TransferWise CEO Taavet Hinrikus Underestimates Blockchain Technology
Global money transfer service provider TransferWise CEO Taavet Hinrikus believes that its prevailing cross-border payments system is far more efficient than blockchain technology. Therefore, it sees no advantage in embracing the revolutionary technology, at least for now. But is he right?
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Looks Good on Paper but Not Practical
In an interview with Fortune’s Balancing the Ledger, TransferWise co-founder Hinrikus asserted that he does not see any gain in embracing blockchain technology for international payments, as its existing payments system is far more cost-effective and almost instantaneous.
“We’ve heard this dream many times from different people. However if you start digging into it, you realize that it may look great on paper, but in reality, to make use of it, it’s really hard. We’ve looked at different blockchain technologies, but yet we haven’t found anything which enables us to do what we do in a way that is cheaper or faster.”
But Wait a Minute!
According to the TransferWise website, cross-border payments for most currency pairs could take a day to settle, with an exception of a few currency pairs that are settled instantaneously, and for a fee of less than one percent. But that compares unfavorably with cryptocurrency by any measure.
The current bitcoin fee is $0.64 per transaction immaterial of the size of the transaction. For example, to process a transaction of $1 million USD made from the United States to the United Kingdom via TransferWise can cost approximately $4,900 in fees, as per the TransferWise website. The same in bitcoin costs $0.64.
In reference to transaction fee comparisons between crypto and traditional banking systems, last month popular crypto analyst Joseph Young tweeted:
This week, $183 Million in Ethereum was moved With $0.06 fee instantaneously.
Last week, $194 million in Bitcoin was moved with a $0.1 fee.
To move $1 million costs $10k using banks. This is one killer application of crypto that currently works.
— Joseph Young (@iamjosephyoung) October 22, 2018
Problems With KYC and Blockchain Adoption
Transaction fees are not the only thing that Hinrikus has misjudged. According to him, people opting to transfer bitcoin have to go through an “inconvenient KYC process”.
Many exchanges have put in place automated Know Your Customer solutions to streamline this process. Also, having mandatory KYC systems builds more trust in the ecosystem. Moreover, the KYC procedure is a one-time process similar to registering for an account at a bank.
And it appears an unusual criticism. Even if KYC requirements make using cryptocurrency for cross-border transactions arduous, Hinrikus almost accidentally implies that TransferWise offers KYC-free transfers. For a U.K. company, that would risk all the licenses it would need to hold to operate.
What is important to note is that cryptocurrencies offer uniform services globally to all customers. Meanwhile, TransferWise is only as good as the customer’s bank. Additionally, its services still depend on centralized institutions.
In terms of adoption, Hinrikus’ criticism is fair. Cryptocurrencies and blockchain technology have not attained widespread adoption. In March 2018, a survey by comparison portal Finder revealed that almost eight percent of the American population owns cryptocurrency.
Certainly, cryptocurrency adoption would be higher in more active markets such as Japan and South Korea. But the data suggests that there is still lots of room for growth.
Putting Faith Into Ripple’s Consensus Mechanism
Despite the reluctance, Hinrikus has not completely ruled out using the revolutionary technology. Hinrikus stated that the company is observing San Francisco-based blockchain play Ripple.
He does highlight, however, that TransferWise will switch to the Ripple Network only if it proves to be better than the existing payments system. TransferWise uses a tailor-made payments network that makes it more effective than the traditional banking system.
“In that sense we’re big supporters of Ripple or anything else…and if any of these gets enough adoption, and it actually materially helps us do things cheaper and faster, we’d love to, but so far we haven’t found one.”
Hinrikus stated that if all lenders globally used the Ripple network then it would make it a feasible option. However, in June, money transfer giant Western Union revealed that piloting Ripple’s xRapid platform hasn’t translated into any financial benefits. In response, Ripple argued that the trial period was too short and the Western Union had only leveraged xRapid for a few transactions.
Will TransferWise adopt blockchain technology? Share your views in the comments section below.
Images via Pixabay