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The global remittance market is growing and becoming a major revenue source for emerging markets. The World Bank’s report released recently estimates that global remittance reached $596 billion in 2017, out of which developing countries like Nigeria received $450 billion.
The World Bank projects that global remittances will grow to $616 billion in 2018 – up from $601 billion in 2016, out of this, low and middle-income countries are expected to account for $466 billion.
Nigerians in Diaspora sent home $22 billion in 2017 representing the highest of any country in the sub-Saharan Africa region. Notwithstanding, many experts have said at various times that Nigeria is yet to scratch the surface with Diaspora remittances.
Driving the growth in Diaspora remittances are new financial innovations such as cryptocurrrencies. Despite many regulators’ unfavourable disposition towards cryptocurrencies like bitcoin, Ethereum, etc, for various reasons many people living outside their home countries continue to use it to send money back home. In Nigeria, cryptocurrency firms like Luno have seen cross-border transactions increase their revenue margin significantly.
The attraction of cryptocurrencies or virtual currencies emanate from three pressing problems of the global remittance market which includes number of intermediaries, high commissions and heavy regulatory pressure. The average cost for sending $200 using traditional remittances in the fourth quarter of 2017 was 7.09 percent according to the World Bank.
Remittances which refer to transfer of money by a foreign worker to an individual in his or her home country depend largely on the use of money transfer operators (MTOs).
For example, Yusuf Aliyu who lives in the United Kingdom wishes to send money to his sister in Nigeria. In very few cases, he walks directly into a branch of Western Union (a Remittance Software Provider) and hands his money over to the cashier at the available exchange rate. Western Union commences the process to send the money to Nigeria; it charges Yusuf for the service which is determined by the current exchange rate.
In most cases, Yusuf does not go directly to Western Union but finds a frontend agent close to him. The agent charges for the services but it needs to use the service, software, and system provided by bigger remittance software providers (RSP) or Money Transfer Operator (MTO) like Western Union or MoneyGram. In order to pay for the RSP’s services, the agent will need to charge the end-user more.
Apart from high commissions, the presence of many intermediaries also guarantees that Yusuf’s transfer will not be delivered on time. To complete a transfer, agents, RSPs, more than one bank must be serviced and fees are charged every step of the way. Sometimes, it will require a change from one currency to another.
Regulation of remittances in Nigeria often comes across very stringent due to the regulators’ need to curb money laundering and financial crime. This constitutes a significant barrier for players and contributes to the cost of services. There is also the near monopoly of the space by few MTOs like Western Union, MoneyGram, World Remit and RIA.
The use of cryptocurrencies however reduces most of these challenges for the end-users. Reducing the cost of remittance using blockchain technology which cryptocurrencies like bitcoin run on is miles cheaper than the cost of remittances in the market presently. It is also important to note that there are currently an estimated 20 million cryptocurrency users compared with hundreds of millions of customers for traditional banks.
Nigeria is one of the countries with the largest mobile phone penetration on the continent and high unbanked population numbers. Cryptocurrencies are well suited to the evolving mobile phone culture. A mobile app for instance enables quick crypto remittances with just a few aps.
They are also suitable for unstable countries where local banks and local currency may not be trusted. Cryptocurrencies also enables transparency in remittance. All pricing and fees can be displayed upfront, and the money sent through the network is easily traced as it travels, building on the inherent features of blockchain technology.
Some cryptocurrency firms offer MTO services that ensure customers send and receive money without any additional overhead fees. All the details of the transactions, including the customer’s know your customer (KYC) and other anti-money laundering necessities are stored in a secure and low-cost blockchain database.
Already, some cryptocurrency companies that have developed a blockchain-based global payment network which allows fast – one day instead of a week – and much cheaper transactions have opened shops in Nigeria and other Africa countries.
