In order for India to achieve its dream of a $5 trillion economy in the next 5 years, it is imperative that it adopts blockchain technology for international payments. Payments from non-resident Indians are crucial to the daily livelihood of millions of Indians and to their ability to afford things like food, rent and other essentials. They also contribute to a large chunk of our country’s balance of payments and assist in the stimulation of domestic consumption levels in this country, which consequently supports various industries and enterprises. In spite of this, the average cost of sending money to India is 5.63per cent of each transaction. This is far higher than the Sustainable Development Goal target which stands at 3per cent. Considering the fact that India receives the most remittances (close to ₹ 4.6 trillion annually), the requirement for a more effective method for inbound remittances is absolutely essential.
If our government is truly focussed on developing our economy and bringing prosperity to the citizens of India, it must solve the problem associated with international payments. A great solution is to adopt blockchain technology and virtual currencies for rapid, affordable, effective remittances.
The status quo of cross-border payment infrastructure is slow and archaic and as a result, cross border remittances into India are slow, expensive and not protected from errors and potentially complete failure. Remittances can take up to five days to be received and frequently disappear. The longer a person’s money is stuck in the payment process, the higher the level of exposure of their payment to fluctuating forex markets. We believe that people have the right to know when their money will arrive at its destination, at what exchange rate and at what cost. This is exactly what blockchain can do. It makes cross border remittance real-time and convenient – as convenient as sending an email.
Overhauling Remittances With Blockchain
Banks, financial institutions and payment enablers know the challenges that exist in facilitating and accepting payments into India. Banks like Yes Bank are in the testing stages of adopting blockchain technology. The involvement of Blockchain technology in international remittances eliminates the requirement for correspondent banking – basically, the middlemen who assist in facilitating a payment from one nation to another – by enabling a sender bank to directly deal with a recipient bank when a payment is initiated. Payments occur in real-time, with complete transparency over the time it will take to arrive at its destination in addition to the fees charged for the transaction.
Unlike conventional wire transfers like SWIFT, payments that are facilitated with the utilisation of blockchain can be settled instantaneously. If a receiving bank requires more information, the bidirectional communication and settling tool embedded in a blockchain solution such as Ripple’s enables it to immediately ask the sending bank for the information that is missing. If the remittance ultimately fails, the sending bank gets to know about the failure immediately. Due to the elimination of the requirement for any form of middleman, the transaction fees linked with this payment can be done at a significantly lower cost.
Virtual assets (also referred to as cryptocurrencies) like BEL (an independent digital asset) can absolutely transform the remittance experience for NRIs by acting like an on-demand liquidity service for these payments. Finding a source for liquidity for remittances into developing markets like India can be challenging and ineffective on a time and cost front, whereas utilising BEL or XRP as a bridge asset to convert the US dollar into the Indian Rupee takes minutes if not seconds and at a fraction of the cost of a conventional fiat-to-fiat exchange.
In 2018, 58per cent of all Initial Coin Offerings (ICO) failed to raise capital, disappeared or refunded participants. The ICO is being replaced as the hottest capital raising exercise by what is known as the Security Token Offering (STO) which is expected to be the talk of the town in the blockchain space in 2019.
A security token is a cryptographic token that shares the profits, pays dividends or interest to the person in possession of the token and is based on the underlying asset like bonds, shares or real estate for example. A security token differs from a utility token. A utility token is used to buy goods and services offered by the issuer of the specific cryptocurrency.
The market for security tokens is staggering with estimates for the wider transition of traditional financial assets to blockchain valued at close to the US $24 Trillion. The big advantage of STOs is that they are a much more practical concept for regulators to approach because Know-Your-Client (KYC) and anti-money laundering (AML) requirements, as well as other compliance measures, are more transparent.
Many countries like Singapore and Malaysia are encouraging companies looking to raise capital through the STO to come to their countries to raise the funds as well as to set up operations. India should open itself up to the potential of this market. If India was to formulate a plan to regulate this capital market in a way similar to the current stock market and invite entities from all over the world to come to raise money through an STO and build their vision here, it would increase the rate at which both Indian and foreign companies would list themselves on the Indian capital market, invest raised capital in India and employ numerous Indians. You only have to look at the prosperity that the United States has seen as a result of their encouraging companies from all over the world to come and list themselves as publicly traded companies on the New York Stock Exchange. This is a good example of how India should be one of the first movers in the capital market for cryptocurrency and blockchain. It will provide our economy with the impetus it needs to grow at a rapid rate and significantly fast track our GDP growth.
Blockchain—a Game Changer for India
Creative international remittance solutions developed on blockchain technology are not here to replace financial institutions, nor do they aim to bypass them. The adoption of blockchain to enable more streamlined, affordable payments can change the landscape of India’s economy and fuel our GDP growth. We should readily accept the game-changing impact that blockchain technology can bring to India. The conversation surrounding blockchain as being “disruptive” is no longer current. Instead, we should be observing how blockchain and virtual assets like BEL and XRP can enhance the cross-border remittance experience for individuals all over India, for the good of our economy and our people.