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.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

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 launches drive to highlight environmental cost of staying fashionable

How supporting climate action on a local level can transform the world

We had the hottest June ever this year – this is what happened around the world

The financial world upside-down: debt failure closer

Juncker Investment Plan for Europe welcomed by European Youth Forum

Gender parity can boost economic growth. Here’s how

MWC 2016 LIVE: Orange targets VoLTE and Voice over Wi-Fi; strikes Google partnership

EU budget: Commission proposes most ambitious Research and Innovation programme yet

4 innovation hotspots in the Arab world

Take action on air pollution to save lives, and the planet, urges UN chief

Why Sweden’s cashless society is no longer a utopia

This is how music festivals are tackling plastic waste

Tuesday’s Daily Brief: Venezuela-Colombia baby breakthrough, Italy piles on rescue boat pressure, States must combat hate, Kashmir rights latest and a musical plea to combat CAR hunger

Syrian Constitutional Committee a ‘sign of hope’: UN envoy tells Security Council

Microplastics have been found in Rocky Mountain rainwater

‘No justification’ for attacks against civilians, UN envoy says on mounting cross-border violence in Gaza

European Commission welcomes the positive assessment about how it has managed the EU budget

More than 90 per cent of Africa migrants would make perilous Europe journey again, despite the risks

How India is harnessing technology to lead the Fourth Industrial Revolution

Girls groomed for suicide missions fight back against the extremists of Lake Chad

These 5 foods are under threat from climate change

Rule of law in Hungary: Parliament should ask Council to act, say committee MEPs

Welcome to the age of the platform nation

Africa-Europe Alliance: Denmark provides €10 million for sustainable development under the EU External Investment Plan

‘Repeated attacks’ could close down key hospital in eastern Libya, says WHO

Brexit: political groups discuss options for an orderly withdrawal

UN condemns Syrian ‘war on children’ as up to 30 reportedly killed in clashes

This new solar technology can be printed or woven into fabric

Hostilities in Syria’s southwest, mean cuts in vital aid across Jordanian border: Senior UN official

My twin from Guangzhou

FROM THE FIELD: 10,000 Indonesia quake survivors to receive UN tents

How to help companies become global defenders of LGBTI rights

World ‘not yet on track’ to ensure children a better future: UN rights chief

Alarming level of reprisals against activists, human rights defenders, and victims – new UN report

EU budget: the Common Agricultural Policy beyond 2020

How revealing the cost of coal makes us all better off

Global aid needed for healthcare

Only one in five countries has a healthcare strategy to deal with climate change

The European Commission to stop Buffering

Large parts of the world are growing more fragile. Here are 5 steps to reverse course

Mine ban agreement ‘has saved countless lives’, but ‘accelerated efforts’ needed to end scourge for good: Guterres

Here are 4 of the most politically charged World Cup games ever played

Fed and ECB prepare a new party for the financial sharks

This is why Dutch teenagers are among the happiest in the world

Paid paternity leave should be the norm in the US

Overcoming the paralysis of trust management across a fractured IT landscape

The Peoples are missing from EU’s monetary union

“A global threat lies ahead worsened after the EU’s green light to the Bayer-Monsanto merger”, a Sting Exclusive by the President of Slow Food

Create conditions for ‘harmony between humankind and nature’, UN chief says on sidelines of G20 in Japan

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

5 things you need to know about water

“As German Chancellor I want to be able to cope with the merger of the real and digital economy”, Angela Merkel from Switzerland; the Sting reports live from World Economic Forum 2015 in Davos

Four things Turkey did for business in the G20

Millennials (and Gen X) – Here are the steps you should take to secure your financial future

Impacting society with digital ingenuity – World Summit Award proclaiming the top 8 worldwide

“Leaked” TTIP document breaks post 8th negotiations round silence and opens door to critics

Zhua Zhou: Choosing The Future

“Be aware where you put your I Agree signature on and something else”; now Facebook by default opts you in an unseen private data bazar

Japanese law professor elected new judge at the International Court of Justice

This team of Saudi women designed an award-winning app to make the Hajj safer

More Stings?

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