Sending money overseas is more common than ever nowadays. For lots of people, it’s the only option if they want to pay their mortgages, send money to family, or do business.
It’s also easier than ever to do — the internet has made the process of electronically sending money across international borders much simpler than in the past.
And yet, there’s still a lot that can go wrong. Most people can relate to the stomach-turning feeling that accompanies sending a large payment abroad. No matter how many precautions you take, there’s always the risk of something going amiss.
It’s not an unfounded fear, either. A lack of global frameworks and regulations mean that financial institutions find it hard to do anything about money that has been lost or stolen overseas. Disputes about scams and disagreements are tough to resolve within a country, and can be almost impossible when they happen across international borders.
All this is a major source of stress and uncertainty for those who regularly send money abroad.
What are the risks?
There are lots of methods for sending money abroad, and some are safer than others. They all share certain things in common, however.
Many foreign transactions take place between strangers. There’s often no face to face contact at all between parties before money is sent, with internet messaging and phone calls being the extent of communication in most cases.
This adds an extra element of worry, as people feel less able to trust the person they’re dealing with. Are they really who they say they are? It’s all too easy to fake an identity online, and this can be a big problem when exchanging large sums of money.
If the worst happens and you get scammed, there’s unfortunately not much that banks can do. With international transactions, it’s easier to scam and harder to rectify issues.
The British financial ombudsman mentions a case of a customer they named Mr N, who bought a car from a seller in Hungary (Mr K). Mr N sent the cost of the car – £8,600 – by electronic bank transfer to the seller, before finding out that the Mr K had lied about the condition of the car.
Mr N asked his bank to recall the payment, but it was too late. Even though he had acted quickly, Mr K had already withdrawn the cash and it was no longer possible to reverse the transfer.
Although the situation was later fixed with the help of the ombudsman, many customers aren’t so lucky. It’s unfortunately a common occurrence for people to be scammed or duped out of money online, and it’s very hard to solve.
It’s thought that Wire Fraud amounts to $30 to $50 billion every year, a terrifying statistic. Last year in the UK, more than 19,000 people fell victim to a type of bank transfer scam, and in 2016 the number of U.S. businesses affected by wire transfer scams doubled.
So what’s the solution to this issue?
Using blockchain to increase safety
Blockchain is known for its security and transparency. It stores data on a distributed ledger, so everyone with a copy can see any changes as they happen. This makes it essentially tamper-proof; any transactions that aren’t authorized by all parties will be flagged up and can be stopped.
This means if a payment doesn’t go to plan, or one party doesn’t play by the rules like in the example above, it’s possible to freeze or reverse the transfer.
Using blockchain, it’s also possible to set up smart contracts which auto-execute once conditions have been met on both sides. These won’t release funds until both parties are satisfied with the deal, avoiding scams.
Blockchain is also decentralized, meaning it doesn’t rely on big central parties like banks and other financial institutions. These are often flawed and increase the likelihood of problems. Not to mention the fact that sending money overseas requires banks in separate countries to communicate — with blockchain it’s all the same system.
Using blockchain to process overseas transactions is something that many new companies are working on. Many of these companies – like Stellar – are growing fast. They’ll allow for trustworthy, transparent ledgers of information that clearly record transactions and are extremely difficult to alter.
These services are also growing in popularity, and fast. The social buzz around Stellar escalated it quickly to one of the top 10 cryptocurrencies by market cap. This highlights a big demand for this kind of platform.
For people who frequently send money overseas, blockchain could help bring peace of mind and reassurance that their money is safe. It will remove the need to rely on expensive banks with flawed security processes, and make things more efficient.