BLOCKCHAIN HOLDS GREAT potential for improving payment systems, but for the moment that potential remains largely unrealised. In March Swift, a Brussels-based service owned by 11,000 banks that handles more than half of all cross-border interbank payments, said further progress was needed before distributed-ledger technology “will be ready to support production-grade applications in large-scale, mission-critical global infrastructures”. But it is coming, and cross-border payments are in its sights. Also in March, at Money 20/20, a payment-industry gathering in Singapore, Ravi Menon, managing director of Singapore’s central bank, argued that one of the strongest possible uses for blockchain technology is to “facilitate cross-border settlements”. Many think that Swift’s current payment system will move to the blockchain in the long run. In 2016 ICICI, an Indian bank, and Emirates NBD of the United Arab Emirates successfully tried out a network built by Infosys to handle remittances from the Gulf to India. Ant Financial has published 49 blockchain patents, more than any other company anywhere. Stefan Thomas of Ripple says that 100 financial institutions worldwide are committed to deploying his firm’s blockchain technology. Western Union, the giant incumbent of the global remittances industry, is also experimenting with it.

This business, a lifeline for tens of millions of the world’s poor, has long seemed ripe for digital disruption. As migration continued to climb, global remittance flows to developing countries in 2017 reached about $466bn (see chart), around three times as much as flows of development aid. In Pakistan, for example, remittances last year were worth about $20bn, not much less than all the country’s merchandise exports. In December the central bank launched an initiative to promote the use of e-wallets for cheaper remittances. For now, they are expensive. The fee for sending $200 is about 7.2%, or as much as 9.1% if the money is going to Sub-Saharan Africa (and that ignores the exchange rate). The UN’s Sustainable Development Goals include a target of cutting such fees to 3%. A World Bank report blames high costs on exclusive arrangements between money-transfer firms and national post offices, and on “derisking” by banks scared of infringing anti-money-laundering and know-your-customer regulations.

Money-transfer operators point out that they also incur heavy costs. They have to “pre-fund” transfers, leaving money sitting in destination countries to enable prompt settlement. Ripple cites an estimate of $27trn for the size of this global float. And operators need a physical presence at both ends. Western Union has more than 550,000 outlets, covering every country in the world bar Iran and North Korea.

Taking a shot at Goliath

But this business, too, is going digital. The fintechs have taken aim at Western Union’s market, not least to exploit cost savings from the growth of mobile money. One, London-based TransferWise, boasts that its charges are just one-eighth of the banks’ because it offers a “true” exchange rate. Another firm, MoneyGram of America, accepted an offer of $1.2bn from Ant Financial, but in January the sale was blocked on national-security grounds by America’s watchdog, the Committee on Foreign Investment in the US. Another firm, WorldRemit, also offers lower fees than Western Union, partly because its model is “100% digital in”, which means it will not accept any cash. More than one-third of its global transfers are to mobile-money services.

Meanwhile Western Union is rebranding itself as a digital company, says Stanley Yung, its chief customer officer. Its revenue from digital money transfers increased by 23% in 2017, to over $400m. As its competitors sourly point out, finance is a notoriously sticky business. Just as few people move their bank accounts, so customers are reluctant to forsake a money-transfer system that has worked for them, even if it charges steep fees.