How banking with blockchain can stamp out corruption and increase financial inclusion

bitcoin united nations

Regulating the no man’s coin – the rapid rise of cryptocurrencies has regulators scratching their heads (United Nations Department of Economic and Social Affairs, 2017)

This article is brought to you thanks to the strategic cooperation of The European Sting with the World Economic Forum.

Author: Joseph Thompson, Co-founder and CEO, Aid:Tech


Banking institutions were primarily built to provide a trusted intermediary between two parties, such as a borrower and a lender. Legitimate commerce required the use of an institutional bank. While banks have come far from their origins in ancient empires, their basic business operations have remained unchanged.

Traditional banks and financial institutions have played an important role in facilitating payments and remittances. A remittance payment is a transfer of funds by a foreign worker to an individual in his or her country of origin, and is often of huge economic significance to its beneficiary. Remittance payments vie with international aid as one of the biggest sources of income in developing countries.

Those who have yet to familiarize themselves with the remittance industry may be surprised to discover its relevance and function as a multi-billion dollar market. Remittances to low- and middle-income countries rebounded to a record level of $466 billion in 2017, an increase of 8.5% following two consecutive years of decline, according to the World Bank. Global remittances, which include transfers to high-income countries, totalled $613 billion in 2017, marking a 7% increase from $573 billion in 2016. Factors such as stricter immigration policies have possibly resulted in an increase in the number of remittance payments this year, and the 2018 figures are expected to rise accordingly.

Besides traditional financial institutions, cross-border transfers have long been dominated by remittance companies such as Western Union. Remittances are targeted at the needs of less developed countries, rather than the Western world. This is reflected in statistics that show that the top countries in 2017 to receive remittances were Kyrgyzstan (35%), Tonga (33%), Tajikistan (31%), Haiti (29%) and Nepal (29%), when taken as a share of GDP.

In many of these developing countries, high percentages of the population do not have access to bank accounts. They are forced to use Money Transfer Operators (MTOs). Due to the challenges that these present, many have called for a solution to revolutionize the process for the ‘unbanked’, bringing them into a corruption-free and inclusive financial arena.

Corruption as the headline act in banking

Corruption has played a starring role in the history of financial institutions. Tackling corruption remains a primary issue of concern for regulatory bodies, financial regulators and the general public. Due to the intertwined nature of the financial sector with government, corruption has systemic complications that threaten economies on a national and international scale.

Compliance frameworks exist to combat corruption, but governance in banking varies hugely on a global level. Banks are intended to function as safeguards to determine and monitor potential illegal activities, such as money laundering. There is a huge responsibility placed on the shoulders of employees to identify and report suspicious transactions, data hacks, insider trading and criminal activities. The transformative nature of the sector has resulted in an increase in incidents, such as cyber hacks, that have directly impacted fraud and corruption, resulting in internal structures no longer being completely reliable.

 

Cryptocurrency and blockchain enthusiasts have highlighted the opportunity to leverage the technology to transform the landscape of the banking and remittance sector. A corruption scandal such as the 1MDB case, involving one of the most prominent financial institutions, could have been averted by the use of blockchain technology. Indeed, blockchain’s near impenetrability offers a solution to corruption, as no government can add or remove cash from circulation. So how can blockchain transform the process of remittances and stamp out corruption?

How blockchain stands to disrupt the remittance industry

Until recently, the only two ways of transferring money overseas involved either moving money from one bank account to another or utilizing private wire services. Neither of these options provide security or are the most efficient. However, the global remittance market is undergoing fundamental change. Blockchain holds the greatest potential for revolutionizing and addressing problems within the payments system, including high commission rates, slow transaction speeds and the number of intermediaries.

Although increased competition has resulted in a slight decline in transaction costs over the years, transaction fees and commission from exchange rates which favour the bank or wire service are still charged, and differ greatly from origin to destination. Blockchain facilitates the reduction of commission fees and provides more cost-effective transfers, as it removes the overhead costs associated with intermediaries.

Traditional financial services charge 7.4%. Blockchain can potentially reduce commission fees to below 3%, as is the case on a recent pilot in Serbia. Using traditional banking and wire transfers, the remittance process can take several days, and fees are charged every step of the way. If banks can be removed from the process, costs will decrease even further.

While it is still in its nascent stages, the global banking system can only benefit from introducing blockchain into its services. Its anti-corruption features will save both the public and financial institutions billions, while also introducing greater accountability into the system and policing corruption effectively. Blockchain will enable more people to access money and bring them closer towards financial inclusion.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

UN and partners appeal for $920 million to meet ‘dire needs’ of Rohingya refugees

This is what different countries are doing to stop coronavirus from spreading

German Presidency outlines priorities to EP committees

Protecting citizens’ access to social security in case of no-deal Brexit

Rule of law in Poland: MEPs point to “overwhelming evidence” of breaches

MEPs want to boost energy storage in the EU to help spur decarbonisation

Latest leaked TTIP document confirms EU sovereignty may be under threat

Does Greece really weigh what is asking for today in Russia?

Why India is ready to become a supercomputer power

Main results of EU Environment Council, 25/06/2018

Do not take the EP’s consent on MFF for granted, says Budget Committee Chair

New book honours UN women who made HERstory

‘Warp speed’ technology must be ‘force for good’ UN chief tells web leaders

‘Beyond reasonable doubt’, international court convicts notorious DR Congo rebel leader of war crimes

IMF’s Lagarde: Estimating Cyber Risk for the Financial Sector

Recognizing, protecting and empowering youth rights in Europe and the world

What universities can learn about citizenship in the COVID-19 pandemic

Coronavirus makes inequality a public health issue

New Eurobarometer survey shows: The majority of Europeans think the EU should propose additional measures to address air quality problems

Pandemic and quarantine: What can we do for our mental health?

Ukraine-EU deal sees the light but there’s no defeat for Russia

Peace operations benefit from improved cooperation between the UN and troop-providing countries, says peacekeeping chief

How will Brexit affect higher education in the EU?

How one traumatised child survived genocide and started a movement for mental health

Yemen: EU allocates over €70 million to help most vulnerable population

Chauvinism and xenophobia will lead to global assertiveness and more wars

Israeli security forces’ response to Gaza protests ‘a recipe for more bloodshed’, says UN expert

General Elections in Spain: Twitter organises the first digital debate to empower young people.

Is a full course lunch, a new Commissioner and 2 million anti-TTIP citizens what you would call a “Fresh Start”?

MEPs: Focus on crisis response when coordinating economic and budgetary policies

3 hard-won lessons from a decade of negative cleantech returns

“They are trying to make improvements, but of course they are quite slow for my generation”, Vice President of JADE Victor Soto on another Sting Exclusive

Human trafficking cases hit a 13-year record high, new UN report shows

The US reject EU proposal for prudential financial controls

Afghanistan: top UN official denounces ‘extreme’ suffering of civilians in Ghazni

Iraq: UN human rights report voices concern over conduct of ISIL fighter trials

Recognize, celebrate and ‘stand in solidarity’ with persons with albinism

These rules could save humanity from the threat of rogue AI

Threats from mammoth banks and Brussels fuel May’s poll rates

How Africa and Asia are joining forces on universal healthcare

Opening Remarks by H.E. Ambassador Yang Yanyi, Head of the Chinese Mission to the EU at the Chinese Fashion Night

How we can survive the great COVID lockdown: IMF Chief Economist Gita Gopinath

‘Extinction crisis’ pushes countries to agree stronger protection for global wildlife

3 unexpected consequences of the US-China trade war

Here’s why e-mobility must be at the heart of the green recovery

Sustainable Development Goals: making the world a better place

‘Bleakest period yet’ in Occupied Palestinian Territory: UN human rights expert

Why the evolution of blockchain reliability is critical to protecting your digital assets

The ECB tells Berlin that a Germanic Eurozone is unacceptable and doesn’t work

We must stop choking the ocean with plastic waste. Here’s how

At UN, Middle East countries discuss steps towards regional nuclear-free zone

This disease once wiped out 60% of Europe’s population – and now it’s back

This project is turning abandoned fishing gear into volleyball nets

COVID-19 has accelerated the digital transformation of higher education

Food finally features in the climate debate. Now what?

‘We need to do more’ to transform the world, deputy UN chief tells African audiences

How TV has brought mental health issues into the light – and helped to banish stigma

5 amazing schools that will make you wish you were young again

This is how countries compare on gun deaths

Eurozone: New data show recession and debt closer to explosion

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s