People walk outside of Ria Money Transfer office in Brussels, Belgium on Nov. 10, 2018 (via Shutterstock).

Blockchain must solve last-mile problem to dominate remittance business

Sending money to relatives in developing countries is growing into a half-trillion-dollar business

Blockchain-based money transfer services can dominate the international remittance business as it grows into a half-trillion-dollar industry over the next five years. That is the result of a study released Monday by Juniper Research, predicting blockchain technology will revolutionize money transfer if it can solve it’s “last-mile” problem—getting cash to recipients in low and middle-income countries.

Those countries currently account for $332 billion in money transfers, much of it sent through traditional firms like Western Union and MoneyGram to unbanked people in third world countries, Juniper said. That will grow to $525 billion by 2024. (The World Bank said that number was much higher, reaching $528 billion in 2018.)

According to the World Bank, the cost of sending $200 via traditional money transfer services averages 7%—or $14—and can run as high as 10%, or $20, in parts of Africa and some Pacific islands. The World Bank has set a Sustainable Development Goal of reducing that to 3% by 2030.

In “Digital Money Transfer & Remittances: Domestic & International Markets 2019-2024,” Juniper found “that by utilizing a blockchain-powered network, operators can offer their users a much faster, cheaper, and more transparent service.”

It added, “[s]olutions such as RippleNet and IBM Blockchain World Wire are set to transform the area, by connecting diverse sets of partners in different markets to enable more effective payments.”

But to succeed, money transfer services working on “blockchain platforms must focus on gaining as many partners as possible to increase the reach of their networks,” the report noted.

While money transfers to the mobile devices that many blockchain-based solutions would prefer to use are growing rapidly, and will reach 41% by 2024, that still leaves nearly 60% requiring a physical location from which recipients can pick up cash. That adds a middleman to the transaction, substantially increasing its cost. Cutting out middlemen is one of the main benefits blockchain can bring to remittances.

“While cash pickup seems limited compared to fully digital solutions, it is an important solution for more cash-dependent remittance markets,” said Juniper in, “Why Blockchain Will Revolutionize Money Transfer,” a white paper that accompanied the report.

Another vital advantage that blockchain money transfer services can adopt is transparent pricing, said Juniper Research Senior Analyst Nick Maynard, author of the report.

“While traditional operators have launched digital solutions, they have yet to adopt transparent pricing of transfers,” he said. “Unless operators accept this requirement, they will continue to lose market share. Innovation must be the number one priority.”

However, blockchain is not the only technology FinTech companies are investing in to transform the business of sending money home to family in poor countries, Maynard’s report said. One of those firms, Remitly, announced a partnership in April with money transfer firm Ria that added 73,000 pick-up locations, Juniper said. Another, WorldRemit, partnered in May with MCB Bank, which has 1,400 locations in Pakistan, and Nigeria’s Paga digital money transfer service, accessing 11 million potential recipients in that country.

Blockchain still has some work cut out for it to convince those FinTechs of its value. Last November, TransferWise chairman Taavet Hinrikus, told Fortune, “We’ve looked at different blockchain technologies, but yet we haven’t found anything which enables us to do what we do in a way that is cheaper or faster.”

After looking at Ripple, Hinrikus said, “If every bank in the world was going through the Ripple network, it would be amazing. Yet how many banks are using Ripple today in production? It’s a very short list.” At the beginning of 2019, Ripple’s bank network surpassed 200.

Still, blockchain based money transfer is not just a start-up’s game. Traditional financial institutions are investing in blockchain solutions. Visa B2B Connect, for example, is working with IBM Blockchain to integrate Hyperledger Fabric into its money transfer platform.

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.