CNBC: Asia's unique political and economic conditions make it the best place to develop blockchain

Translator’s note: The author of this article, Dilip Rao, is Ripple’s general manager for Asia Pacific.

Sending money around the world is slow, expensive, and sometimes downright unreliable. I've been away from my native India for more than 30 years. Like many expats, I frequently send money back home, but the bank's money transfer process has not improved over the years.

That’s because the global payment system is not unified. Every country, every asset class, and every payment type has different rules, systems, operating procedures, and access rights. This also leads to banks being caught in a complex situation and having to deal with various different systems.

Cross-border bank remittances usually take several days to complete, are expensive, and come with the risk of errors. According to data from professional organizations such as the World Trade Organization (WTO), the average annual cost of cross-border transactions is 1.6万亿美元. At the same time, Experian, a global information service group, said that the error rate of cross-border bank transactions is as high as 12.7% . From a compliance perspective, the more people who handle a transaction, the higher the risk.

Solution

Of course, banks are not indifferent to this. They have realized this pain point and have begun to look for solutions. The good news for consumers is that technology is developing faster and faster, especially distributed ledger technology (DLT, also commonly known as blockchain) is a good solution to all the above problems.

With DLT, banks can conduct direct, instant transactions and settlements in seconds over a secure, unified online network that operates 24/7.

Currently, the technology has been widely explored in the banking ecosystem, and several successful DLT pilot projects have been produced in this field.

Standard Chartered recently completed a cross-border transaction using DLT in just 10秒, with full transparency of fees. The same type of transaction would have taken at least two days to complete using traditional systems.

Opportunities in Asia

Asia has the upper hand in this area, as financial centers such as Hong Kong and Singapore are racing to adopt DLT. Both centers are known as Asia’s financial technology (Fintech) hubs and have launched several projects to promote the development of Fintech and encourage the popularization of these solutions.

In addition, the regulatory framework in these regions is relatively stable and advanced. In the past year alone, we have witnessed the establishment of multiple incubator programs for startups, regulatory “sandboxes”, and the government has also introduced favorable tax policies.

However, these efforts are not limited to these major markets. Across Asia, governments, central banks and regulators are trying to develop solid governance plans so that fintech startups can continue to innovate and banks can safely adopt new technologies.

India’s shock demonetization in November last year, aimed at combating counterfeit money and undeclared and untaxed assets, has, however, given a boost to digital payment solutions, and banks in the country are now scrambling to adopt DLT in hopes of taking part in this new wave of capital flows.

It's the economy

In addition to regulatory support, socioeconomic factors in Asia make it an ideal location for DLT development. The region is highly receptive to mobile internet, which has led to the rapid rise of the e-commerce sector.

According to a report by management consulting firm AT Kearney, in the next few years, the average annual growth rate of e-commerce in Southeast Asia will reach 25% . The development of the e-commerce industry has brought prosperity to the cross-border payment industry, because cross-border payment is the foundation of e-commerce operations. McKinsey's 2016 Global Payment Report mentioned that the amount of cross-border payments is growing at a rate of 30万亿美元per year, which is 3倍the growth rate of the global gross domestic product (GDP).

Asian countries are currently discussing signing a regional trade agreement, the Regional Comprehensive Economic Partnership (RCEP), aimed at achieving greater trade freedom. The RCEP is currently being negotiated by 16 countries, including China and Japan. Once the negotiation is successful, the RCEP will be able to build the region into an integrated market with a 30亿人口(45% of the world's population), with a GDP of 17.23万亿美元, which is one-third of the current world's annual average GDP. Such development trends will inevitably increase the flow of cross-border transactions, and banks must also upgrade their technology to cope with this change.

At the same time, a large number of Asians are making a living abroad. Therefore, remittances and funds flowing into the region are also growing steadily. According to data from the World Bank (WB), China and India received remittances of 654亿美元and 652亿美元respectively last year. Consumers who use remittance services may gradually move towards efficient, convenient and affordable products.

With Asia’s well-established banking systems, rapidly growing economies, regional interconnectedness, and government and regulatory support for financial technology, there is no reason not to believe that the region can become the first example of real-time, low-cost cross-border payments.

I am one of the supporters.