One area where money transfer is rapidly evolving is the utilisation of blockchain. While it is viewed as highly progressive and sometimes unreliable in other areas, in money transfer it has a high level of potential. Part of this is due to the basic concept of blockchain and how similar this is to the basic concept of international money transfer. The present list of banks and other FIs (Financial Institutions) involved in money transfer is a vast network, with transactions flowing across the network. Blockchain is similar as it is a large network of connected nodes. Given the similarities, on the face of it, blockchain deployment seems suitable.
Figure 1: Current Cross-border Settlement Process
The case for blockchain deployment is even more sensible, when the current system’s challenges are examined. The clearing firms involved in the transaction have independent processing systems; each party involved in the process will keep their own copy of the record of a given transaction. The lack of standardisation between clearing bodies or correspondent banks means that costs are high and settlement periods are lengthy.
The introduction of a blockchain-based system would increase process standardisation, substantially reducing the risk of error (including double spend) and the time taken for error checking.
Typically, under current money transfer processes, cross-border transactions take 2 days to complete. The following chart provides an illustration of a blockchain-based settlement system. In this instance, it shows Visa B2B Connect but other settlement systems would involve a similar flow. This example would reduce the stages involved, validating the transaction via the blockchain network, enabling faster payments, which is a major desire of many users.
Figure 2: Blockchain-based Cross-border Settlement Process
Juniper Research found that international digital remittances will reach $525 billion by 2024, up from an estimated $332 billion in 2019.
Figure 3: Total International Money Transfer & Remittance Transaction Value ($bn) in 2024: $525 billion