Denelle Dixon, CEO and Executive Director at Stellar Development Foundation
Billions of people around the world lack access to financial services. Even as technology has rapidly advanced over the past decade, the global payments system hasn’t kept pace.
The reasons are many – lack of accessible banking infrastructure, the expense involved, methods of establishing identity and authentication – but they all affect the broader health of the world economy, especially in emerging markets. The difficulty, or outright inability, to make payments inhibits the growth of businesses (in particular, the millions of SMEs in emerging markets lacking access to financial tools) that form a vital backbone of the economy. The barriers to access also hinder remittances, another important instrument of economic growth in developing countries as well as essential income for millions of families.
So why aren’t payment systems more inclusive? And what can we do to address long-standing problems in processing payments, so we can meet the needs of populations left out today?
Let’s break down the problem by looking at costs. Billions of dollars are transferred cross-border annually through personal remittances when foreign workers send money to family members in their home country. While a typical transaction usually runs around $200 to $300, the average retail costs of these transfers run 7 to 8 per cent – and sending costs as high as 15 per cent when transferring money to people in developing economies. To cover these additional costs, remittance service providers hike up transaction fees, making customers foot the bill. That’s taking money away from the people who need it most.
But fees are only the start of the problem. Consumers find themselves stuck paying a premium for a service that is also slow because today’s financial systems are not interoperable. Given the patchwork of financial institutions and intermediaries along the value chain, connecting these disparate systems creates friction, leading to long delays and high fees at each link of the chain.
At its best, today’s system is slow, cumbersome and expensive. At its worst, it leaves millions of people marginalised – more than 1.7 billion unbanked in the world and many more underbanked.
To achieve greater financial inclusion, we need to reduce friction in the current financial system. People shouldn’t have to struggle to access financial services, or be stuck with slow, expensive options when technology can enable better solutions.
Stellar is looking to set a new global payment standard where you can send money anywhere in the world just as you would an email. Thanks to the speed and scale of the Stellar blockchain to transfer value, moving money and processing payments takes seconds rather than days, and costs only fractions of a cent.
Global businesses realise the strengths of Stellar and build products and services on top of the network to bring financial solutions to their respective regions. With just two lines of code, businesses can sustainably represent their home currency on Stellar, allowing it to be exchanged with other world currencies on the platform. They can also set up their own payment rails all on one network, bringing interoperability to cross-border payments.
The key to interoperability is Stellar’s global network of anchors. Anchors are financial institutions that serve as on- and off-ramps, connecting the network to the local banking system and handling regulatory compliance. They also maintain fiat reserves equivalent to the value of issued digital currencies, so users can redeem them back to their usual bank account at any time.
More importantly, anchors open markets to new remittance and payments corridors, like between Europe and Nigeria. Cowrie Integrated Systems, a fintech company based in the UK and Nigeria, works with Tempo, a French-based payment institution, to support a bi-directional corridor for customers to redeem and trade USDC (US dollar) and EURT (euro) digital currencies right away. For companies such as Cowrie and Tempo, the cost-savings of building on Stellar apply not just to capital saved, but to time as well. Payments on Stellar average under 10 seconds per transaction – compared with five business days with an MTO – and settle for a fraction of the typical cost.
Stellar’s features are also versatile enough that businesses can work on use cases beyond just payments. Businesses are building products for investments, mobile savings accounts, e-signatures, and more on Stellar. For instance, fintech company DSTOQ makes it possible for anybody in the world to invest in US-grade securities on its mobile app – all by tokenising shares on Stellar and transacting them on the network’s decentralised exchange. It’s incredible how DSTOQ has brought cross-border investing to emerging markets in a way that’s affordable, fast, and accessible.
The more businesses collaborate with each other and use-cases expand, the greater the positive network effects for all Stellar partners. Blockchain technology such as Stellar is modernising the financial system, proving we can connect financial infrastructure so that, no matter where you are in the world, systems and forms of value can interoperate with each other.