Blockchain Can Improve Payments for Expatriates in the Gulf

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Recent news coverage underscores the impact of high fees and poor FX rates for many expatriates in the Gulf countries sending money home. Two of the top five remitter countries are in the Gulf region – the Kingdom of Saudi Arabia (#2 at US$47B pa) and the UAE (#3 at US$32B pa).1

The exchange houses in the UAE process the lion’s share of outward remittances, with fees ranging between 16-22 dirhams when sending payments to high volume corridors such as Asian countries but which can top 70 dirhams to the UK, Europe or the U.S. where volumes aren’t as high.

Why? When we examined the technologies, systems and processes being used by exchange houses, we found that high volume corridors into Asian destinations (e.g. India, Pakistan, Bangladesh, the Philippines) circumvent the conventional SWIFT messaging and batch processing used by many for cross-border payments today, and use an Application Programming Interface (API) for messaging instead. This means a reduction in fees and a faster settlement time. For example, in a country like India, which operates world-class domestic clearing systems like IMPS (24×7 clearing) and NEFT (12 settlements a day), the beneficiary can get paid quickly, often within minutes.

But this is not a scalable solution for global payments, especially in lower volume corridors such as the UK, Europe, U.S., Australia or Latin America where the volumes do not justify the upfront project costs. Building each API linkage to a counterparty bank often requires a several month project and extensive testing. One of our customers in the UAE has API integrations into 38 banks just in India!

Instead, the exchange houses rely on traditional SWIFT messaging and value exchange via correspondent banks. This results in a higher cost per payment with a slower and less reliable service than in their high volume corridors serviced by APIs.

Low cost, speed and reliability of payments are important to those who support large extended families back home. This is no surprise to the exchange houses who have a lot of competition in these high volume corridors. One anecdotal reference was my Uber driver in Dubai who said he switched exchange houses after just one delayed payment to his father back home in Kerala, India!

As a result, remittance providers are looking at new technologies to help them meet client needs across a range of corridors.

Engaging with banks and exchange houses in Saudi Arabia and the UAE as well as in high volume destinations like India, I have found a huge appetite for Ripple-enabled remittance services for several reasons:

  1. Ripple offers real-time settlement via direct, standardized peer-to-peer connections on RippleNet.
  2. Ripple’s bi-directional messaging can improve reliability by flagging errors while the client is still online, reducing delivery failures.
  3. Ripple’s single set of APIs, supported by the RippleNet Rulebook for consistent messaging standards and operational behavior enables banks to plug in once and connect to a growing network of banks and payment providers in both high and low volume corridors.
  4. RippleNet members can use their own liquidity or leverage third party liquidity arrangements.
  5. In the future, the use of digital assets like XRP will become a viable option for instant settlement and delivery, without the need to hold nostro balances in a variety of currencies. This is a strategic bet that many early movers are considering to drive the complete transformation of this business.

I find it personally exciting to help build a solution that will bring down the systemic cost of remittances around the world.


World Bank Migration and Remittances Factbook 2016