Remittance among the unbanked and migrant workers is big business. The World Bank estimates that officially recorded remittances to low- and middle-income countries reached US$466 billion in 2017, an increase of 8.5 percent over US$429 billion in 2016.
Residents of low- and middle-income countries also endure high remittance charges—and it is only getting pricier every year. The same report showed that the global average price of sending US$200 was 7.1 percent in Q1 of 2018, more than twice as high as the Sustainable Development Goal target of 3 percent.
Seeing the Bigger Picture
Reducing remittance fees faces two immediate challenges: de-risking by banks and exclusive partnerships between national post office systems and money transfer operators.
But there is a third factor that is often overlooked: poor financial planning.
It often sees many unbanked ending up in debt or with very little savings after years of working hard because of a variety of actions, like taking on unnecessary high-interest loans or not having proper insurance coverage.
To tackle these concerns head on, a group of remittance experts and big data scientists started Wizdraw. It aims to reduce fees, help banks mitigate better and introduce sound financial planning practice for migrant workers. All the company needed is a partner to drive this holistically.
That is how Wizdraw came to talk to IBM.
Blockchain to the Rescue
Banks’ reluctance to remit for an unbanked or migrant worker comes down to a single issue: transparency of the source of funds. Without it, banks risk running afoul on anti-money laundering (AML) laws as they will be unable to show where the money originates. If found guilty, banks face hefty fines that can ruin reputations.
It is why Wizdraw saw immediate opportunity when IBM proposed blockchain technology. Blockchain tackled fund source transparency in a unique yet intuitive way.
Blockchain writes every transaction in a block in such a way that makes it unique and unalterable, rendering it immutable. New transactions will add new information or “facts” to the block, making it traceable. It is the reason why many compare blockchain to a general ledger.
The Wizdraw solution uses the open source technology that is maintained by over 35 organizations. IBM was one of the original contributors and champions it in all its blockchain programs.
Hyperledger Fabric uses a configurable and modular architecture. It also uses smart contracts authored in Java, Go or Node.js, rather than esoteric domain-specific languages (DSL) like Ethereum Solidity, allowing Wizdraw and other participants to engage a ready pool of developers.
Finally, Wizdraw offers a big advantage unlike other startups. It already works with an established network of banks. IBM’s Blockchain solution only needs to leverage it.
Currently, the project is in the prototype phase. Wizdraw is already working with a number of their banking partners to build the right platform and model. A Minimum Viable Product (MVP) is due later this year. Wizdraw will also develop an intuitive user interface with the MVP as it works toward compliance.
For users, the solution will be available through Wizdraw’s app. Once the blockchain architecture is approved, the company will upgrade the app. Users will not see any difference except better remittance fees, while banks can begin mitigating risks better with better transparency.
AI for Financial Literacy
As noted earlier, lowering remittance fees is only part of the solution. It is also a short-term answer. To improve migrant worker livelihoods for the long-term, financial literacy must be improved.
Users must be able to easily track expenditure, make investment decisions using insights from crowds and improve overall financial planning. Here, IBM’s Watson, a leading artificial intelligence (AI) platform holds enormous promise.
The benefactors, in the end, will be the migrant workers and the unbanked by bringing them a step closer to financial inclusivity.
David Chow, Managing Director, IBM Global Business Services – Hong Kong