The World Bank in its latest report revealed that India has received the largest amount in remittance in 2018

The World Bank in its latest report revealed that India has received the largest amount in remittance in 2018 with $80 billion being sent from abroad. At the same time, users paid $4 billion in payments to payment services.

Middleman-Friendly Models

Remittance in its current format has one-too-many checkpoints. For example, if a person wants to send money from New York to New Delhi, his funds are going through several intermediaries within the payment channel.  There is a local bank that would first send the funds to a banking partner in London. Then the payment would wait a few days for confirmation before making its way to Dubai, where New Delhi’s partner bank is located. Tack on a few more days before the funds get confirmed there and then finally sent on the last leg of the channel to the expected New Delhi bank account.

In the entire process, each participant takes away a considerable cut as a percentage of the funds. This is how traditional remittance models have become too expensive for day-to-day users.

According to the World Bank, in more than 25% of the remittance corridors, commissions are more than 10% higher. So sending $100 back home can cost at least $10 in fees.

Remittance in Crypto: Why India Should Explore It

One reason is the rapid speed at which the digital economy is developing technologies that are changing the dynamics of the remittance industry.  Blockchain has opened alternative payment corridors where money can be sent as quickly and easily as email – without the hefty commissions. In times when people are charged an average of 7.45% of their money in fees, according to the World Bank, the use of blockchain could reduce the spending to as low as 1%.

India’s stance on cryptocurrencies hasn’t been the most optimistic, however.  The Reserve Bank of India (RBI) issued a circular, ordering banks to discontinue relationships with crypto-based companies earlier this year.  While the decision cause negative reverberations within the local exchange market, it also hampered the growth of many startups that were brewing inside the blockchain space.

Indian banks, at the same time, have actually been partnering with global blockchain initiatives to develop low-cost remittance solutions.  This again would require them to use crypto to settle payments.  The current legal framework, according to the RBI, cannot define cryptos which again is preventing Indians from exploring a cheaper remittance model.

Unfortunately, it seems that banks still using blockchain cannot reduce the existing intermediaries out of a payment corridor.  They can only speed up settlements at best while charging the same kind of commissions.

India is able to explore an inter-bank network based on blockchain technology anytime however, after allowing a central token to be issued on it. Nevertheless, it would still require them to onboard the banks keeping them in the loop – something that looks unlikely. In simpler terms, if one bank was to work like WhatsApp and another works like Instagram, the user of WhatsApp cannot dispatch messages to the users of Instagram, i.e. they would need a single protocol in common, like NEFT on steroids.

Meanwhile, Indian remittance users could keep exploring cheaper decentralized payment models like Bitcoin despite the banking ban.  A decent number of Indian freelancers are already accepting Bitcoins as payment and exchanging them for Indian Rupees via p2p exchanges.