Overseas Filipino Workers are one of the biggest economic assets of the Philippines with their massive US dollar remittances.
According to the Philippines government’s official news agency back in 2021 OFWs sent 34 billion USD back to their families and the Central Bank of the Philippines reports that those remittances accounted for 9% of the country’s entire GDP
Remittances are one of the common ways for OFWs and other financial technology users to send money and transact globally. However as digital financial technology moves forward, this common method starts to become archaic with multiple points of friction affecting the whole process.
This is what Kenneth Stern, Binance’s GM for potential plans in the Philippines has been looking into as he, and the world’s largest digital-asset exchange by trading volume and leading blockchain ecosystem, aim to use blockchain technology to further the freedom of money not just in the Philippines but also around the world.
Citing from experience, Kenneth Stern states how difficult the whole process was that his mother, an OFW nurse in the USA, had to endure just to send money from abroad. These difficulties, oftentimes delays in the transfer and the varying transaction fees plus the lack of transparency would sometimes lead to OFWs opting for faster but riskier options.
The problem with traditional remittance
Traditional remittance is costly and time-consuming but, at least back in the day, there was no other good option other than channels such as Money Transfer Operators or MTOs. MTOs are non-bank financial institutions that send funds cross-border, either within their own system or via partnerships with a network of banks.
Costs for sending money through MTOs are expensive and complex. For example, according to one MTO’s published rates and fees, wiring 25 Euros to the Philippines will cost 4.90 euros or almost 20% of the next amount.
Intermediaries or the other institutions involved in the transfer such as the MTO’s partner banks and agents also make the process complicated and slow, not to mention the limited availability of these MTOs most of the time inaccessible in remote locations.
But how does blockchain help with all of this?
Remittance through crypto
According to Kenneth Stern, the answer might be obvious – “remittances in cryptocurrency”. Blockchain technology could be the optimal approach compared to MTOs and other traditional funds or money transfers.
Cryptocurrencies are digital assets that users store or hold in a digital wallet, either on their own or via exchanges such as Binance. These assets can be accessed anytime and anywhere – as long as the user has an internet connection.
Using cryptocurrency’s underlying blockchain technology, funds can be transferred seamlessly using peer-to-peer methods meaning that the transfers are direct from one wallet to another.
Faster transactions will also be the norm as crypto fund transfers happen nearly instantaneously with less worry regarding intermediaries complicating the process. One such example is Binance Pay, Binance’s own contactless, borderless, and secure cryptocurrency payment technology.
Binance Pay allows users to pay, spend, and — importantly for remittances — send funds in the form of cryptocurrency to each other anywhere in the world. And the best part is? There are no fees involved.
Volatility is a common counterargument but that is easily squashed by using stablecoins such as BUSD or the Binance USD whose value is always equivalent to the US Dollar.
It’s no perfect world though as there is still a challenge that crypto and blockchain remittances need to overcome, as per Kenneth Stern, and that is employing a cheap, safe, and reliable off-ramp infrastructure to convert cryptocurrency into local or fiat currencies.
Adoption is key
This challenge of course is not overcome overnight. Adoption will play a big part in solving this issue over time and with the help of businesses utilizing blockchain and crypto technology.
The Philippines is a massive remittance market, with remittance inflows accounting for 9% of the national GDP. Digital assets, especially stablecoins, will help bridge the gap for recipients who don’t have access to traditional banking, and where money transfer services charge high fees.
According to Binance’s data, users can save up to 8% in fees when sending funds using cryptocurrency compared to traditional money transfer methods.
This, in turn, would benefit some of the most vulnerable populations and countries in the world, who today bear unfair and inefficient deadweight costs for transferring small amounts of money across borders.
On a global scale, the UN estimates that using digital payments for remittances could increase the money received by users by 3-5%, potentially lifting 30 million people out of poverty.
Digital future in the Philippines
The Philippines offers a clear use case for cryptocurrencies and blockchain technology with the prime example being reducing costs and friction of remittances from OFWs.
Kenneth Stern strongly believes that “the crypto industry can greatly benefit the Filipino people by addressing the necessity of financial inclusion through digitalization”, allowing Filipino users access to digital wallets and offering digital finance solutions. Digital wallets create a gateway into digital assets, and cryptocurrency furthering the freedom of money will allow more Filipinos an opportunity to experience world-class financial products.
And Kenneth Stern is not alone in this idea.
According to October 2022 data from analytics firm WR Numero Research (WRN), 87% of Filipinos surveyed believe that cryptocurrency could be beneficial to the country’s economy and that the government should support the industry. The central bank of the Philippines also observed a 362% increase in cryptocurrency transactions, amounting to over PHP 106 Billion (USD 1.8 Billion) in the first half of 2021.
It’s clear that the local demand for crypto is rising, so much so that the Global Cryptocurrency Adoption Index report by Chainalysis found that the Philippines ranks second worldwide in terms of people putting the most share of their wallet in digital assets, with 28% of adults saying they own cryptocurrency.
To further support this idea, Binance is reaching out to the Department of Migrant Workers or DMW to propose a partnership on a global study of OFW needs, and it can support fund remittances to and from OFWs and provide assistance to OFWs in distress. Kenneth Stern states that “in the next few years it’s going to be interesting to see what this technology can bring and what impact it can make on the Philippines”.