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Expert opinion

Blockchain: easing the payments burden for expats

Tuesday 19 December 2017 | 09:44 AM CET

Dilip Rao, Managing Director APAC and MENA from Ripple talks about the benefits distributed ledger technology brings to the remittances industry.

People are drawn to the UAE and Gulf by wages that often are far higher than those available in their home countries, and therefore the opportunity to provide their families with a higher standard of living. However, sending remittances home is expensive because of high transaction fees and poor FX rates. For unskilled workers on lower incomes, these costly money transfers eat into their wages and reduce what they’re able to send home.

Fees added to money transfers to home countries are now relatively low in corridors with high volumes of payments (e.g. between the UAE and India), with a remittance payment to an Asian country typically costing 16-22 dirhams (between USD 4-6 USD). On the other hand, they can top 70 dirhams (over USD 19 USD) to countries like the UK, Europe or the US, where volumes aren’t as high.

When transferring to countries like India, Pakistan, Bangladesh and the Philippines, financial institutions are beginning to circumvent the conventional SWIFT messaging and batch processing used by many banks for cross-border payments. Instead, they use an Application Programming Interface (API) for messaging, which reduces associated fees and decreases settlement time by improving reliability. Using an API for a payment into India, which operates world-class domestic clearing systems, means the beneficiary of a payment can get paid quickly, often within minutes.

This willingness to embrace technology is largely due to the intense competition in the remittance market in the UAE and other markets. Families at home are often reliant on remittances to meet their everyday spending needs, and customers will not stay loyal to a slow or ineffective provider.

As a result, remittance providers need their flows to be as fast and effective as possible to both retain faithful customers and attract new ones. Several banks in the UAE have already started using Ripple-enabled services to do just this, working with subcontinental partners, with UAE-based Rakbank and Axis Bank in India recently coming together to send live payments. It’s unlikely to be long before exchange houses follow their lead.

Using Blockchain payments technologies is a sensible move for the exchanges as they can offer much faster settlement via direct, standardized peer-to-peer connections on networks. Solutions for instant payments can include bi-directional messaging, thus improving reliability by flagging errors to both banks immediately and enabling them to rectify any problems.

When built around customer needs, Blockchain networks can also enable consistent messaging standards and operational behavior, which help banks to connect to a substantial network of other banks and payment providers after plugging in just once. Another benefit of these networks is that they can support payments across both high and low volume corridors, making it easy for banks to connect with partners in a range of destinations.

This need for Blockchain-driven remittance solutions isn’t just limited to the Gulf, either. From Thai citizens working in Japan to Turks working in Germany, migrant workers in every corner of the world require the fast and reliable remittance solutions that Blockchain can provide. With the global labour market becoming increasingly mobile, demand for these solutions is only going to grow – making the need for a new normal in the remittance space all the more important.

I find it personally exciting to be part of an organization that is helping to facilitate instant, on-demand and low-cost remittances around the world, which can help ease the pain points migrant workers experience regularly when trying to send money home to family and friends.

About Dilip Rao

Dilip Rao heads up business development and operations as Managing Director, Ripple Asia-Pacific. In this role he engages with leading banks, regulators and central banks to enable innovation on the Ripple platform. Mr. Rao has over 25 years of experience in senior management with technology multinationals in Asia.

About Ripple

Ripple provides one frictionless experience to send money globally using the power of blockchain. By joining Ripple’s growing, global network, financial institutions can process payments anywhere instantly, reliably and cost-effectively. Banks and payment providers can use the digital asset XRP to further reduce their costs and access new markets.

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