According to The World Bank, 1.7 billion people globally don’t have access to the most basic financial services. Without access to savings and credit, economic mobility is next to impossible – leaving the unbanked trapped in a cycle of poverty. This is a huge issue not only for developing countries where the proportion of the unbanked is larger but also in developed markets such as the UK, where 2 million people don’t have a bank account. Increasing access to financial services for the worlds’ unbanked population also has the potential to boost the global economy by over $600bn per year.
One of the key ways to tackle this problem is to make it easier for people to pay and be paid for the work they do, and to receive money from relatives working abroad. This is because receiving money remitted internationally is critical for most emerging market communities,
boosting local economies and bringing communities out of poverty. In Nepal, for instance, the value of remittances contributed 28 percent to total GDP in 2018 according to WorldBank data, while for the Philippines it’s 10.2 percent.
However today’s international payment networks, built on old technology and even older business models, can’t deliver the big improvements needed to have a real impact. To achieve this, we need to rethink the payment infrastructure that underpins global remittances.
The traditional corresponding banking model is not fit for purpose
Despite the ubiquity of money transfer networks, most global banks are not able to serve, in a cost-effective way, many of the developing markets with the highest proportion of unbanked population. This is not because they don’t want to but because the existing corresponding banking model is costly and inefficient.
This is because the current cross-border payments infrastructure is built on a system of bilateral relationships between banks which was developed in the nineteenth century and automated in the 1970s….