Last updated on June 21st, 2023 at 04:48 pm
As more developments are introduced around the world, the means of money transfer payment and remittance have continued to change. In the past, people had to make do with Western Union and even the Postal system to remit money to their loved ones thousands of miles away regularly, but this has changed.
Remittance of money by migrant workers to their families and friends in their home country is an important aspect of many economies, especially for developing countries. For instance, “The Nigerian Diaspora population remitted $65.34bn in three years to boost economic activities in the country, data obtained from the World Bank have shown”, according to The Punch.
It went on to state that, “In 2020, India had a Diaspora population of 17.9 million and received $245.27 billion in remittances in the three years under review.”
Everyone makes payments for services and products, not minding their income class. Some pay in cash, while others may pay via electronic money. For a vendor, receiving payments via electronic means may experience issues if the owner of the bank account or credit card flags it as a fraudulent transaction.
The fees attached to accepting electronic means of money transfer cut deep into the profits of many merchants. Sometimes, before a merchant can access the funds, they have to wait for a few days which may not be ideally favorable to them.
For a breadwinner living in a different country far from their family members, transferring money may not be easy. Sometimes, they have to jump through red tapes before they are allowed to send funds back home.
These are merely a few of the problems that are attached to the traditional means of money transfer and payment. There is a need for an efficient remittance and payment service that plugs the loopholes noticed on conventional platforms.
A blockchain payment and remittance platform use blockchain technology to offer transfer, payments, and remittance services. Platforms that fall under this category are more efficient than regular traditional financial organizations. Since they use blockchain technology, their clients can easily engage in cross-border remittance, transfer, and their transactions will be completed in minutes or even seconds.
Some blockchain-based remittance platforms remove the cutthroat fees that may be attached to cross-border transfers, and an example is Nano. Nano is one of those platforms where one is not charged a transaction fee for sending funds from one wallet address to the other.
The presence of intermediaries in centralized finance contributes to the inefficiency of the terrain. This is not obtainable in a blockchain-based payment platform, meaning that only the seller and receiver interact.
Use Cases of Blockchain In Money Transfer, Payment & Remittance
Blockchain has numerous use cases in the field of payment, remittance, and money transfers. In fact, this is one of the fields blockchain has altered tremendously. Many of the projects that use this technology are linked to payment in one way or the other.
- Mobile crypto wallets
In a typical banking mobile app or even a payment app like PayPal, before the user can access its features, they have to register and fill in their details in line with KYC/ AML guidelines, but that is not the case of a mobile crypto wallet.
Using most mobile wallets like Trust Wallet is quite easy because all that is needed is to download the app, save the phrases, and that is it. These wallets are powered by blockchain technology and work on both iOS and Android devices. They are designed to allow their users to transfer funds to anyone in the world in a short time. Many of these wallets can hold multiple crypto-assets and even link to exchanges. All the recipient needs is a wallet address that accepts the coin, and this can be gotten without jumping through hoops.
If the recipient wants to exchange the received crypto asset to fiat, they can connect their wallet to a crypto exchange. Some merchants accept tokens as payment and have incorporated the feature to link a crypto wallet to their e-Store.
Gone are the days when people had to wait for days before they could receive cross-border payments from those that are thousands of miles away from them.
- Crypto ATMs
ATMs are no longer linked to physical fiat currencies alone. Several countries like Estonia, South Africa, and even the United States have crypto ATMs. With the ATM, people can transfer crypto like Bitcoin to others without having to use their mobile devices. For countries with residents that can’t access good broadband service, this innovation will alter the way they send and receive money.
Some blockchain-based platforms like Wirex, and BCash are creating ATMs that use blockchain technology to send, receive and remit funds to anyone, no matter where they live in the world.
The aforementioned companies are also outfitting online and offline stores with POS services that accept cryptocurrencies. Blockchain ATMs do not need their users to create a bank account.
- Digital Identity Verification
Verifying one’s identity in the traditional financial system is stressful, as the steps that must be followed are cumbersome. It usually starts with the potential user submitting their personal details, ID card, real-time face capturing, followed by other steps. Sometimes, the user may have to go through this every time they want to carry out transactions. The duplication of this process when someone uses multiple financial apps is inefficient.
Storing data on the blockchain and offering users the ability to share the data with potential platforms they want to use makes the user experience seamless. This technology can improve the user verification process.
How can blockchain facilitate payment and transfer of money?
- Eliminate the need for intermediaries
The process of transferring crypto from one wallet to the other doesn’t need an intermediary or middleman. Transactions like the aforementioned happen between the sender and recipient.
- Simplify the process
When sending crypto like LTC, all the user needs to do is type in the wallet address of the recipient and the amount. In a short while, the recipient will receive the funds.
- Finality of transactions
Merchants do not have to worry about banks making them refund money when they have fulfilled their end of the deal. Some vendors frown against the usage of some centralized payment services because the probability of them making refunds is high. Blockchain offers the finality of transactions.
- Reliable payment solutions at a much lower cost.
In some countries, banking and payment structures are not as efficient as what is obtainable in developed countries. Transactions may not be successful, yet the funds are deducted from the account of the sender. It may take the bank months before they rectify the problem, and in some cases, the funds may not be refunded. Issues like this make payment, transfer, and remittance difficult.
Blockchain, on the other hand, tells a different tale because transactions are done smoothly, and the fees charged are more affordable. Some blockchain-based payment platforms are fee-less, meaning that users do not pay a dime in fees.
Can one buy crypto from the bank?
Traditional banks do not sell cryptocurrencies to their users. Only Neobanks allow their users to buy, exchange, and sell crypto within their apps, though they have their restrictions. They may not allow their users to transfer the crypto outside the app, but they can transfer it to other app users. A typical example is Revolut.
Many banks allow their clients to use their cards to buy crypto in crypto exchanges or receive fiat currencies from exchanges. In some countries, the traditional banking system is not allowed to interact with the crypto realm, meaning that clients can’t use bank cards to purchase any crypto. Popular examples are China and Nigeria.
Challenges associated with infusing blockchain technology into payment, remittance, and transfer system
- Presence of regulatory forces
Regulation is a big issue in the crypto world. Some countries have been releasing laws and guidelines to regulate blockchain and crypto usage. For instance, the Chinese government banned the mining of Bitcoin and the usage of anything linked to crypto in its country. The Nigerian government has banned banks from allowing their users to get involved in anything linked to cryptocurrency. Countries like the US have created tax laws to discourage people from converting their crypto into fiat.
- Internet usage
Before a person can make payments through crypto, they need access to the internet and smartphone, which may be a big issue to those that live in developing climes. If crypto will truly bank the unbanked, more needs to be done to make it accessible to those without smartphones or the internet.
- Real-life usage
Not many merchants accept cryptocurrencies, at the moment, meaning that holders of these tokens have to convert them into fiat currencies before they can make payments. This means that there will still be the need for a bank account.
Future Improvements Of Blockchain Technology In Money Transfer And Payment.
CBDC is an innovation that is birthed from blockchain technology as means of money transfer and payment. Different governments are currently working on their CBDC and wallets. Once they are launched, their citizens can use them to make purchases, remit funds, and do other things without having to head to the bank.
At the moment, there is no fully functional CBDC, as governments are testing out their efficacy before launching them to the public.
In Conclusion…
- Blockchain is injecting efficiency into the payment, transfer, and remittance activities by removing intermediaries, simplifying the process, cutting down, and ensuring that transactions are completed quickly.
- Its use cases are numerous, and they include mobile wallets, ATMs, and easy KYC processes.
- Only very few Neobanks allow their clients to buy crypto with their apps. On the other hand, many bank cards work on exchanges.
- Though crypto has incredible use cases, it still has its restrictions like regulation.
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