Using blockchain technology to build India’s economy3 min read . Updated: 13 Aug 2018, 10:36 AM IST
India is the world's largest recipient of remittances at 4.6 trillion per annum
For India to realize its goal of a $5 trillion economy by 2025, it must adopt blockchain technology for international remittances.
Remittances from non-resident Indians (NRIs) are vital to the everyday livelihood of tens of millions of people in India to pay for things like food, rent and other necessities. They also make up a huge portion of our country’s balance of payments and help to stimulate domestic consumption levels in India, which in turn, supports many different industries and businesses. And yet, the average cost of remitting money to India is 5.63% of each transaction, well above the Sustainable Development Goal target of 3%. When you consider that India is the world’s largest recipient of remittances (at about ₹ 4.6 trillion a year), the need for a more efficient method for inbound remittances is clear.
If the government is serious about building India’s economy and bringing prosperity to all its citizens, it needs to fix the remittance problem. It can do so by adopting blockchain technology and digital assets for faster, low-cost, efficient remittances.
Based on existing cross-border payment rails, which are slow and antiquated, the process of sending remittances into India is expensive, slow, and prone to error—or outright failure. Payments can take three-five days to arrive and often go missing. The longer a worker’s money is stuck in this remittance process, the more exposed their payment is to volatile forex markets. We think individuals have the right to know exactly when their payment will arrive at its destination, at what exchange rate and at what cost. That’s what blockchain does. It makes international remittance real-time and easy—as easy, in fact, as sending an email.
Overhauling remittances with blockchain
Financial institutions (FIs) and payment providers are aware of the pain points in facilitating and receiving remittances into India, with banks such as IndusInd Bank and Yes Bank pioneering the adoption of blockchain technology. Blockchain technology in cross-border payments removes the need for correspondent banking—essentially the middle men who help get a payment from one country to another—by allowing a sender bank to interact directly with a recipient bank when initiating a payment. Payments take place in real-time, with end-to-end visibility over the time it will take to reach its destination, as well as the fees associated with the transaction.
Unlike traditional wire transfers like SWIFT, payments that are processed using blockchain can be settled instantly. If a receiving bank needs more information, the bidirectional messaging and settlement component embedded in a blockchain solution like Ripple’s allows it to ask the sending bank for the missing information on the spot. If the payment ultimately fails, the sender bank finds out immediately. And because the need for an intermediary is removed, the fees associated with this payment can be done at a much lower cost.
Digital assets (sometimes called cryptocurrencies) such as XRP (an independent digital asset) can also transform the payments experience for NRIs by serving as an on-demand liquidity tool for these remittances. Sourcing liquidity for payments into emerging markets like India can be both difficult, slow and expensive, whereas using XRP as a bridge asset to convert the UAE dirham into the Indian rupee takes just minutes, at fractions of the cost of a traditional fiat-to-fiat exchange.
Blockchain—a game changer for India
Innovative cross-border payment solutions built on blockchain technology are not here to replace FIs, nor do they seek to circumvent them. But the adoption of blockchain to power more streamlined, cheaper payments can transform India’s economy. We need to embrace the innovation that blockchain technology can bring to our country. The debate surrounding blockchain as being “disruptive" is passé. Rather, we should be looking at how blockchain technology and digital assets like XRP can improve and enhance the remittance payments experience for people all over this country, for the good of our economy and well-being.
Navin Gupta is managing director (South Asia and Middle East and North Africa) at Ripple.