Remittances are a big business. In low and middle-income nations, remittances account for most of their capital inflow, exceeding even foreign aid.
This year alone, total global remittances are expected to reach $815 billion—more than the GDP of most countries, including wealthy nations such as Switzerland. As the world’s largest economy, most remittances originate in the U.S., where friction in the process has created mass consumer frustration. Currency exchanges, requisite account creation, and the need to visit a physical location like a Western Union have impeded the free flow of money across borders. The remittance industry has long been overdue for change, and with new technology, the process of sending and receiving money is undergoing a renaissance.
The first technology driving remittance disruption is now ubiquitous—smartphones, which have become a lifeline for millions of people, especially those in emerging markets. As smartphones become the go-to device for everything from messaging to dating, it is expected they will also become the preeminent tool for money and finance. Fears about the move to encrypted messaging on smartphones have proved largely unfounded: A Pew Research Center survey of 11 developing nations found that free messaging apps such as WhatsApp are universal among users in these countries, contributing to an overall sense that smartphone connectivity has had a positive impact on education and the economy.
As was the case with other industries, the growing accessibility of technology is also cutting middlemen from the money transfer process. The need to travel to a physical location—a difficult proposition in many underdeveloped places—is slowly becoming a thing of the past. With half of all money sent going to rural areas, which are typically where most impoverished and food-insecure communities are located, overcoming this barrier is crucial to bringing equity to the remittance process.
The move toward disintermediation has created the possibility for remittances to become truly peer-to-peer without the restrictions, rules, and interference of corporations. Businesses that have long charged fees on these transactions are naturally resisting the move; fees are typically about 6.25% of total dollars sent—which can add up to a massive amount over time. There is, however, historical precedence for slow and costly processes to evolve into instant, free options.
Take, for example, the move from telegram to text. People once had to make a potentially time-consuming journey to a physical telegraph office to send their messages. In modern times, that morphed first into SMS—an instant process that incurs a small fee for text messages—to the free instant messaging services available today through WhatsApp and similar apps.
Remittances are on a similar path that is being facilitated through bitcoin.
Bitcoin combines the power of an app-based mobile wallet with free peer-to-peer transfer services. Its long-awaited arrival has accelerated the remittance revolution. As a universal protocol, anyone with a digital wallet app—no matter the provider—can send bitcoin through the network. Digital currency eliminates the need to visit a physical location to arrange the transaction, pay a fee, and navigate restrictions. All you need is the app to instantly reach the people you need to reach.
Before mobile bitcoin-based remittances become universal, some challenges remain. Legacy remittance providers offer a level of protection against fraud and the ability to cancel a payment or request—which is currently impossible with bitcoin, due to its instantaneous transfer. Even so, for most, the immediate availability of cash made possible through bitcoin outweighs the cumbersome, rarely used protections of legacy remittance providers.
Momentum behind technology is making the process easier, more democratic, and less expensive. When remittances shift to become app-based and bitcoin-enabled, more people will have greater access to their money and will likely send it more frequently, and in smaller amounts. This creates a greater possibility for recipients to smooth their incomes and establish more stable savings plans. With the numerous advantages these emergent systems offer, digital money transfer will continue to grow in popularity, accelerating a move toward cryptocurrency and reshaping this important element of the global economy for the better.