Not a day goes by without some payments posting that reflects cross-border and/or crypto (often combined) events and trends in some fashion. This piece found in JDSupra discusses the increasing use of digital assets in remittances. Again, for those who do not closely follow the x-border space, remittances are generally associated with person-to-person (P2P) funds transfers, as opposed to other use cases. This particular posting is about that space, with a particular focus on Latin America.
‘One of the most promising benefits of digital assets is the ability to move value over the global internet nearly instantaneously, in immutably recorded transactions. For many people in warzones or geographies with limited access to banking or payment card infrastructure, this capability is critical and can often be life-saving…
Remittances from individuals with ready access to banking and credit resources to family members or friends in geographies without such access to more traditional payment methods, continue to hit annual records. According to the World Bank, remittances to low- and middle-income countries reached nearly US $600 billion in 2021, with around $100 billion flowing to Latin America. These remittances have typically been saddled with sluggish settlement times, unfavorable exchange rates, and onerous commissions and fees often levied by the issuing bank, the beneficiary bank, and a correspondent or intermediary bank in between. (According to the World Bank, “remittance costs are exorbitant in smaller corridors”). Add to that infrastructure deficiencies, transaction limits, weekend and holiday blackouts, multiple levels of verification in each country, money laundering controls, possible international sanctions, and internal capital controls, and the frictions that those seeking to transfer funds face can be daunting.’
We first started advising members of the coming crypto mainstreaming a couple of years ago in these pages and in member research, which was given a general boost among central banks with the relatively unexpected intro of Libra back in 2018. The consumer use case and somewhat narrow popularity of crypto in certain transactional uses was already underway, but the private crypto intentions of Facebook provided some motivation for serious central bank consideration (or some might say intervention). In any event, the use of cryptos as a means of international funds transfers is one of the innovative ways to bypass the legacy processes and expense associated with x-border. BIS and the World Bank have been pushing the P2P cross-border innovation button for several years now, in part due to the underserved populations in various developing markets. One of the keys to further ubiquity is regulatory scrutiny, so we expect lots more to come on a continuing basis.
‘A critical factor that could accelerate adoption of digital assets will be jurisdictions recognizing that digital assets are here to stay, and providing adequate legal frameworks for developers, exchanges, and custodians to operate in a compliant manner. Some countries have taken the approach of banning digital assets outright, as a threat to their sovereignty; others have adopted them wholeheartedly, including allowing bitcoin the status of legal tender. But the middle way may be the most attractive. Governments would retain the ability to set the regulatory and enforcement parameters, but individuals would enjoy the benefits of transacting in digital assets. That arrangement is a win-win for everyone, especially those who rely on international remittances for their most basic needs.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group