Nowadays, cryptocurrencies such as Bitcoin and Ethereum are making a huge noise worldwide because of their potential to decentralise money issuing and the financial services.
This concept comes from the fact that cryptocurrencies are based on blockchain technology. To explain this fast and clearly, let’s say that there are thousands of computers (nodes) around the world that have a database with all the information of cryptocurrencies issued and the transactions made; this database is updated in real time in all the nodes, avoiding mismatches and decentralising the information. Also, the records are kept forever and can’t be modified.
The facts that make the system decentralised are:
Every time a transaction is made, all the computers see it and to issue a new ‘Coin’ there must be an approval by most of the nodes (this can vary depending on the cryptocurrency protocol).
Those nodes are responsible for generating new cryptocurrencies; therefore, there isn’t a unique issuing entity as a central bank for the cryptocurrencies.
Let’s talk about the important thing: why everybody says that cryptocurrencies will disrupt the remittance market worldwide. First, remittances based on blockchain have the following characteristics:
Fast processing, online and real-time
Generally, among the blockchain ecosystem, the cost of the transfer is much less than the normal charges for remittances in the traditional system, although there can be additional costs to convert the cryptocurrency into fiat currency.
Fully-digital and convenient
Easy as buying and selling goods
These characteristics can be acknowledged by anyone that has a cryptocurrency wallet and sends Bitcoins to a friend in another country.
Talking specifically about the UAE, the reality is that cryptocurrencies need to overcome different showstoppers to compete successfully against banking and exchange house remittance offers, because, even if in many cases those offers are expensive and inconvenient, they have some important advantages for the consumer, such as the possibility to transfer to bank accounts, to m-wallets or to beneficiaries for cash pick-up. Also, they have enough liquidity for immediate settling in cash at the destiny, and they have a clear regulation in place in the UAE and in recipient countries.
The reality above doesn’t mean that cryptocurrency remittances for UAE corridors are impossible, but the entrepreneurs addressing this market will need to overcome the following road blocks:
Financial inclusion, Internet access and technological literacy: A company wanting to send remittances to India, Pakistan, the Philippines or other regional corridors needs to consider the target to address and how to do it. Since cryptocurrencies nowadays are accessed through the Internet, using a PC or a smartphone, and users need some sort of financial service to buy the cryptocurrencies and to receive the payments from the sale, this can be an issue in countries where the low-income population don’t have such facilities.
UAE ecosystem: For those who don’t handle the topic very well, it is not an easy task accessing cryptocurrencies in the UAE. To capture the market, firms need to focus on user-friendly solutions.
Liquidity: According to the Central Bank of the UAE, there is Dh160.8 billion per year sent abroad from the UAE. To address a significant share of this amount, the cryptocurrencies stock needs to grow in this part of the world.
AML and CFT controls: Providers need to ensure a reliable system that won’t make the regulator close it down due to money laundering and terrorism financing issues.
Regulation: There isn’t a clear regulation in the UAE for cryptocurrencies. Companies interested in handling these digital currencies need to understand the current regulations and prepare for future laws on the topic. In addition, the regulations of recipient countries should also be considered.
Regardless the mentioned obstacles, fintech firms are replacing and beating current money remitters. The old-fashioned way of doing remittances is being replaced by one that is less complicated, in real-time, less expensive, inclusive and user-friendly.
Attention: by fintechs we are not talking only about garage businesses, behind most of those start-ups are seasoned executives with strong experience in the financial sector.
Money remitters and exchange houses have the assets, the market share, the know-how and the ecosystem built, but if they don’t re-engineer their business will lose the battle. Those humble enough to accept his lack of knowledge, the need for changes and ready to ask for advice are the one with more chances to success.
And with that, welcome to the new business opportunities coming from cryptocurrencies.
The writer is chief executive and founder of Nimmok. Views expressed are his own and do not reflect the newspaper’s policy.