The need for a reliable and affordable global money remittance service has never been greater than it is today. With an increasing number of immigrants, migrant workers, and foreign students, efficient, affordable cross-border money transfer is more necessary than ever.
Globally, over $600 billion are remitted each year with a bulk of transactions being handled by Money Transfer Operators (MTOs). An MTO is basically an agent of Western Union, whose work is to process remittance and receipt of money in different locations across the world.
The money remittance process starts when a person wishing to send money visits an MTO. After handing over the money the MTO begins to process the transfer. The remitter can only send money at current exchange rates. In addition, he or she has to pay a transfer fee.
To reiterate, MTOs simply operate as front end agents as agents of Remittance Software Providers (RSPs) such as Western Union. In the end, the individual remitting money has to pay a transfer fee big enough to be shared between the MTO and RSP. The import is that money transfer via Western Union ends up being too expensive for its users. In the end, one has to pay as much as 20 percent of the transaction amount in transfer fees.
Yet, Western Union is only one of two major players in the global remittance industry. As a near monopoly, Western Union has a large number of MTOs in its stable. Its transaction cost is hardly fixed. Rather, it varies from one location to another meaning you can pay less in one place only to be asked to part with a larger percentage in another location.
Take locations with highly volatile currencies. Instead of Western Union quoting the transfer fee directly on the home currency, they base it on the US Dollar. This makes the remittance service prohibitively expensive and largely shrouded in obscurity.
Contrary to the notion that Western Union transfers money instantly, it can take days to complete one transaction. A remitter has to walk into an MTO, fill in a remittance form, hand over the cash he or she wishes to send, and wait for the transaction to be processed. That can take time. Once the money is transferred, the recipient has to walk into a local MTO and go through a similar process. Thus, Western Union isn’t instant.
Can Cryptocurrencies Replace Western Union?
To make global money transfer more efficient and cost-effective, people are turning to cryptocurrencies. Not only do cryptocurrencies make the transfer process trust-worthy, but it also ensures it is error-free. For people sending money to small nations with volatile currencies, there is no need to worry about having to pay huge costs. They don't have to use the USD as the base currency, either.
Since they rely on blockchain technology, cryptocurrencies are safe and fast. They are characteristically decentralized and do not require the intervention of a third-party to validate transactions. In other words, the intermediation of MTOs and RSPs isn’t necessary. Each transaction makes part of a block (or digital ledger) which combine to form a blockchain. This is transparent enough for anyone to see what transpired.
The blockchain network works through mutually acceptable consensus mechanisms that ensure fairness in each and every transaction. By and large, the remittance process is digital and does not require the intervention of MTOs. No permission is required and no paperwork involved. All one has to pay is a nominal fee without falling prey to exchange rates and huge remittance fees.
How Cryptocurrency Remittance Works
Say you want to transfer some money from the US to Europe. First, you have to purchase Bitcoin on an online exchange with US dollars. Then, you will send the Bitcoin to a cryptocurrency remittance company. The company will then send Euros to the recipient.
So far, a number of cryptocurrency remittance services have sprung up including JPM Coin by JP Morgan Chase. With that, it seems that cryptocurrencies are slowly creeping into the mainstream financial services sector. Another example is Bitspark, which incidentally relies on MTOs. As more people adopt cryptocurrencies in the global money transfer service, the RSPs and MTOs won’t be necessary.
So, can cryptocurrencies replace Western Union? Yes’, they can. With such an infallible application, all it will take is a majority of the people familiarizing themselves with its benefits. In the end, it will drive the MTOs and RSPs out of business.