Blockchain for seamless foreign remittance

Remittance to Bangladesh constitutes the single largest source of foreign exchange and plays a critical role in the country's socio-economic development.

It has resulted in improved living standards for the wage earners' families and helped in improving the income distribution in favour of poorer and less skilled workers.

I am an immigrant myself and I have been working in the foreign remittance sector since I migrated to the UK. But, foreign remittance is something that I am connected with since my childhood as my father was a wage earner. I can recall all those days of waiting months to encash the Demand Draft we used to receive by post.

The post used to take more than 3 weeks to reach our home in the remote area and then waiting for the amount to be available in our account.

Over the years, the process of sending remittance has been faster under the government patronage, the central bank's initiative and the proactive approach of banks in Bangladesh.

The timeline to credit the foreign remittance to beneficiary account is reduced to 1 to 2 days from what used to take roughly a week even 5-6 years ago.

In the transformed world where we can communicate, share photos instantly or talk live, is it enough that remittance is taking still days to credit to beneficiary's account?

Is there anything that we can do to bring the timeline down to seconds, real time or near real time? This should be as instant as we chat on Skype, Viber or WhatsApp.

The growing development and spread of new technologies have been rapidly transforming many sectors.

The innovation includes products like cars, music, lighting, computers, software to the creation of new disruptive business like Uber, Airbnb, Amazon and so on.

Similarly financial technology is rapidly changing the world in which we live. From investment management and payments to lending and digital currency, it is transforming what it means to receive and provide a financial service. 

Distributed Ledger Technology (DLT) can be the game changer in foreign remittance for faster, cheaper and secure solution.

Blockchain is one type of DLT, but often the term is wrongly tagged with digital currencies like Bitcoin, ether and so on.

In fact, blockchain and distributed ledgers are the building block of “internet of value” that enable economic interactions and transfer value peer-to-peer, without the need of a middleman.

On a DLT-based platform, banks and financial institutions can record, share and synchronise transactions in their respective electronic ledgers instead of traditionally maintained centralised ledger. 

The advantages of using DLT in foreign remittance are that it will be: faster and frictionless; cheaper as it eliminates the need for an intermediary bank; secured and resilient; and transparent.

Spanish banking giant Santander is reportedly launching the first bank to offer blockchain-based foreign exchange payments for consumers soon.

Not only in foreign remittance, a DLT-based platform is being tested for domestic clearing as well.

The Bank of England published a report last year as to find how blockchain technology could enable Real Time Gross Settlement (RTGS) capability.

A consortium of 16 Japanese banks have developed a smartphone application called 'MoneyTap' to allow their customers to settle transactions instantly, round-the-clock.

Recently, the Saudi Arabian Monetary Authority has offered a pilot programme for Saudi banks to help improve their payments infrastructure using DLT.

The success of the pilot programmes by the central banks will not only be helpful to understand the opportunities and limitations of the technology but will also fuel its global momentum. 

In all the above cases, the technology is provided by San Francisco-based blockchain start-up Ripple.

The technology is relatively new and the traditional banks, except a few, are still reluctant to embrace it.

We have seen in other sectors how consumer demand is rapidly changing and firms are compelled to innovate or create new business models to meet the growing demand.

So it is not far that more banks, payment services providers and money service businesses will be embracing DLT for cheaper, better and faster processing of foreign remittance.

A recent report published by the World Bank states that DLT applications will likely be incremental, and will likely replace processes and activities that are still manual and inefficient.

Therefore, DLT could increase efficiency and lower remittance costs, enabling banks to credit foreign remittance instantly. This will ultimately benefit customers -- to a great extent.

The writer is the chief executive officer of BA Exchange (UK), a subsidiary of Bank Asia.