Monday, February 19, 2018

Government banking rules harm little browns

The Stubbornly High Cost of Remittances


But, as Guillermo Ortiz suggests in the quote above, a key challenge looms. Most forms of cross-border funds transfer require the cooperation of a bank at some point in the process. An MTO, for example, needs accounts at banks on both ends of the transfer corridor. However, in response to stronger anti-money-laundering (AML) standards, banks have been terminating or restricting their relationships with MTOs (see here).
From the perspective of a bank, mobile payments create similar risks. As is the case for virtual currencies like Bitcoin, mobile payments systems can be used to conceal nefarious activities (see here). Meeting the Know Your Customer (KYC) standards that banks demand (and governments expect) is expensive. As a result, these factors may continue to throttle the speed with which cost-competitive technology firms make inroads into the remittance business.
That said, the goal of reducing the cost of small remittances to 5% is clearly within reach. And, efforts to streamline the KYC/AML process (including through the use of legal entity identifiers) could get us there (and beyond) faster.

In the boldface I note the idea of legal entity identifiers to eliminate the Know Your Customer roadblock.  Make the user pre-qualify and get a badge. Then the pipeline control can treat the remittances as bearer cash.

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