The role of Blockchain in reducing cross-border remittance costs for South Africans

Abstract

The de-risking of central banking relationships (CBR’s) after the 2008 Global Financial Crisis has led to a reduction in the number of financial institutions, resulting in increased costs and slower cross-border remittances (Rella, 2019). Additionally, the high remittance fees in developing economics are further attributed to cash-based transactions for first and last mile remittance deliveries, regulation, compliance costs, as well as the lack of competition in these markets (Rühmann et al., 2020). The paper highlights the problems faced with traditional methods of remitting and develops a series of research questions that are investigated. An in depth understanding of the cost driving mechanisms are unpacked, as well as the time delays experienced when remitting. By developing an understanding and focusing on remitters within the SADC corridors of Zimbabwe, Malawi and Mozambique, the study will narrow allowing for a more detailed analysis of the ‘real’ costs involved. The research design adopts a hypothesis testing approach, leveraging existing data on cross-border remittance costs and transaction speeds. A quantitative method approach using SPSS was adopted, which will enable statistical testing of the research hypotheses outlined. This paper therefore seeks to compare the average costs and transaction speeds associated with using blockchain in cross-border remittance to that of the traditional methods used in South Africa. Globally, South Africa remains the costliest G20 nation to remit from, with an average remittance cost of 12.82% in Q4 2023, compared to the UK at 6.4%, the US at 5.9%, and Germany at 6.1% during the same period. Should South Africa leverage blockchain technology in the remittance market, the remittance costs in cross-border transactions may be reduced significantly.