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Money Transfer – The Economist misses the elephant in the room

Many hard-working migrants send money back home. The World Bank estimates that $550bn of remittances are sent using various money transfer systems. Fees are typically between 5% and 25%. The Economist’s article “Fintech takes aim at the steep cost of international money transfers” (paywall) discusses how start-ups are reducing the fees but misses the elephant in the room.

Using crypto I can transfer money from the UK to Venezuela in less than five minutes and it will only cost 1c. I could send $200 or $20,000 for the same cost. The recipient will have a hard currency that they can spend locally or use as a store of value. If they are concerned about volatility they can convert the crypto to a stablecoin pegged to the US dollar for a small fee of 0.1%.

The fundamental challenge we face is that the cost of AML and KYC for personal remittances are borne by millions of poor people in developing nations so that a few bankers can buy BMWs and rich westerners can sleep a little safer in their beds. This situation is not only unjust, it is no longer practical to enforce it.

The solution is for regulators to work with the finance industry to reduce regulation, increase competition, cut fees and improve services. This would benefit not only migrants but small businesses. Unfortunately instead of addressing the this challenge the finance industry is debating the merits of making film cheaper when people are already using digital cameras.

What next?

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