This is an excerpt from the Finextra report.The Future of Digital Banking North America 2023‘.
The payment landscape is currently undergoing an intense digital-driven transformation, but is there a place that accommodates both remittances and cryptocurrencies? How are digital currencies finding space in an industry that continues to debate whether they can replace What is digital noise?
According to Caitlin Aslow, Associate Superintendent for Research and Innovation at the New York State Department of Financial Services, there is room for both cryptocurrencies and remittances. “Innovation in one area, such as cryptocurrencies, should not exclude innovation in others. We believe that while cryptocurrencies continue to evolve, we can work towards improving traditional payment systems. It’s exciting to be working on multiple innovative avenues.”
There has been a massive shift to digital platforms across all industries as a result of the Covid-19 pandemic, with political leaders around the world taking steps to steer their economies in the same direction. El Salvador made headlines by becoming the first country to adopt Bitcoin as legal tender despite public outcry.
El Salvadoran President Naive Bukele said at the announcement that cryptocurrencies are a direct competitor for remittances, adding that low-income households in El Salvador will receive from “the equivalent of billions of dollars each year.” Remittances, defined as people sending money to support their families and communities back home, are a significant component of GDP in many countries.
In addition to this, Sankaet Pathak, CEO and co-founder of Synapse, said, “Location no longer matters for workers in the digital commodity economy, caused by the COVID-19 pandemic. A variety of content creators are facilitating an interconnected global workforce, plus cross-border families, travelers, and residents of countries experiencing high inflation or negative interest rates are more likely to We need access to a store of value that has
according to world bankit is known that global remittances reached about $700 billion in 2020, of which $540 billion went to low- and middle-income countries.
TechCrunch El Salvador reported receiving nearly $6 billion of that. However, cryptocurrencies are estimated to account for less than 1% of the volume of global cross-border remittances.
Daniel Webber, founder and CEO of FXC Intelligence, emphasized that the industry is not ready for one or the other when it comes to cryptocurrencies and remittances. “Cryptocurrencies are not in a position to replace traditional money transfers, nor will they be in the near future. Claims of being faster and cheaper are often exaggerated. Our own data tracking crypto cross Borders often have about the same speed in many corridors because it takes longer to enter and exit the ramp, indicating that it’s not always cheap.”
Webber further elaborated on this point, saying that the benefits of cryptocurrencies are still worth it. “That’s not to say that there are no benefits to cryptocurrency for end-users to send money. Applications where users want to keep their money in digital currency, or where some currency pairs are particularly volatile, or limit.
“However, the benefits of cryptocurrencies for remittance customers are specific to niche use cases and often do not offer a noticeable advantage over broader traditional market solutions. What seems to be there is better financial management, which is the liquidity that remittance providers need.” Amid a nuanced wave of innovation and technology trends, the financial services and fintech sectors alike In addition, we must not forget that traditional or traditional methods of transferring funds still work.
Traditional global rail and payment networks are also being transformed and modernized for the future of digital banking. Since its inception, blockchain has demonstrated the potential for financial inclusion and formalization of remittances. In the background, regulators have explored blockchain’s ability to streamline and replace correspondent banking, the infrastructure underpinning cross-border payments and remittances. Innovation is desperately needed for these bilateral agreements, also known as Nostro-Vostro accounts, that allow banks to offer services in countries where they do not directly operate.
As a result, there is growing interest in the link between money transfers, blockchain and correspondent banking, especially by organizations such as Ripple.As Ludovico Lera of Durham University wrote in a paper
“Blockchain Technology and Remittances: From Financial Inclusion to Correspondent Banking”blockchain has proven to facilitate the formalization of remittances and can be incorporated into existing infrastructure, business models and regulatory structures.
The introduction to the paper states: Significant previous social scientific research argues that digital technologies for financial inclusion are actually motivated by the monetization of users’ data.
“The paper argues that the application of DLT within existing correspondent banking arrangements aims to reduce costs and fees and to mobilize idle liquidity ‘trapped’ in Nostro and Vostro accounts. doing. This is achieved through interoperability. This is understood as mutual visibility and synchronization of payment systems. Interoperability enables real-time clearing and settlement of trades. Ripple is almost the only case where blockchain, correspondent banking and money transfers overlap. ”
Core banking systems are modernized to meet changing customer demands while reducing costs and risks. Automating processes and streamlining application delivery improved resilience, efficiency, and time to market. Partnerships across the financial services ecosystem enable us to solve technology challenges from a business- and technology-driven perspective. But industry sentiment continues to question whether banks can truly innovate on their own, or whether financial institutions can partner effectively.
A Wells Fargo spokesperson said in this regard: The future of banking relies on investing in key partnerships to create value for customers across diverse ecosystems. It’s not a matter of fintech and banking, it’s leveraging Wells Fargo’s data and scale with the agility and precision of a fintech and technology company to produce better results than the sum of its parts. Leverage these partnerships to create experiences that fully encompass your customer’s financial journey. ”
Looking to the future, it is clear that traditional innovation models are largely linear with limited feedback loops. A feedback cycle that combines input on innovation and social change leads to success across the value chain. Technological innovation not only brings new products, but also new ways of using products and services, spurring even more innovation.
Emerging technologies such as distributed ledger technology and blockchain technology have been treated this way by traditional financial institutions. Wells Fargo continues: We are currently evaluating Digital Ledger Technology (DLT) for potential transactional, transparency, and payments innovations. Potential benefits include easier access to data, end-to-end transparency, faster payment speeds, and better auditability. In addition, Wells Fargo is working with financial institutions to explore distributed ledger initiatives that complement our core business. As with all emerging technologies, understanding the regulatory environment and ensuring customer security are fundamental elements of any investigation.
“Although we do not accept crypto assets for deposit, custody, or other accounts, we are actively conducting research and development in the digital currency space to explore potential trading, transparency, and payment innovations. We are evaluating the underlying technology.”
In exploring how innovation works today, Asrow added: Blockchain technology itself also has exciting potential applications inside and outside financial services. As this space continues to expand, efficient and stringent regulation is essential. NYDFS implemented the first coordinated regulatory framework for cryptocurrencies in his 2015, and under the leadership of Superintendent Harris, DFS will use a suite of regulatory tools to make New York a center of innovation. I am working on keeping it. ”
In his closing comments, Webber said: When it comes to improving the efficiency of banks and payment companies, it can offer certain advantages, especially when using stablecoins such as USDC and helping reduce the need to pre-fund currencies around the world. I have a situation.
“As the adoption of cryptocurrencies in checkout grows, its growth will fundamentally change the payment side of business. We are also seeing a range of cryptocurrency companies embrace regulation and seek to gain the same level of trust as traditional financial services companies.In this regard, more and better regulation. will only help the sector become more mainstream.”