S1E10 YAP Cast: Why is it So Hard to Move Money?

Why is it So Hard to Move Money?

Some say that Bitcoin comes from the idea of the Hawala ecosystem. Both don’t need a trusted central authority to function and have faced down the steely glare of regulators. With such a system in place, do the unbanked need crypto if they have Hawala?

In our latest episode on YAP Cast, we’re joined by George Harrap, co-founder of Step Finance and head of decentralised finance at YAP Global. Today, we’ll be talking about why it’s so hard to move money?

Hawala, the Informal Transfer of Funds

Hawala is the commonly used term for the informal transfer of funds. It often takes place across countries and is typically, though not always, used among the unbanked. When it comes to moving money through a bank, those sending and receiving money face delays and expenses while the movement of money occurs between banks.

Hawala, however, is a popular way of sending money to families overseas as it’s cheaper and faster. For instance, a Hawaladar, the person arranging the money transfer, will take the money, give a code to the person sending the money, which is then passed on to the recipient. They then go to their local Hawaladar, hand over the code, and the money is given to them. But if the system works so well, why aren’t more of us doing it?

Well for starters, the Hawala system is an informal network of individuals running shops who, essentially, move IOUs around people they trust. The key here is trust. Hawaladar’s only deal with other Hawaladar’s they trust, which could be family members or friends, and the system only works if everyone involved trusts each other.

The term Hawala, however, has had some negative connotations. Former US president George W. Bush blamed it for financing terrorism after 9/11 calling it a foreign scourge. Whereas, in India, it’s often associated with sleazy politicians using it to transfer ill-gotten gains. Despite this, it remains a popular method of money transfer, so much so, that Transferwise, now Wise, is said to have modelled its system, and some have said that Bitcoin owes its roots to Hawala.

Moving Money Around the World

Whether you live in Australia, Europe, Singapore, the UK, or the US, if you decide to move somewhere else, you’ll have to transfer your money and change it to the local currency. In places in Southeast Asia, you might have millions of people living overseas who need to move money back home, so a lot of the money flows is driven by migration. The UAE is another good example, where roughly 80% of the population is not from the UAE who send money back to their home country.

Every country has its own currency, though, and with these migration flows everyone needs to exchange their money for the local currency. For that to happen, companies like Western Union or Moneygram have become key transfer mechanisms when sending money around the world in the form of cash. But, even though people are changing how they are moving money with the arrival of digital payments, the whole system remains fragmented. With over 2,000 money transfer mechanisms, one being banking, only three per cent are connected. While the UK and Europe region enjoy being cashless with everything done online, most countries rely on cash. For instance, according to World Bank studies, the vast majority of the $700 billion around the world annually is moved through cash mechanisms.

One of the reasons why cash transfers are rising is because it can often be hard to deal with online alternatives that require identification. Another reason is that many governments aren’t set up to go digital yet.

Bitcoin as a Borderless Payment

Unlike money transfers that need banks, sending someone Bitcoin can be done straight away. However, converting this Bitcoin that people can use for everyday needs requires some sort of intermediary; there’s no way around it. Yet, using crypto rather than traditional ways of doing things through a bank, when they are only open nine to five, comes with various restrictions and problems.

Today, there are hundreds of thousands of companies accepting crypto in a form of payment for goods and services, you just need to find one. Another option is through a crypto debit card. Anyone can send Bitcoin to a debit card and that debit card will act behind the scenes converting a little bit of Bitcoin when someone goes to pay for their groceries.

Another method is through peer-to-peer platforms where an individual will pay someone to receive Bitcoin. The money will be held in escrow until they pay that person. This system relies on reputation, similar to the Hawala system.

We hope you enjoy the Story of Money by YAP Cast.

The tenth episode launched here.

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