One of the four pillars ARYZE aims to solve is remittances. International money transfer costs are extremely high, at an average of 7% of the total amount being sent, and even higher in poorer countries. This has huge implications for the 800 million people relying on remittance money. ARYZE is seeking to fix this problem by creating a universally-accessible financial services platform where international money transfer costs are between 0-1% of the amount sent.
As explored in the previous article in this series, our current financial system is siloed and outdated, making it expensive and slow to transfer money internationally. In this article, we explore how this affects some of the world’s poorest individuals, and how ARYZE’s platform will provide a solution.
Transferring money internationally is an extremely slow and expensive process. Cross-border payments comprise an almost $2 billion industry annually. According to the UN Department of Economic and Social affairs, international money transfers cost, on average, 7% of the amount sent. This is due largely to the numerous intermediaries involved in each transfer, which also make the process lengthy. Each transaction needs to go through multiple checkpoints, which costs time and money. A system this slow and costly is unsuitable for our increasingly globalised and tech savvy world. As ARYZE CEO Jack Nikogisian says,
The fees associated with Western Union and Moneygram and the banks, everything that happens in a payment flow, are ridiculously high.
This problem is especially consequential for the 800 million people worldwide who rely on the remittance money sent back by economic migrants. Due to poor economic opportunity, 164 million people globally have emigrated in pursuit of work opportunities to support their families back home. According to the World Bank, over $714 billion in remittances were sent around the world in 2019; in more than thirty countries, remittances comprised over 10% of their GDPs. Remittances represent a huge opportunity for economic growth within developing countries.
Ineffective flow of remitances
Despite the tremendous size and impact of this industry, remittance money flows ineffectively through our current financial structure. International money transfers are especially slow and costly for people without advanced financial services, making it nearly impossible for migrant workers to transfer money home in times of urgent need. According to the Central Bank Minister of Kenya, transferring money to poorer countries with weaker financial infrastructures costs close to 10%, meaning that those with the least are charged the most. Says ARYZE CFO Morten Nielsen:
We spoke to the central bank minister of Kenya at a UN conference, and he told us that Kenya is very heavily dependent on remittances; the UN calculated that the cost of sending those is 7%. He said to us that it’s 10% in the case of Kenya. And not only that, 90% of that stays abroad. If 100 dollars are being remitted, only $90 will arrive in Kenya. The last $10 stay with foreign companies such as Western Union.
This means that a staggering $43.2 billion per year is kept out of reach from developing economies, all due to money transfer costs. Our current financial system is too siloed and fragmented to change the slow speed and high costs associated with international money transfers. Part of the problem is that many economic migrants are paid in cash and do not have access to bank accounts in their host country. This is why their transactions include so many costly intermediaries. As Nielsen says,
The whole universe of moving money around the world is about a $2 trillion industry per year. So it’s really a very expensive industry when you think about it. At the same time, the banks do not solve one of the core issues of economic growth in a number of different countries, which is including everybody in the financial system.
Although there are several steps that must be taken to mitigate the high costs of remittances, Nikogosian argues that there is a clear and important starting point:
Step one is giving people easy access to basic financial services: something as simple as getting a digital, secure bank account.
ARYZE is using a unique approach to onboard users and provide people with a bank account (which we will explain more in-depth in our next article). Once they have access to our banking app MAMA (our Multi-Asset-Modular-Application), economic migrants can remit money home instantly and at a maximum cost of 1% of the total, depending on the mid market FX rate at the time of transfer. Now, those migrants’ families will receive 99% of the amount sent. This will allow the lost $43.2 billion in remittances to reach the digital pockets of migrant workers’ families and boost developing economies.
ARYZE’s low costs for sending money abroad also makes micro transactions more viable. The pressure of having to send a certain amount of money for it to be worth the costs is taken away, which gives people more financial freedom. Especially, with our programmable Digital Cash that allows users to enter the world of cryptocurrencies, they can also experience the zero-cost transfers of cryptocurrencies.
With our transformative banking infrastructure, streamlined financial services platform and programmable money offerings, ARYZE is poised to transform the financial industry as soon as we enter the market. To read about how ARYZE is ready to solve financial exclusion, please read our next article.