Note: The original post on Medium can be seen here
True Disruption of Remittances — only now possible with USDC, Stellar & MoneyGram
Remittances (remesas in Spanish) are the act of sending money abroad.
Recently the IMF has come out with a report about how the fintech hype failed to disrupt the remittance markets. What went wrong?
He mentioned that while the “remittance market is considered the ‘perfect space’ for disruption, a space ‘ripe’ for fintech’s touted technical advances. If we believed the hype, it was supposed to be easy!”
Fintechs hype did not lead to the promised disruption
In the space where banks and money transfer companies still dominate, “the hyped fintech space has not disrupted remittances.”
The IMF acknowledges that fintech has driven down costs because of competition, and has helped digitization. It has only really done so, in developed economies where cash is no longer king. While overall a positive, it definitely was not the disruption we were promised, and essentially just reliant on traditional banking.
Turrin notes the conclusion that “the biggest drawback is that fintechs don’t deal in cash, while the world’s most vulnerable people do.”
What about Bitcoin?
Additionally, the paper notes that Bitcoin is even further away from disrupting remittances and that Bitcoin proponents fail to fully account for remittance costs. Which include big network fees, slow transactions, and importantly — price volatility causing large spreads and fees to convert into cash.
Disruption of remittances did not achieve three necessary factors
Essentially the factors for true disruption in the remittance market needed to have 3 things:
1. Stable value.
2. No bank/middlemen required (more efficiency/less borders).
3. Fungible for cash directly (can deliver remittance value to those who need it most).
Stellar & MoneyGram — a true disruption?
There is a new partnership between Stellar and MoneyGram that achieves these three items. The partnership between Stellar and MoneyGram allows for USDC to be fungible for cash in 400k locations in 197 countries, with NO fees because it has achieved efficiencies through the cheap and fast Stellar blockchain.
I would argue that this is the first true disruption to Remittances ever. Here is a video of it being used in a non-custodial Stellar wallet.
Decaf ☕ on Twitter: "1/ Here is @FerOrduna28 getting Mexican Pesos at @Tiendas_OXXO from her $USDC in Puerto Escondido, Mexico!You can now onboard to USDC and also cash out at any of the 350k MoneyGram locations worldwide! This is a thread of the real impact potential that blockchain has. 🧵👇 pic.twitter.com/tBEZnCArgS / Twitter"
1/ Here is @FerOrduna28 getting Mexican Pesos at @Tiendas_OXXO from her $USDC in Puerto Escondido, Mexico!You can now onboard to USDC and also cash out at any of the 350k MoneyGram locations worldwide! This is a thread of the real impact potential that blockchain has. 🧵👇 pic.twitter.com/tBEZnCArgS
This is the remittance disruption matrix
As you can see, for the first time ever, true disruption of remittances is now possible with digital currencies on efficient blockchain technology.
This partnership has meant that now you have the complete mix of;
- stable value,
- that doesn’t require banks/middlemen to make payments, store or send value,
- and importantly, makes USDC fungible for cash.
The potential for true disruption is there
While fintechs have provided cost savings through competition in first-world economies, they are just using traditional banking and are not disrupting traditional systems or helping cash economies (often developing countries where the price of remittance is highest, and who need it most).
Then there was the promise of Bitcoin as a disruptive technology, however, in reality, the price of Bitcoin was too volatile, and exchanging it into cash/fiat was too difficult and expensive.
However, now with stable and transparent digital currencies like USDC running on efficient blockchains like Stellar you have the perfect storm for disruption. This is why our team at Decaf has chosen to implement this into our wallet (which is focused on remittances and payments).
Is it a sustainable disruption?
To determine whether this is a true and sustainable disruption, we will need to stay tuned for June 2023 and beyond, when MoneyGram will be introducing fees. If they manage to keep them lower than everyone else and pass on the efficiency costs from using Stellar’s blockchain it will benefit everyone and truly fulfill this frontier of true disruption. Only, time will tell.
Read more about the incredible growth of remittances for Latin America, particularly for countries like Mexico.