Moody’s: Cryptocurrency remittances could save $15 billion per year
Even conservative estimates point at tough times for slow-moving banks and remittance companies.
One of the more obvious areas for cryptocurrency application is in remittances and other international payments. According to a Moody's report titled "Fintech - Global: Bank of the Future: Innovative incumbents will thrive; laggards will be disrupted," large scale adoption of cryptocurrency for remittances could save US$15 billion per year.
In 2016, according to the report, the total value of global remittances reached US$575 billion, of which 70% was transfers from migrants in developed countries back home to developing countries.
"If the technology proves to be a practical solution for payments, incumbents are likely to adopt it. Indeed, a global consortium of banks has partnered with blockchain start-up Ripple to develop enterprise blockchain solutions for international payments. Ripple has created a payment protocol and exchange network with a much faster consensus method than the Bitcoin blockchain, and introduced its own cryptocurrency, the XRP," the report explains.
Ripple has mostly been gearing itself towards institutional use so far, but Santander UK recently became the first bank to roll out Ripple-based remittances for retail customers in certain payment corridors and has been reporting good results with the technology so far. This suggests that it's likely to see further uptake in the near future and that cryptocurrencies can increasingly disrupt the remittance market.
In addition to institutional uptake of cryptocurrency-based solutions like Ripple, cryptocurrencies also offer the potential of direct feeless peer to peer transfers, and a proportion of customers may already be opting for cryptocurrency – volatility and all – over paying the sometimes hefty fees for using existing payment providers.
"In 2017, the average cost worldwide for sending a US$200 international transfer was 7.2%, with costs generally higher in developing countries," Moody's says. "There are sizable savings to be gained through peer-to-peer alternatives that leverage cryptocurrency technology."
The $15 billion savings estimate was based on an assumption that half of all remittances transition to a cheaper channel offered by a start-up, and involve an average of 2% in transaction fees. As Moody's says, 2% transaction fees is a very high-end estimate based on the typical fees involved in a cryptocurrency transfer.
Banks and remittance companies will need to adapt quickly, Moody's says.
"How incumbent institutions and new entrants harness these innovations will define the bank of the future. In the coming years, we expect the disruption and evolution of business models, financial infrastructure, product pricing models and profit margins to open a split in global banking leadership."
"Incumbent banks that aggressively pursue agile digital strategies will defend their core franchises, broaden their customer bases and improve efficiency, supporting their creditworthiness. Laggards will face increased customer attrition, reduced pricing power and uncompetitive cost structures."
Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC, NANO