A recently released report by Ernst & Young, the multinational accountancy firm, highlights how the wealth management industry can benefit by turning to blockchain. It suggests that the technology can be used to streamline onboarding and profiling of new customers. The use of blockchain can be more than effective in creating new portfolios and communicating changes to clients. In addition, the technology can also have a positive impact on how wealth managers deal with forex.
Changes in the International Remittance Industry
According to the Pew Research Center, the annual flow of remittances has almost tripled since the turn of the last century. In 2016, the equivalent of around U.S. $570 billion made its way across borders. This only accounts for money that migrants sent to their home countries, and not business related translations.
While banks and a few high street forex brokers dominated this field until a couple of decades ago, the entry of several FinTech companies changed the international remittance landscape for the better. For instance, UK-based TransferWise, a company that relies on a peer-to-peer (P2P) system, lived up to its hype by becoming a unicorn that turned profitable within six years of launching its services.
TransferWise is not alone, and some of its noteworthy competitors include Australia-based OFX, Ireland-based CurrencyFair, and UK-based WorldFirst. While these companies have used technology to increase cost-effectiveness and customer service levels, they have refrained from going the blockchain way yet.
Is There a Blockchain Effect Already?
Yes, there is. In January, 2018, Ripple made an announcement that three leading money transfer companies would start testing the utility of XRP. MoneyGram, an old horse, was the first to report its implementation, and Western Union has been quick to follow suit.
A report released by Accenture sheds light on how blockchain is helping banks build a real-time global network, and it’s only a matter of time before they start using this technology for overseas money transfers. Crédit Agricole, a leading French bank, is already on its way, having announced that it will start implementing the blockchain technology provided by Ripple on a trial basis.
The Cost Factor
When you transfer money across borders, banks handle the transaction at both ends. Exchange of currency takes place, during which there is a loss in value of the amount transferred, and bank fees are typically part of the parcel. If the transfer takes place using cryptocurrencies such as Bitcoin, Litecoin, or Ethereum, no exchange of currencies takes place. By eliminating banks from the picture, savings also come in the form of reduced to no fees.
Exposure to currency conversion twice is still a drawback when making international fund transfers using cryptocurrencies. For instance, you’re paying for a cryptocurrency in U.S. dollars and you want the recipient to receive Australian dollars. In this case, the exchange of currency takes place twice – USD to crypto followed by crypto to AUD. Once the use of cryptocurrencies becomes commonplace, this might no longer be a problem.
The Security Factor
While banks and leading money transfer companies rely on high encryption levels to safeguard user data, their centralized nature makes them vulnerable to cyber attacks. Blockchain, on the other hand, is completely decentralized. Every transaction is marked by a unique entry in a digital ledger that is impossible to fudge.
The Early Birds
While only a handful of older players are looking at what blockchain has to offer, some start-ups are relying solely on this technology to facilitate cross-border payments. These include, but don’t limit to:
Wealth managers are set to benefit by using blockchain technology in different areas, one of which includes how they handle cross-border transactions. While blockchain has the potential to reduce costs, it can also make the process simpler, safer, and quicker.