There are some technologies that have the potential to revolutionize the world. Blockchain is touted to be one of them. However, even though it has been around for a while now, use case applications for blockchain have taken some time to develop. For the unaware, blockchain is simply a digital record of transactions and can be thought of as a digital distributed ledger.
Pakistan has been especially behind the curve when it comes to exploring use-cases for blockchain. But a recent initiative by Telenor Microfinance Bank in partnership with Malaysian based, Valyou (also owned by the Telenor Group) is set to change that. It is good to see the State Bank of Pakistan facilitating the launch of this blockchain based remittance service and this is precisely the kind of financial innovation the central bank should be promoting.
TMB has introduced the country’s first blockchain based cross-border remittance service for remittance payments from Malaysia to Pakistan which currently to amount to $1 billion. This is the first time that the Telenor Group has deployed blockchain technology to this extent and the company considers this initiative a “litmus test for a long line of future global deployments.”
According to the press release, the service is powered by blockchain technology developed by Alipay which is the online payment platform operated by Ant Financial Services Group. Recall that Ant Financial acquired a 45 percent stake in TMB for $184.5 million last year and the duo have been working as partners and advisors on a regular basis since then.
Ant Financial is also a Standard Chartered Bank (SCB) client and the latter is also involved in the operational arrangement where SCB’s banking infrastructure is being used to make the remittance transfer happen as it is present in both Malaysia and Pakistan.
Recall that SCB and Ant Financial signed a MOU back in Dec, 2017 to increase financial services for clients based in countries along the Belt and Road Initiative (BRI) and SCB was also the core partner bank for Ant Financial on a similar remittance platform from Hong Kong to Philippines.
Telenor believes that the blockchain based remittance service will reduce time involved as the remittance transfer will be instantaneous or in real time. There will also be a decrease in costs due to the elimination of intermediaries and third parties and users will be able to get real time FX rates. The other advantage will be that the payments can be tracked in real time by both senders and receivers assuring safer transactions.
Alipay is going to waive its transaction fees during the one year trial period which will also reduce remittance costs. However, there is currently no word on the fee structures post trial period and Telenor will use feedback during the trial period to determine the final fee structure.
From a macro perspective will be interesting to see how the future of blockchain shapes up. As an article by McKinsey points out, the dearth of convincing scalable use cases and the inability for blockchain to graduate from the pioneering stage in the life cycle raises important questions about the technology’s long term viability.
Telenor’s blockchain remittance service will undoubtedly be a litmus test for blockchain viability in the payment’s space where a shared ledger makes sense to replace the existing highly intermediated system. But globally fintechs have carved out a niche in payment processing and are shaking up the value chain so there is plenty of competition abound.
Meanwhile, the predominantly used SWIFT system by global banks is also upgrading its infrastructure through the global payments innovation initiative (GPI) to increase transaction speeds and increased transparency. Competition is good for the end consumer who is likely to come ahead no matter which technology trumps eventually.
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