The scene is set for the world of payments to be transformed by blockchain and cryptocurrency, with the pandemic having swung the balance firmly and irrevocably in favour of emerging technologies.
Traditional financial service providers are reluctant to get on board with the digital revolution, as these blockchain-based innovations threaten to reduce the historically high margins that banks have enjoyed through traditional banking.
What is driving FinTechs to unlock blockchain benefits?
The blockchain is a “system of recording information in a way that makes it difficult or impossible to change, hack, or cheat the system”. It is a digital ledger of transactions duplicated and distributed across an entire network of computer systems on the blockchain, with each block containing a number of transactions, and each new transaction triggering a record that is added to every participant’s ledger. This decentralised database, managed by multiple participants — known as Distributed Ledger Technology (DLT), has the following benefits:
- Security: Financial service providers can store their clients’ personal and transactional information on shared ledgers, which are immutable and verifiable across multiple systems.
- Speed: The blockchain allows for faster transaction processing, which isn’t possible through centralised banking systems where processing timelines and opening hours govern the speed of transaction processing.
- Transparency: Participants can provide a higher level of transparency by executing deals through a smart contract and recording them in a shared ledger that tracks the movement of goods and services around the globe.
- Automation: Blockchain technologies enable streamlined processes that automate data verification and reporting, digitise KYC/AML (know your customer/anti-money laundering) data and transaction history, and allow the real-time authentication of financial documents.
Traditional banks are set in their ways
Market intelligence firm CB Insights’ research shows that these key benefits are compelling FinTechs to dive deeper into the blockchain, while traditional banks hesitate to lower their high margins:
- Customer KYC and Fraud Prevention: KYC and AML compliance are costly policies to implement and maintain, with a Thomson Reuters Survey noting that the average bank spends £40 million a year on such services. Given that the blockchain makes information secure, immutable and verifiable by storing it on decentralised blocks, the technology can save costs while facilitating information sharing between financial institutions.
- Payments: The use of Blockchain for payments could facilitate faster processes at much lower fees than banks. Blockchain-based payment rails are also quicker, cheaper, and more efficient than a legacy system like SWIFT, which has no real advantage over DLT except for being a known and familiar concept.
- Remittances: Finally, remittances are a key area where blockchain and cryptocurrencies are expected to come to the rescue, especially in Africa where currency volatility and speed of transactions can be a nightmare for banking customers. Soberingly enough, the cost of remittances in sub-Saharan Africa was the highest according to recent research, averaging 8.17% in the fourth quarter of 2020 compared with 4.9% in South Asia, the lowest average cost. The cost of inter-country diaspora remittances from Tanzania to Kenya and Uganda was among the highest in the past year across African economies, averaging between 17% and 21%, respectively, per $200, notes the report by the World Bank’s Global Knowledge Partnership on Migration and Development initiative. Excitingly, new technology built on the blockchain can effectively power remittances within or to African economies, at a fraction of the current cost and speed. For instance, by using stablecoins, Be Mobile can move money faster and cheaper, while accruing additional foreign exchange savings.
At Be Mobile, this is exactly the technology that we are using to make financial services accessible to every African and improve financial inclusion. We are both humbled and thrilled to have built one of Africa’s largest payment networks, covering 30 markets and 22 currencies, with stablecoins added in April 2021 to truly leverage the power of the blockchain in countering currency volatility.
We are now moving to extend our low-cost remittance offering, which builds on the blockchain to keep costs down, to low-income communities in Africa.
At the heart of it all, Be Mobile’s mission is to lift 100 million people out of poverty through financial inclusion. We have ensured that, with the help of the latest technologies, opening an account is free and can be done in less than a minute and without having to step into a bank.
We offer various services, including international transfers, exchange of currencies at competitive exchange rates and simple payment transactions for both individuals and companies, and are delighted to serve customers better with this much-needed disruption in the traditional banking model.
Are you ready to come on board the blockchain bandwagon with us, and realise the benefits of true financial freedom?