AlipayHK, a mobile and online payment platform, recently launched a blockchain remittance service between Hong Kong and the Philippines. Now in a three-month trial period, the service has the potential to scale and invigorate the legacy global remittance market.
By partnering with GCash, a Filipino mobile money service, AlipayHK’s parent company, Ant Financial, signals the importance of partnerships for deploying emerging technologies like blockchain.
Despite its disruptive potential, there is debate over blockchain’s usefulness. In the digital payments space, where FinTech options mostly cater to the mid-market segment, blockchain technology can benefit economically vulnerable populations.
The remittances use case for blockchain
Remittances may very well be the use case that blockchain needs. The World Bank estimates that the remittance industry had $450 billion in recorded transactions at the close of 2017. This number rose to $596 billion when remittances to high-income countries were included.
By launching its blockchain remittance service in the Philippines, AlipayHK is tapping into the country’s over $30 billion remittance market, which accounted for 10.2% of its GDP in 2016. Data from Standard Chartered – the bank that supplies much of the back-end infrastructure for the service – places the Philippines as the world’s third-largest market for inbound remittances.
The trouble with remittances
Despite its market value, the global remittance industry faces challenges on three fronts: (1) cost; (2) speed; and (3) security.
Remittances are expensive, as senders pay both foreign exchange and transaction fees. The remittance market, which includes some of the most economically vulnerable on the sender and recipient side, would benefit from reduced transaction costs. The United Nations’ Sustainable Development Goals (SDGs) cite reducing remittance costs as a key development objective.
Existing remittance services take up to five business days to transfer money to the recipient. Faster options incur higher fees. Some recipients rely on remittances as their main source of income. Given these circumstances, decreasing money transfer times at reasonable rates is paramount.
In a bid to cut costs, senders sometimes rely on cheaper, informal money transfer options [PDF]. Sending cash through the mail or via hand delivery presents security challenges.
Innovating the remittance market the Alipay way
Alipay says that blockchain allows the new service to improve the speed, transparency and security of the remittance process.
The Alipay approach to innovating in the remittance market prioritizes scalability and replicability. The Overseas Filipino Worker (OFW) customer segment is an excellent match for AlipayHK’s blockchain remittance service. Why? A survey estimated that there were 2.3 million Filipinos working abroad between April and September 2017. Alipay touts a user base of 520 million. Given its expansive user base and the value of the global remittance market, Alipay can replicate this service in other markets.
At the launch, a Filipino woman transfered funds in three seconds. Speeding up the money transfer process frees up the sender’s time and gets funds in the recipient’s hands more quickly. Speed is essential in times of need [PDF].
Going forward, new blockchain-based solutions are expected to offer consumers services with more competitive pricing, which aligns with SDG No. 10c.
The future of blockchain and remittances
Alipay is already talking about expanding similar services in other markets. “Blockchain is revolutionising the remittance industry, and we look forward to further innovating and expanding the application of the technology in global remittances, together with local wallet partners and other ecosystem partners,” said Ant Financial CEO and executive chairman Eric Jing.
The Alipay example highlights the incremental nature of innovation. In the book Sprint: How to solve big problems and test new ideas in just five days, Jake Knapp asserts that “Great innovation is based on existing ideas.”
The blockchain remittance service launch highlights the importance of leveraging existing technologies to encourage adoption of emerging technologies. Consumers are more likely to adopt a product or service that has some degree of familiarity.
The launch also offers hope that when it comes to blockchain, its usefulness lies in its ability to benefit the economically vulnerable.