Foreign remittance to Bangladesh constitutes the single largest source of foreign exchange earnings and plays a critical role in the socio-economic development of the country. Remittance has resulted in improved living standards of wage earners' families and helped in improving the income distribution in favour of poorer and less skilled workers.
I am an immigrant myself and have been working in the field of foreign remittance since my migration to the United Kingdom (UK), but foreign remittance is something that I have got connected with since childhood as my father was a wage earner. I can recall all those days of waiting for months to encash the Demand Draft (DD) we used to receive by post. The post used to take more than three weeks to reach our home in the remote area and then waiting for the amount to be available with our account. Over the years, the process of remittance has become faster under the government patronage, the central bank's initiative and the proactive approaches of Bangladesh's commercial banks and reduction in timeline for crediting foreign remittance to beneficiary account to 1-2 days that used to take roughly a week even 5-6 years ago.
In the transformed world where we can communicate, share photos instantly or talk live, is it enough that remittance is taking still days to get credited to beneficiary's account? Is there anything that we can do to bring the timeline down to seconds, real time or near real time? This should be as instant as we chat on Skype, Viber or WhatsApp.
The growing development and spread of new technologies have been rapidly transforming many sectors. This innovation includes products like cars, music, lighting, computers and software to the creation of new disruptive businesses like Uber, Airbnb, Amazon and so on. Similarly, financial technology (FinTech) is rapidly changing the world in which we live. From investment management and payments to lending and digital currency, FinTech is transforming what it means to receive and provide a financial service.
Distributed Ledger Technology (DLT) can be the game changer in foreign remittance for faster, cheaper and secure solution. Blockchain is one type of DLT, but often the term is wrongly tagged with digital currencies like Bitcoin, Ether etc. In fact, blockchain and distributed ledgers are the building blocks of "internet of value" that enable economic interactions and transfer value peer-to-peer, without the need for a middleman.
On a DLT-based platform, banks and financial institutions (FIs) can record, share and synchronise transactions in their respective electronic ledgers instead of traditionally maintained centralised ledger. The advantages of using DLT in foreign remittance are:
* It will be faster and frictionless as it validates information at first place that makes the transfers near to or real-time processing and settlement of transactions without a single point of failure.
* It will be cheaper as it saves from the complexity and cost of an intermediary bank or acquirer as the transfer takes place directly between the sender's bank to receiver's bank.
* It will be secured and resilient as messaging communication between partner banks are exchanged in an encrypted manner and decentralised.
* It is also transparent with full audit trail facility by design.
Global banking giant Santander Group is reportedly launching as the first bank to offer blockchain-based foreign exchange payments for consumers this week.
Not only in foreign remittance, DLT-based platform is being tested for domestic clearing as well. The Bank of England (BoE) published a report last year as to find how blockchain technology could enable Real-Time Gross Settlement (RTGS) capability. The Japan Bank consortium developed a smartphone application called 'MoneyTap' to allow customers of the bank consortium to settle transactions instantly, 24/7. The Saudi Arabian Monetary Authority (SAMA), the Central Bank of KSA, has recently offered a pilot programme for the Saudi Banks to help improve their payments infrastructure using DLT. The success of these pilot programmes by the central banks will not only be helpful to understand the opportunities and limitations of the technology, but also will fuel global momentum for this technology. In all the above cases, the technology is provided by San Francisco-based blockchain start-up Ripple.
This technology is relatively new and the traditional banks, except for a few, are still reluctant to embrace it. We have seen in other sectors how consumer demand is rapidly changing and firms are leaned to innovate or create new business models to meet the growing demand. So, it is not far away when more banks, payment services providers, money service businesses will be embracing the DLT for cheaper, better and faster processing of foreign remittance.
In a recent report published by the World Bank states that the DLT applications will likely be incremental, and will likely replace processes and activities that are still manual and inefficient. Therefore, the DLT could increase efficiency and lower remittance costs enabling banks to credit foreign remittance instantly, which will ultimately benefit the customers to a great extent.
ABM Kamrul Huda Azad is CEO of BA Exchange, London (A subsidiary of Bank Asia Ltd).
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