In its latest report, World Bank revealed India received largest amount in remittance in 2018 with $80 billion sent from abroad. Simultaneously, the users paid $4 billion in cuts to payment services.
What are Middlemen-Friendly Models?
Presently, remittance has one-to-many checkpoints. Suppose a person wants to transfer money from New York to New Delhi, his transactions under several intermediaries within payment corridor. Firstly, the local bank transfers the funds to a banking partner in London. Here, the payment awaits for confirmation, before being transferred to Dubai. The partner bank of the New Delhi is located in Dubai.
In this entire transaction process, every individual participant confines a considerable part of the funds. Hence, traditional remittance models get too expensive for all the potential users. According to the World Bank, in about 25% of remittance corridors, commissions are 10% higher. As a result sending $100 back home may cost a cut in one $10.
Why should India explore Crypto in Remittance?
The speed at which the digital economy is promising to change the dynamics of remittance industry, Blockchain provides an alternative payment corridor. Through this corridor money is sent as quickly as email without any commission. According to World bank, when people lose 7.45% of their money, blockchain costs reduces to as minimum as 1%.
This year RBI issued a circular ordering banks to discontinue relationships with crypto companies. This decision fling the local exchange market, along with hampering the growth of many startups. Simultaneously, Indian Banks collaborates with global blockchain initiates to build low-cost remittance solutions. According to RBI, the current legal framework cannot define crypto. This in turn keeps Indians away from exploring a cheap remittance model.
At the same time, banks using blockchain cannot reduce the existing intermediaries out of a payment corridor. But, can only speed up settlements at best while charging the similar commissions.
India can anytime explore an interbank network based on the blockchain technology. Also it requires them to bring all banks on the same page. For example, if one bank works like WhatsApp and other works like Instagram, the user of WhatsApp cannot dispatch messages to the users of Instagram. This means they would need a single protocol in common, like NEFT on steroids. Meanwhile, a good number of Indian freelancers are already accepting Bitcoins as payments and exchanging them for Indian Rupees via p2p exchanges.