance can be carried out immediately.
Tech disruption leads the way
Two Asia-Pacific telecom companies have realised the potential of this technology and have partnered with a fintech giant to build blockchain-based remittance services.
Telenor and Globe Philippines have both partnered with Alibaba’s Ant Financial to provide blockchain-based remittance for their customers in key markets. The Philippines sends thousands of workers to Hong Kong every year, so starting in June 2018, Globe, through a partnership with Ant Financial, is offering instant remittance services between the Philippines and Hong Kong between Globe’s mobile wallet Gcash and AntFinancial’s AliPay Hong Kong.
Ant Financial, on the back of the success on the Globe partnerships, is also partnering with Telenor to enable blockchain remittance between the telco’s mobile money platforms in Pakistan and Malaysia. Users of Telenor’s Malaysian subsidiary Digi can use their mobile wallet Valyou to instantly remit to users of Telenor’s Pakistan subsidiary’s mobile wallet EasyPaisa.
Blockchain remittance is in its early days, but the potential is there as shown by early commercial services launched by Ant Financial, Telenor and Globe.
Telecom companies are a natural fit to move into this space due to their wide-reaching customer relationships, international footprint, and tech know-how. With banks and other traditional financial institutions failing to innovate in this space, there is room for innovative thinking by players looking to disrupt the remittance sector and offer a better quality of service, and ultimately better quality of life, for international workers everywhere.