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<a href="https://www.investopedia.com/terms/r/remittance.asp" target="_blank" rel="noopener noreferrer nofollow">Remittances</a> is the official term to describe money sent from migrant workers in one, usually richer country, to their families and friends residing in a poorer country. There are millions of people in the world who migrate to more developed economies with the primary purpose of supporting their families back at home, and they send billions of dollars across international borders each year.&nbsp;
However, the practice of sending remittances, especially in the case of those who do not have access to the traditional banking system, necessitates the use of expensive money transfer services with high fees and long delays.&nbsp;
The earliest advocates of crypto placed a lot of emphasis on its potential as an alternative to such methods. Blockchain-based cryptocurrencies paved the way for rapid and cost-effective ways to send money to any country, without needing to use any third-party services that use multiple middlemen, each of whom takes a cut of the amount sent in fees.&nbsp;
Disappointingly for crypto enthusiasts, digital currencies failed to kill off the traditional remittances model, or at least they haven’t done so yet. Why is that so? Because crypto is still misunderstood, and people need a simple and seamless way to convert tokens like BTC and ETH to cash. However, this has always been a fiddly process itself, putting off many from using it over traditional payment services.&nbsp;
<h3 id="strong-remittances-today-strong">Remittances Today</h3>
The amount of cash sent through traditional remittance channels to low- and middle-income countries is estimated to have topped $669 billion in 2023, according to <a href="https://www.worldbank.org/en/news/press-release/2023/12/18/remittance-flows-grow-2023-slower-pace-migration-development-brief" target="_blank" rel="noopener noreferrer nofollow">data</a> from the World Bank. That represents a 3.2% increase from the year prior, and is up 8.2% from 2020, when the global coronavirus arguably exacerbated the need for remittances.&nbsp;
The top five destination countries for remittances in 2023 were India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion), but they’re even more important in some other nations. For instance in Lebanon, remittances are estimated to make up a staggering 54% of the country’s GDP, while in Tonga they account for 44%, and in Tajikistan they’re estimated to make up 34%.&nbsp;
One of the main problems for those sending remittances via official channels is that the costs of doing so remain persistently high. It’s a problem because the fees spent on such services can go a long way in the low-income nations that they’re most often sent to. According to the World Bank’s <a href="https://remittanceprices.worldbank.org/" target="_blank" rel="noopener noreferrer nofollow">Remittances Prices Worldwide Database</a>, it cost an average fee of 6.2% to send $200 across international borders in the first quarter of 2023. This is some way short of the United Nations Sustainable Development Goals target of 3%.&nbsp;
One of the main reasons for these high fees is that remittances must pass through multiple banks and services providers, increasing the complexity and cost of each transaction.&nbsp;
<h3 id="strong-crypto-is-cheaper-faster-strong">Crypto Is Cheaper &amp; Faster</h3>
On the other hand, with crypto, the fees for sending funds across borders are almost negligible. <a href="https://twitter.com/farzamehsani/status/1740084045017440752" target="_blank" rel="noopener noreferrer nofollow">In a thread on X</a>, formerly known as Twitter, Farzam Ehsani, CEO of the crypto exchange platform <a href="https://www.valr.com" target="_blank" rel="noopener noreferrer nofollow">VALR</a>, highlighted how in some cases it’s even possible for migrant workers to make money when using crypto to send funds back home.&nbsp;
Eshani cites the case of a friend, who asked him about the best way to send $1,000 from the U.S. back home to South Africa, where it would be converted into Rand (ZAR). Now if his friend has sent the money through normal channels – i.e. a bank – the recipient would have netted just $955 once that transaction had worked its way through the system. That’s a staggering $45 in fees, which could quite easily feed a family in South Africa for a week.&nbsp;
On the other hand, using crypto, Eshani worked out a way for the recipient to end up with $1,034 in ZAR. Admittedly it was a somewhat convoluted process that involved opening a Coinbase account and funding it with the money, buying USDC, then sending that money via the Avalanche C-Chain to the recipient’s VALR account. The entire transaction cost just $0.06. With the funds now in the recipient’s VALR account, they could then sell their USDC for ZAR at a more favorable rate than any bank will offer – 19.04 ZAR per dollar, versus 18.37 in FX markets.&nbsp;
Eshani tweeted the basic calculations and the final outcome, and it is perhaps some of the best evidence yet for crypto’s huge potential to transform remittances:&nbsp;
<blockquote class="twitter-tweet">
 So:
 BANK: $1,000 - $30 SWIFT fee = $970 x 18.09 (bank rate) = R17,547 landed / 18.37 (Google FX rate) = $955 worth of ZAR
 CRYPTO: $1000 (in USDC) - $0.06 (Avalanche C-Chain fee) = $999.94 x 19.00 (VALR rate) = R18,998 landed / 18.37 (Google FX rate) = $1,034 worth of ZAR
 — Farzam Ehsani (@farzamehsani) <a href="https://twitter.com/farzamehsani/status/1740084045017440752?ref_src=twsrc%5Etfw" rel="noopener noreferrer nofollow">December 27, 2023</a>
</blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
Of course, it’s not only that remittances cost less (or even make money) when sent using crypto. The other benefit is the speed at which it happens. While the process can be complicated the first time it’s done, the reality is that once everything is set up, such transactions can be processed in seconds. But remittances send via traditional means can take up to a week or even longer to process and make their way through the multiple intermediaries involved.&nbsp;
Dilp Ratha, the lead author of the World Bank’s latest report on migration and remittances, <a href="https://guardian.ng/apo-press-releases/remittance-flows-continue-to-grow-in-2023-albeit-at-slower-pace/" target="_blank" rel="noopener noreferrer nofollow">warns</a> that the current geopolitical landscape, especially in the context of wars in Israel and Ukraine, is likely to lead to more instability among traditional remittance channels.&nbsp;
“The cross-border payment systems, however, are likely to become multipolar and less interoperable, slowing progress on reducing remittance fees.”
The advantage of crypto is that it solves many of these challenges around interoperability. Someone in the U.S. can have one type of crypto wallet, and use it to send funds to a different wallet owned by their family in India or Latin America, so long as it supports the same cryptocurrency. Virtually all wallets support the biggest tokens, such as Bitcoin, Ethereum and stablecoins like USDC or USDT.&nbsp;
<h3 id="strong-crypto-is-more-inclusive-strong">Crypto Is More Inclusive</h3>
As the world continues to struggle with global inflation and economic instability, the need for a more efficient way of sending remittances has never been more acute.&nbsp;
Added to the efficiency benefits, crypto also solves problems such as the lack of access to traditional banking. According to the <a href="https://www.worldbank.org/en/publication/globalfindex" target="_blank" rel="noopener noreferrer nofollow">2021 Global Findex Database</a> report, financial products made for smartphones and other mobile devices lead to increased inclusiveness. “Mobile money has become an important enabler of financial inclusion in Sub-Saharan Africa—especially for women—both as a driver of account ownership and of account usage through mobile payments, saving, and borrowing.”
The decentralization of crypto also helps to make remittances more accessible. In the Western World, the cross-border payments market is dominated by a handful of players, such as Western Union, MoneyGram and Wise, and this can have big implications for those who regularly use them. For instance, in 2020 Western Union <a href="https://www.nbcnews.com/news/latino/because-trump-sanctions-western-union-remittances-come-end-cuba-n1248790" target="_blank" rel="noopener noreferrer nofollow">suddenly announced</a> it would be closing all 407 locations across Cuba following new sanctions slapped on that country by then-President Donald Trump.&nbsp;
“The problem is not the closure of Western Union,” said Manuel Orozco, director of the Center for Migration and Economic Stabilization at Creative Associates International, “but that Western Union is practically the only U.S.-to-Cuba provider of remittance payments.”&nbsp;
A year later, Western Union also suspended its services in Afghanistan when that country was taken over by the Taliban, causing yet more headaches for migrants wanting to send funds back home to their families there.&nbsp;
With crypto being decentralized, no one is in a position to suspend such services, meaning these vital economic lifelines cannot be shut down. That’s important, because it’s often the lives of the poorest who are hardest hit when sanctions are imposed on foreign nations.&nbsp;
<h3 id="strong-crypto-is-a-beautiful-thing-strong">Crypto Is A Beautiful Thing</h3>
The benefits of crypto for remittances are so compelling that it’s little wonder that many believe they can eventually become the de facto standard for sending money across borders.&nbsp;
Crypto promises to reform conventional money transfers and it will bring significant benefits to developing economies which are the primary recipients of remittances. They solve all of the major headaches of traditional services, including high fees, long delays and the risk of being shut down, with little downsides. They also provide an accessible option to those who lack access to basic banking services.&nbsp;
Blockchain-based remittances will reduce fees to almost nothing, expedite transactions and increase transparency.&nbsp;
“Yes this is new and it takes some getting used to, but in summary, my friend could get 8% more value by using crypto to receive the money from his nephew in the U.S.,” VALR’s Eshani said. “And that’s a beautiful thing to behold!.”&nbsp;
Disclaimer: The subject matter and the content of this article are solely the views of the author. FinanceFeeds does not bear any legal responsibility for the content of this article and they do not reflect the viewpoint of FinanceFeeds or its editorial staff.

For Global Remittances, The Speed and value Of Crypto Is Unbeatable

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