The COVID-19 pandemic exposes cracks in remittance industry, opportunities for crypto
Cheaper, faster, and more reliable digital remittances are needed now more than ever. Telcoin checks all the boxes while providing an easy onramp to the blockchain economy.
By: Parker Spann
The bilateral remittance industry is fraught with slow, expensive, archaic incumbent products that force consumers to stand in long lines and use physical cash. For some countries, inbound remittances make up over 20 percent of GDP while the average cost of transfer is 7.5 percent. This translates to remittance fees accounting for up to 1.5 percent of GDP. Comparatively, this means there are literally countries where the cost to GDP of current remittance services is half of the -3 percent the IMF projects global growth will fall in 2020.
The incumbent emperors of the remittance industry simply have no clothes. In the context of COVID-19 and 2020 thus far, Telcoin’s mission of disrupting the international money transfer industry has never been more important nor its business model better positioned to succeed.
First, while the World Bank predicts the sharpest decline in remittances in recent history, we forecast increased demand for fully digital, cheap, and instant money transfer solutions for the foreseeable future. We assert there has never been a better time for innovative remittance startups like Telcoin to disrupt incumbents and shift the market paradigm from exorbitant corporate profiteering to one of breakthrough consumer savings.
In a post-COVID world, crypto-based remittance companies like Telcoin will start to play a more important role in the global economy and even challenge global central banks’ monopoly on money.
International remittance market forecast during the COVID-19 pandemic
According to World Bank Group President David Malpass, “Remittances are a vital source of income for developing countries. The ongoing economic recession caused by COVID-19 is taking a severe toll on the ability to send money home and makes it all the more vital that we shorten the time to recovery for advanced economies.” Essentially, market data suggests migrant workers in developed countries are more likely to be laid off first, decreasing their economic means to send money home to their loved ones. As new cases of infection begin to taper off in advanced economies, we forecast an increased demand for money transfers to the developing world.
According to Jeffrey Frankel of the Harvard Kennedy School, “remittances are counter-cyclical: they increase when the country of origin (the recipient of the remittances) is in relative recession and decrease relatively when the origin country has above-trend relative income”. Take our first inbound corridor as an example, the Philippines, where remittance flows increased after the Asian crash of 1997.
The question then becomes the duration of the economic downturn in poor countries relative to rich ones. Are developed countries more likely to recover from this storm faster than developing ones? It’s hard to rationalize otherwise.
For example, The United States has roughly 172,000 ventilators — and that still isn’t enough. Sierra Leone, with roughly the population of Washington state, has 13 ventilators. Developed countries simply have the healthcare infrastructure to recover from this crisis much more quickly than developing ones. Their economies will recover faster, increasing emigrants’ means to send money home. Meanwhile, developing countries’ healthcare systems will be overrun, unemployment will skyrocket, and their citizens will need money more than ever. The question is: how will it be transferred?
Remittance incumbents versus Telcoin
Remittance incumbents are notoriously expensive, averaging 7.5 percent globally. Why are these services so expensive in the digital age? Initial costs of opening a legacy remittance business include operating physical locations in both receiving and sending countries, obtaining and maintaining the necessary MSB licenses, exchanging convertible for partially and non-convertible currencies, and paying ever-increasing fees to banking institutions.
In the past, you were required to verify customer identities (KYC) in person, which meant that maintaining a physical location was mandatory. Now, the rules have changed, enabling innovative and efficient digital remittance solutions.
Via its compliant, proprietary e-KYC and mobile money partnerships, Telcoin operates fully digitally. Overhead is orders of magnitude lower than the competition from inception, allowing Telcoin to pass the savings directly to users and putting more money in the pocket of those that need it most. It is not only cheaper, but sending money with Telcoin is safer in a post-pandemic world.
Today, many mobile money users go into the local remittance shop, pick up their cash, and physically bring it to the local mobile top-up shop or agent to deposit it, paying various fees along the way. With Telcoin, they will have the option to receive the transfer directly into their digital wallet in seconds — and for a fraction of what incumbents currently charge.
Cryptocurrencies… is it time?
Through various speculative waves, cryptocurrencies have emerged on the global scene in somewhat of an elusive fashion. Most people simply do not understand how they work, much less how fiat money works, and therefore stay away until the price comes roaring back, capturing their brief attention, but not their time.
Now, as we witness the largest experiment in monetary and fiscal policy in human history, it’s time to walk through what Telcoin sees as the primary near term use cases for TEL and other cryptocurrencies.
Digital assets enable anyone to instantly transfer value anywhere in the world without relying on a middleman.
In legacy banking, if you want to send Philippine Pesos (PHP) internationally, you simply cannot do it. PHP is what is considered a non-deliverable currency. There are scores of other non-deliverables, and frankly, that is only a tiny fraction of the issue with the current way we transfer money globally. Typically, transactions involve numerous correspondent banks, middlemen, and amid-20th century infrastructure built for bankers by bankers.
Cryptocurrencies revolutionize the way money is transferred and stored.
Using the Telcoin app users can instantly transfer value to any cell phone number in the world. As we continue to scale internationally, obtaining the necessary licenses and partnerships for both remittance and crypto exchange, Telcoin will have the fastest, cheapest compliant remittance service in the world
Cryptocurrencies are a hedge against a cashless society.
It seems almost a foregone conclusion that by the end of this lockdown, many governments will outlaw or strictly limit the usage of physical cash. In a sense, cash has been the last bastion of financial sovereignty, but now that banknotes carry the threat of viral contamination, governments may mandate their elimination from use. Telcoin’s multi-signature wallet enables anyone with a cell phone to securely store and instantly send TEL and, in the future, an entire ecosystem of blockchain-based assets without relying on a third party.
Cryptocurrencies are a hedge against excessive inflation.
Some currencies, like the USD, GBP, EUR, have relatively stable and predictable inflation rates. This is not the case with most currencies, in fact, according to The Hanke-Kruse Hyperinflation Table, at least 53 fiat currencies have failed due to hyperinflation over the past 100 years.
As Satoshi Nakomoto, the anonymous creator of Bitcoin put it: “The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Cryptocurrencies generally have predictable inflation and in the case of TEL, a cryptographically-provable, hard-capped, immutable supply schedule.
In a world where the most credible Central Banks are printing trillions of dollars on a monthly basis, and claiming to have “infinite cash,” perhaps alternatives to sovereign currencies are better long term vehicles for wealth storage.
Cryptocurrencies lower counterparty risk through secure self custody, presenting a compelling structural alternative to negative interest rate deposits.
To the tune of over US$15T (yes, trillion with a T) worth of global negative debt, the formerly uncommon negative interest rate policy (NIRP) is now par for the course for central banks. In a post-COVID-19 world, people in countries that implement NIRP will be forced into paying the government to hold their money — while the government debases it at their discretion.
Cryptocurrencies enable anyone with an internet connection to seamlessly access financial services.
Though in its infancy, the decentralized finance ecosystem (DeFi) on ethereum is starting to flourish. According to DeFi Pulse, over US$773M is currently being used as collateral across a wide spectrum of projects. Early movers in the space include peer to peer lending, decentralized stablecoins, decentralized exchanges, and asset-backed coin providers; all that enable anyone with an internet connection to access financial products without relying on legacy financial institutions. None of this is entirely useful for wealthy countries with highly liquid and accessible markets, but it may be the only way the underbanked are able to invest, save, and obtain fairly priced loans. Defi may very well do to legacy finance what cell phones did to landlines in Africa — skip them entirely.
If only there was a company with the engineering capacity, compliance experience, and customer acquisition model to productize and distribute the best of DeFi to the masses who really need it…
Send money safely, send money smarter. Telcoin.