The Rise of Blockchain In International Remittance: Security, Efficiency, and Beyond

Joachim Adeponle

13 Dec 2023 • 7 min read

Many people the world over, who are interested in finance, economy and technology have probably heard of the term “blockchain” at one point in time or the other. Gradually, this technology is taking firm hold on the system of international remittance.

In this article, we shall be checking out what blockchain is, its rise in the sphere of international remittance and its role in the future of international remittance.

What Are Remittances?

Remittances, the money sent by migrants back to their home countries, play a crucial role in the global economy. They inject billions into developing nations, fueling investment, education, healthcare, and poverty reduction.

What Are The Challenges Faced By Traditional Remittance Systems?

As good as remittances have been throughout the years, they have come filled with challenges which include:

High fees: Intermediaries often take hefty bites, squeezing precious resources from hard-earned funds.
Delays: Transactions can take days, even weeks, leaving families waiting anxiously.
Limited accessibility: Traditional banking infrastructure excludes many rural and unbanked populations.

What Is Blockchain?

With all these challenges plaguing the international remittance system, there enters blockchain, which, in simple terms, is a shared, tamper-proof digital ledger that records transactions in a secure and transparent way. Imagine it as a giant, collaborative spreadsheet distributed across a network of computers.

Every transaction is added as a new block to the chain, linked to the previous one with a unique digital fingerprint. This creates a permanent, chronological record that cannot be altered or deleted.

Here are the key things that make blockchain special:

Immutability: Once a transaction is recorded, it becomes part of the chain and cannot be changed. This provides security and confidence in the data.
Decentralisation: The ledger is not controlled by any single entity, but rather by the entire network of computers participating in it. This makes it resistant to fraud and manipulation.
Transparency: All transactions are visible to everyone on the network, promoting accountability and trust.

While often associated with cryptocurrency like Bitcoin, blockchain technology has a wide range of potential applications beyond finance. It can be used to track anything from supply chains to medical records, ensuring greater transparency and efficiency in various industries.

These principles highlighted above, make blockchain a natural fit for the remittance industry. Its potential impact is significant:

Reduced fees: Cutting out intermediaries can dramatically lower transaction costs.
Faster transfers: Instant or near-instant settlements are possible, making funds available immediately.
Increased accessibility: Anyone with a smartphone and internet access can participate, regardless of location or banking status.

Blockchain is still in its early stages, but its adoption in remittance platforms is growing rapidly. Companies like Ripple and Stellar are already facilitating cross-border transfers with greater speed, security, and affordability. As the technology matures and regulations evolve, blockchain has the potential to revolutionise the way we send and receive money across borders, empowering individuals and economies alike.

What Are The Advantages Of Blockchain For Remittances?

Blockchain technology comes with a list of advantages which we shall be examining in detail below:

Enhanced Security:

Blockchain technology gives remittance services top of the line security by making the following features available:

Cryptography: Blockchain transactions are encrypted using advanced cryptography, making them incredibly secure. Each transaction's unique identifier (hash) depends on the previous one, creating a chain of trust. Any attempt to alter a transaction would invalidate the entire chain, making it virtually impossible to tamper with data.
Distributed Ledger: The information is not stored on a single server but distributed across a network of computers. This decentralisation removes the risk of a single point of failure and makes the system highly resistant to cyberattacks and fraud.

Organisations who have benefited from these feature of blockchain technology include:

RippleNet which utilises multi-signature technology, requiring multiple approvals for complex transactions, further enhancing security.

Then there is Stellar Lumens: Employs a Byzantine Fault Tolerance (BFT) consensus mechanism, making the network incredibly resilient to errors and malicious actors.

Increased Efficiency:

Another advantage blockchain technology brings to the table of international remittance is the way it increases efficiency in transactions through the following:

Intermediary Elimination: By removing the need for traditional intermediaries like banks and money transfer services, blockchain platforms streamline the process and significantly reduce transaction times.
Faster Settlements: Transactions are settled instantly or within minutes, compared to days or even weeks with traditional systems. This is because funds are transferred directly between sender and receiver, bypassing intermediaries' complex clearing processes.
24/7 Accessibility: Blockchain platforms operate 24/7, unlike traditional services that may have limited operating hours. This provides greater flexibility and convenience for users.

Reduced Costs:

Blockchain technology has become very handy by international remittance platforms in reducing costs that have been taken up by the old systems in the following ways:

Operational Efficiency: The distributed nature of blockchain eliminates the need for expensive infrastructure and staffing requirements of traditional institutions. This translates to lower operational costs and ultimately, lower transaction fees for users.
Fee Transparency: Blockchain platforms typically have upfront and transparent fee structures, eliminating hidden charges and complexities associated with traditional remittance services.

Examples of organisations that have enjoyed this feature includes:

BitSend which offers significantly lower fees compared to traditional money transfer services, especially for international transactions; and Circle which leverages the USDC stablecoin, minimising currency fluctuations and providing predictable transaction costs.

Greater Transparency:

The blockchain technology has also offered remittance companies greater transparency in their activities and services through the following ways:

Real-time Tracking: Both sender and receiver have real-time access to track the status of a transaction thanks to the public ledger. This promotes transparency and builds trust between users.
Regulatory Compliance: Transparent transaction records facilitate easier compliance with anti-money laundering (AML) and know-your-customer (KYC) regulations. This benefits both users and platforms by creating a more secure and trustworthy ecosystem.
Financial Inclusion: Transparency opens up access to financial services for unbanked and underbanked populations who may not have traditional documentation or credit history. Blockchain-based platforms can provide them with a secure and transparent way to send and receive money.

Blockchain technology holds immense potential to revolutionise the remittance industry by offering enhanced security, increased efficiency, reduced costs, and greater transparency. As the technology matures and adoption grows, we can expect to see significant improvements in how people send and receive money across borders, ultimately benefiting individuals and economies alike.

Challenges and Considerations On The Use Of Blockchain Technology In Remittance

While blockchain's potential for remittances is undeniable, it's crucial to acknowledge the challenges and considerations that need to be addressed for its widespread adoption. These challenges and considerations include:

Scalability and Speed:

This challenge in the use of blockchain technology for international remittances include:

Limited Throughput: Some blockchain networks, like Bitcoin, have limited transaction capacity, leading to congestion and slower processing times. This can be a hurdle for mass adoption in the high-volume world of remittances.
Energy Consumption: Certain consensus mechanisms, like Proof-of-Work, used by some blockchains, require significant energy resources. This raises environmental concerns and hinders scalability.

Solutions and Developments:

Another challenge in the operation of blockchain technology in the process of international remittances, which includes:

Layer-2 Scaling: Solutions like sidechains and Plasma chains are being developed to offload transactions from the main chain, increasing throughput and speed.
Consensus Mechanism Advancements: Alternative consensus mechanisms like Proof-of-Stake are being explored to reduce energy consumption while maintaining network security and scalability.

Regulation and Adoption:

Regulation and adoption of the technology into the sphere of international remittance can pose problems including:

Evolving Landscape: The regulatory landscape for cryptocurrencies and blockchain is still evolving, creating uncertainty and hesitancy among some financial institutions and users.
Compliance Burden: Existing AML and KYC regulations may not fully adapt to the decentralised nature of blockchain, making compliance a complex challenge for platforms.

Technological Literacy and Accessibility:

Being technologically literate and having the means of accessing it can pose a threat to the usage and adoption of blockchain technology in international remittance in the following ways:

User-friendliness: Blockchain technology can be complex and intimidating for non-technical users. Intuitive interfaces and user-friendly applications are crucial for wider adoption.
Digital Divide: The digital divide can exclude unbanked and underbanked populations from the benefits of blockchain-based remittances. Education initiatives and partnerships with local organisations are needed to bridge this gap.

What Are The Strategies For The Adoption Of Blockchain Technology For International Remittances?

The following are some of the strategies that can help organisations in the world of international remittance adopt blockchain technology into their service:

Collaboration: Partnerships between established remittance providers and blockchain companies can leverage existing infrastructure and trust while bringing the benefits of blockchain to a wider audience.
Education and Awareness: Targeted education campaigns and initiatives can demystify blockchain technology for users and potential adopters, fostering trust and understanding.
Pilot Programs: Implementing pilot programs in specific regions or communities can provide valuable data and insights for developing more inclusive and effective blockchain-based remittance solutions.

By addressing these challenges and fostering open collaboration, we can unlock the full potential of blockchain to revolutionise remittances, creating a more efficient, secure, and inclusive financial system that benefits all.

What Is The Future of Blockchain in Remittances?

Imagine a world where sending money across borders is as seamless as sending a text message. Blockchain technology holds the key to unlocking this future, poised to revolutionise the remittance industry.

Beyond offering secure and efficient transactions, blockchain's potential extends far beyond. Think of micropayments, enabling instant, secure payments for online services and content creators in underserved regions. Envision financial inclusion initiatives, empowering unbanked populations with access to financial services and tools they wouldn't have dreamed of before.

This future requires collaboration. Financial institutions, governments, and tech companies must work together to build bridges, not walls, in the digital landscape. We need clear regulations that foster innovation while mitigating risks. User education and infrastructure development are crucial to ensure everyone can participate in this new era of financial inclusivity.

The time to act is now. Let's embrace blockchain's potential, not just for faster and cheaper remittances, but for building a more equitable and interconnected global financial system. Let's make sending money as effortless as sharing a story, empowering individuals and building a brighter future for all. Together, we can turn this vision into reality.