The current market for remittances poses a four-letter problem: fees.
The World Bank estimates that in 2016, migrant workers sent $ 575 billion in funding, including $ 429 billion to developing countries. On average, these workers paid 7% of the shipping costs. These fees of over $ 40 billion went straight into the pockets of fund delivery service providers such as Western Union and MoneyGram. In some parts of the world, like South Africa, shipping costs can reach 15.76%.
SendFriend seeks to reduce the cost of high shipping costs.
Launched by David Lighton, a former World Bank employee, SendFriend is a payment service that aims to provide solutions that are 65% cheaper than the industry average. The startup announced Monday raised $ 1.7 million in capital from MIT Media Lab, MasterCard Foundation, Barclays and Ripple.
SendFriend begins in the Philippines, allowing Filipino users to send and receive quick transfers of funds. The start-up is expected to be operational in four to six weeks, pending a transfer license from the state of New Jersey. Lighton said the firm is taking off in the Philippines as it offers a user-friendly regulatory environment, a large remittance market and, most importantly, SendFriend's technology solution provider, Ripple, a payment settlement company.
Ripple is a provider of payment infrastructure and blockchain technology solutions. The company's flagship product is RippleNet, a global payments network linking banks, payment companies and exchanges to a single cross-border payment network. When SendFriend becomes operational, it will become the first RippleNet consumer partner based in the United States. In addition to using RippleNet, SendFriend will also use xRapid, a liquidity solution from Ripple, which will use XRP, the second largest cryptocurrency, as an intermediary currency for payment settlement.
Certainly, many companies, such as TransferWise, provide fast and cheap cross-border payment services without resorting to blockchain solutions. Nevertheless, Lighton has identified two main disadvantages of TransferWise: its payment transfer structure and its lack of support for the unbanked.
According to Lighton, TransferWise is able to provide a low-cost service because of its ability to turn an international transaction into a local transaction. When a TransferWise user wishes to send an international payment, instead of performing this unique international transaction, TransferWise searches for two local transfers and installs them on its platform. For example, if a resident of the Philippines sends money to the United States, TransferWise will pay a payment counterpart to a US resident seeking to send money to the Philippines. However, if the flow of money between countries is unbalanced, TransferWise should purchase additional currencies at market prices to settle payments, charging higher transfer fees to its users. With SendFriend, a US resident who sends money to the Philippines will be able to take advantage of xRapid to instantly pay for payments using the XRP as an intermediate currency between two payments. While the use of XRP provides benefits to xRapid, it also involves trade-offs, namely: regulatory risks. That's why Ripple has developed an alternative solution, xCurrent, which provides services similar to those of xRapid, without using XRP.
Lighton's second argument against TransferWise is the lack of support for unbanked people. According to one survey According to the Philippine Central Bank, 77% of Filipino adults do not have a bank account. TransferWise users will need bank accounts. SendFriend, however, does not have this requirement. In the Philippines, he has partnered with what he calls "cash partners" in the Philippines to pay money to fund recipients. The process works as follows:
- A US resident signs up for SendFriend and follows a customer awareness process.
- The US resident sends $ 100 to a Filipino recipient with a PIN to verify the payment.
- The Filipino recipient brings this PIN to a SendFriend payment partner, who could be a convenience store or pawnbroker, to receive payment in cash.
- The payment partner pays money to the Filipino recipient and pays the payment with SendFriend.
While SendFriend may be using XRP and xRapid for its technology stack, Lighton tells The Block that SendFriend is "not a cryptocurrency company."
The objective of Lighton is to prevent SendFriend users from never interacting with cryptocurrencies when using its services.
This part has been updated to clarify the relationship between XRP and xRapid