Akbar works for a construction company in the Middle East for 60 hours a week. He toils all month and manages to save $30 to send home in Pakistan. He heads to his nearest money transfer agency and finds out that they charge a fee of $5. The remaining amount reaches Pakistan but he has got to pay another $5 to other agents for it to reach his hometown. And when the remaining $20 reaches home, the meagre amount remains futile.
This is the story of every employee who works for a meagre income, only to send a portion of their salary home. But, the sad reality is that a large chunk is taken up by middlemen and third-party dealers.
Trusting Financial Institutions is a Risk to be taken without a choice
In many instances, financial institutions, money exchanges and banks have disrupted the system and lagged in serving the public. The number of scams that financial institutions have been involved in is numerous. The famous US housing mortgage crisis, Saving and Loan Scandal, Kingfisher Airline Scam, Nirav Modi Scam are just a few from the exhaustive list of scandals that involved financial institutions. These middlemen have tampered with the system despite regulations laid down by the ruling bodies. The trust factor has been drastically affected, but the public doesn’t have any other option open to them. According to Financial Action Task Force (FATF), Remittance & Foreign exchanges use fees for undue purposes such as terrorist financing, thus misusing the hard-earned income of workers.
Money Exchanges and Banks charge a substantial fee for fund transfer and other services
Ironically, the financially backward population who are in dire need of services to transfer funds abroad, are the ones who are charged the most. The number of charges while transferring funds include the margins on the exchange rate, incoming fees, outgoing fees, international fees, bank to bank fees, fees by transfer amount etc. The lower income group find it extremely difficult to send money abroad without shelling out an extra buck apart from their savings. Rates vary from country to country, while the global average is approximately 7%. Even if the fees have shown a downward trend, these charges still do not remain nominal.
Identification Issue that is ailing in the current scenario makes transfers nearly impossible
According to the World Bank, 1.1 Billion people in the world do not have IDs. War-torn nations, plagues and no access to governance have created a large population of people who flood to different countries for a better life, with no identities. These include immigrants, overseas workers and undocumented. The money they earn either cannot be transferred or are transferred through illegal means, that charges twice the average.
Blockchain can resolve these issues and make identification and transfer easier at a lower rate
Blockchain technology is used for remittance of money from one country to another for less than a rupee. Currently, actual payments are disbursed from one bank to another after checking the sender’s balance. The transfer is initiated only if the sender has enough balance in their account.
Using Blockchain, the process has a stark difference from the traditional methods, as there are no middlemen involved. The only fee the user must pay is the network fees. In this method, the sender initiates a money transfer to the receiver. The Blockchain converts them to cryptocurrency and sends it to the receiver. Once the receiver has received it, these cryptocurrencies are liquidated. In this scenario, there is no actual transfer of funds or disbursal to the receiver. The transactions are recorded over a Public Blockchain with a timestamp.
With this inexpensive method of money transfer, more foreign exchanges can enter into the system, eventually leading to a global market where trading is continuous and stabilizes the system. But this utopian future is possible only with the mass adoption and usage of Blockchain.