A lot of people spoke about the pain of cross-border remittances at the recent Ripple Regionals event in Bangkok. One of the day’s final speakers, Paul Arriyavat, Vice President, Disruptive Technology Office, Siam Commercial Bank (SCB), even put a number on it: $68 billion that migrant workers in Southeast Asia send home.
Another speaker, Thomas Kiong, Senior Managing Director of Group Treasury Sales and FX at CIMB, also focused on migrant workers. He explained, “Our country hosts of lot of migrant groups, and we’ve always catered to this segment. Malaysia to Indonesia is a very big cash-to-cash corridor and we also have a lot of Filipino workers.”
The source of cross-border pain
Demand for fast and affordable cross-border transfers is large and growing, but existing remittance services are failing to meet it effectively. CIMB had previously partnered with Western Union to help customers send money back home, but as Kiong put it, “the economics were very much tilted in their favor. We did 80 percent of the work but only got 20 percent of the reward.”
These services are also expensive for the end customer, especially migrants in low-income jobs. Transfers can take as long as five days to reach the recipient and when money is providing food for children and elderly relatives back home, a week-long delay is more than just an inconvenience.
Despite these drawbacks, migrants have few alternatives because, as Arriyvat noted, “banking penetration is so low. People use cash. It’s convenient, it’s cheap. As a bank, we cannot reach 70 percent of the population. Even though people in Southeast Asia are very advanced smartphone users, when it’s time to pay, they don’t use their phones.”
Turning pain into opportunity
Arriyvat acknowledged that “this region is full of pain,” but “also full of opportunities.” Developing faster, more affordable cross-border remittance first required increasing financial inclusion. Inspired by the surge in mobile use after phone companies stopped charging for SIM cards, SCB stopped charging fees for services used on its digital banking app.
The next step was to partner with blockchain services providers that could process remittances in real-time, even outside core banking hours, at an affordable price for low-income users.
“Blockchain technology became our core [platform] for solving this pain point,” explained Arriyvat. “We started with Thai migrant workers living in Japan and helped them send money home through 30,000 ATMs.”
Plugging into new networks
CIMB also looked to take advantage of the opportunity available for any service that could ease the pain of cross-border remittances. But first, the bank had to end its relationship with Western Union.
“We started our own proprietary product called SpendSend to service the Malaysia-Indonesia corridor,” said Kiong, “but Western Union barred us from switching it on. We ended that relationship and today SpendSend has a presence in 31 countries because we charge less than $5 USD for an instant payment.”
The service is now targeting higher value transactions from the region’s large number of white-collar workers. This requires opening up multiple new payment corridors so CIMB is now plugging into existing blockchain networks to both expand its reach and reduce costs for customers.
“Being a bank-backed entity opens more doors and allows us to get into a lot more relationships with services that would not deal with Western Union or MoneyGram,” added Kiong. “Blockchain technology allows us to solve the remittance problem for more people. The network enables SpendSend to have greater global coverage, while also bringing new flows into our network.”
One connection, many possibilities
SCB has also expanded its cross-border reach beyond Thailand and is distributing funds in Cambodia and Vietnam. “The product is now called SCB One Connect,” said Arriyavat, “and the concept is one connection, many possibilities. Connect to SCB and we’ll distribute your funds to any bank account. Without blockchain and the networks we can now plug into, we could not execute this service.”
For both SCB and CIMB, the $68 billion migrant remittance market is just the beginning. Expensive and slow cross-border remittances are a widely-felt pain. Easing it with blockchain-powered services will unlock even more opportunity for growth for Southeast Asia’s banks and people.
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