The global economy spent approximately $44 billion last year on fees for remittances. Remittances—money sent from one country to another—most often go to low-income households and are proven to reduce the overall poverty of a given nation. They also come with high transaction fees and long transfer delays, significant obstacles to people trying to pull themselves out of poverty.
Last week, Stellar’s CTO Jed McCaleb and I attended a conference hosted by the UN and the World Bank on “Harnessing Migration, Remittances and Diaspora Contributions for Financing Sustainable Development.” I spoke on a panel exploring new technologies for efficient delivery of migrant remittances.
A core cause of high transaction fees is friction—money moves slowly and inefficiently from one country to another. Transferring money is expensive because there are limited connections between financial institutions and systems. Currently, we don’t have a neutral network to tie our disparate, siloed institutions together and move money cheaply and seamlessly. But even if we did, could we trust a privately owned network to be reliable and honest?
How, the audience at the UN wanted to know, can Stellar help? The UN is esteemed for its neutrality and ability to connect nations. As a nonprofit, Stellar strives for that kind of neutrality—to serve as precisely the kind of universal network that could smooth the movement of money between financial institutions and nations, measurably reducing transaction fees.
In 2014, the remittance market was approximately $582 billion. Averaging 7.72% per transaction, fees for remittances amounted to around $44 billion. The World Bank expects the amount of remittances globally to rise to $608 billion in 2015. If we reduce the cost of remittances by 5%, recipients of that money in low-income nations would receive over $16 billion more per year.
We have a choice: we can allow fees to remain high, effectively serving as a tax on migrants who send money home. Or we can reduce the cost of remittances and put billions of dollars back into the pockets of the world’s poorest, catalyzing further economic growth.
With Stellar as the world’s universal network, we could connect the world’s 180 currencies in two to five seconds, reducing the transaction fees and transfer delays associated with cross-border payments and removing obstacles that prevent people from independently improving their lives. For an overview of a more efficient and inclusive future, where remittances work for everyone, watch my talk at the UN.