Indian emigrants using crypto for remittances, saving million in forex fees

Indians nearly sent $83 billion to their home country in 2020, of which 5% to 10% was incurred as fees charged by inflated exchange rates while making remittances.

The amount paid for sending money across borders ranges between $4.5 billion and $8.3 billion. It is an indication that banks are applying high charges for remittances and that transparency is lacking. 

As per the World Bank's latest report, India is expected to receive $87 billion in remittances in 2021, an increase of 4.6%. The United States would be the biggest source, accounting for over 20% of these funds.

Remittances are projected to grow 3% in 2022 to $89.6 billion, reflecting a drop in overall migrant stock, as a large proportion of returnees from the Arab countries await the return, the World Bank report adds. 

Banks have been reducing the fees on foreign remittances and their income under this head fell from  $2.02 billion in 2016 to $1.63 billion in 2019. However, they have protected themselves by recovering $0.5 billion through exchange mark-up in 2020, which was up from $0.3 billion in 2016.

As of FY21, the top outward remittance categories are education ($3.8 billion), travel ($3.2 billion), family support ($2.7 billion), gifts ($1.6 billion), deposits ($0.7 billion), and equity/debt investment investments ($0.5 billion). 

Overseas workers sending money into India are also losing money. Over the past five years, money lost to exchange rate margins on inward remittances has grown from $0.56 billion to  $1.06 billion. Meanwhile, fees paid to transaction costs have grown from $1.37 billion in 2016 to $1.89 billion in 2020.

A significant portion of these fees paid on remittances to India come from people in Gulf countries where most are employed in blue-collared jobs to support their families back home in India,” a statement issued by Wise said. Of the share of total fees paid on inward remittances to India in 2020, Saudi Arabia ranked first at 24%, followed by the US (18%), the UK (15%), Qatar (8%), Canada (6%), Oman (5%), UAE (5%), Kuwait (5%), and Australia (4%).

As technology and the internet have eased some of the issues related to the convenience and speed of foreign funds transfers, the age-old practice of hiding exchange rates results in people spending too much money on hidden foreign currency fees - money that should stay in their pockets. Indian consumers spending abroad paid $0.19 billion as transaction fees, of which $0.17 billion was hidden charges in the form of exchange mark-ups.

Sanket (name changed due to privacy) a 42-year-old engineer working in Dubai, has transferred around 2 lakh to his family based in Kolkata every month using traditional cross-border, cross-currency players

In November for the first time, Sanket bought cryptocurrencies worth half that amount INR 100,000 and his family has access to his wallet and could use the sum when needed. Sanket like many Indian, Pakistani, Bangladeshi, and Filipino expats are increasingly experimenting with cryptocurrencies to remit money to their families back home and save on commission charged by wire transfer companies and other middlemen. Industry trackers say that the sudden growth in crypto investments even in smaller towns across India has also led to people exploring various uses. 

Process of remittances through cryptocurrencies into India is a lot more efficient and faster than the conventional process, and all transactions are visible on the blockchain network from a regulatory point of view, Looking at the current trends in crypto assets like Bitcoin, Ethereum, Binance Coin, it should be easy to remit money to India and anywhere in the world.

Remittances in India are pegged at about $83 billion which are mainly transferred through banking or other financial channels. Industry trackers say that the way Indians are warming up to crypto assets as well as decentralized finance, remittances through crypto assets are only set to grow, especially because transferring smaller amounts can be expensive through the traditional services. Globally, several blockchain startups like Satoshi Citadel in the Philippines have started offering services to facilitate bitcoin remittances in a user-friendly way.

There are close to 15 million crypto investors in India holding digital assets worth $7 billion. All the large cryptocurrency exchanges saw at least a 100% increase in their trading and investment in the last few months.

Experts say that though Bitcoin was the preferred choice for remittances its transaction costs are rising, currencies like Ripple, Tron & Dash are good replacements due to substantially lower fees.

Cryptocurrency remittances became a lifeline for Afghans after Western Union ceased operations for some time after the US withdrew from Afghanistan. Experts also say that crypto is becoming popular in places with high inflation like Lebanon, Turkey, and Venezuela. Experts point out that remittances in crypto are finding favor because people want to protect themselves against hyperinflation.

Most of those looking to remit money are doing so through some of the less volatile crypto assets such as Stablecoins, say, industry trackers. While Remitting money, users would want the value to remain as intended, unhindered by market volatility. Stablecoins pegged to the US dollar are the preferred choice for doing such transactions. 

Users mostly use stable currencies like USDT, USDC to do these transfers. The RBI has had a faceoff with cryptocurrency exchanges in the past. It had asked banks to stop dealing with cryptocurrency exchanges but had to back off following a Supreme Court order. The government is planning to define cryptocurrencies in the new draft bill and could treat them as an asset/commodity for all purposes, including taxation. 

Sources: https://www.rbi.org.in/, Capital economics

Harish Kumar
Klever Writer

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