Remittances challenges shows why cryptos are the future

World Remit, a globally renowned cross border money transfer agency, recently put out statement touting the strides it has made, which makes remittances much easier and less costly.

While the statement sought to sell the new technology the organization is now using, the story also made apparent the high cost and difficulties of sending money from Western countries to Africa.

Citing its own research, World Remit said Zimbabweans in the Diaspora could be losing up to $9 each time they send money home, particularly towards the festive period due to the ‘high cost of sending money through traditional remittance channels.’

Furthermore, the World Bank says South Africa, home to sizeable Zimbabwean migrants is the most expensive G20 country to send money from. The average cost of sending $200 from South Africa to Zimbabwe is nearly 14%, about double the global average.

World Remit says it now offers a low cost digital channel that allows people to save while also bringing convenience because the whole process can be done using a Smartphone.

Furthermore, a poll by World Remit revealed that over 80% of people have found that switching to digital channels has made money transfer simpler not just for senders, but also for recipients too.

For cryptos enthusiasts, the biggest take away from all this has to be the apparent admission that not everyone is enthused by the latest developments in the remittances industry.

This is because the same World Remit poll concluded that; ‘the majority of global remittances flows are still going through informal channels.’

For example, the Finmark Trust estimates that 68% of remittances from South Africa to Zimbabwe are sent through informal channels such as unregistered courier services (malaicha) and buses crossing the border. 

Most remittances send informally

Of course World Remit did not tell us why that is the case but we can almost guess why. The inconvenience of having to travel to an agent to initiate the process is one big negative and worse, this comes with costs which are hidden.

Diasporas are not keen on making visit to a money transfer agent because many of those, whom we call the Diaspora here, are also known as illegal immigrants in lands where they reside. Illegal immigrants lack documents that allow them to use services of registered organizations like Western Union or World Remit.

In the last few years, Western Europe has seen a surge in the number of immigrants entering the continent illegally. For example, in 2015, Germany witnessed the highest number of recorded arrivals, close to a million people. Other European countries absorbed high numbers as well but a good number is believed to have sneaked in undetected.

If you are in European country, you will still need some form of recognizable government ID to be able to access different services. The same goes for those in the United States, Australia or New Zealand, only immigrants with the right documentation can open bank accounts for instance.

Some in the Diaspora actually avoid getting these documents because of fear of being deported.  

Therefore many will seek employment at places where they get be paid very low wages due to lack of documentation. Still such exploitative wages are just about enough to support and feed families back home. In such circumstances, the remitting of money can only be done via informal channels, which are more expensive but do get the job done.

In a nutshell, this might just explain why a majority of global remittance flows still go through informal channels. There is not much that World Remit or Western Union can do about it. The situation demands a radical approach that addresses the concerns of sending parties and cryptos appear to fit the bill.

Crypto solution

Crypto-currencies are especially ideal for this kind of business, something even acknowledged by those opposed to their rise. One only needs a Smart-phone or laptop plus internet access to be able to acquire, transfer or receive crypto-currencies quickly and cheaply.

The need for this kind of service has existed for years and crypto-currencies are well placed to satisfy this need. Already, a number of crypto start ups that are focused on servicing this need have emerged, and more will come.

One solution offered by Pundi X is particularly unique, it takes integration of cryptos with fiat systems to another level. While cryptos have been around for a decade now, mass adoption continues to be a challenge for a variety of reasons. In general, cryptos continue to face resistance from hostile entities who feel threatened by the fledgling yet resilient technology.

In many lands across Africa, banks have been instructed not integrate their systems with crypto-currencies. This means that even if a person in the Diaspora manages to send money in the form of crypto-currency (which is much cheaper and quicker), the recipient will not able to buy food or pay for school fees using that form of currency.

In a sense, the money will be ‘trapped’ and if there is an emergency, such a remittance will prove futile.

Pundi X’s POS potentially solves this problem as it is programmed to convert fiat currency e.g US dollar into crypto-currency and vice versa. This means for example, a villager somewhere in Kenya will be able convert or transfer remitted crypto-currency into mobile money, which is a widely acceptable form of payment in that country, to pay rent or buy building material.

Pundi X’s solution and other similar innovations might just prove to be the final missing piece that may hasten wider adoption of cryptos on the continent.  Africa’s case really shows why cryptos are the future, not only for remittances but for general transactions.

Therefore more has to been done to help their growth on the continent.