How to build a remittance business on Stellar Blockchain?
This article will explain to you about the currency flow on stellar, stakeholders and what you need to develop in order to build a remittance business.
I am Tejas from Berlin. I am Blockchain aficionado and an entrepreneur soul who is always curious about new business ideas. This article was my 3 weeks of research. There are many things outside the scope of this article. I am not giving away all my research. You do not need technical expertise to understand this article.
Generally, money transfer businesses work on different technical infrastructure as per local regulations and needs but mostly they settle on a SWIFT payment network between banks.
How does traditional Remittance work?
- Collect: XYZ service collects the money from you via app or kiosk
- Deposit: They inform their other end in receiving country electronically and they deposit the appropriate amount into the beneficiary's bank account
- Settle: They settle the real money transfer in a bunch later
The Remittance Service Provider (RSP) will settle the bunch of transaction on a single bundle over SWIFT payment network. RSPs have banking connections and regulatory licenses to operate in each country. That is why not every service is available in all countries.
How does remittance work on Stellar Blockchain?
I broke the entire process in 3 easy steps. In a traditional system, the process was to collect>deposit>settle but here it will be Collect>Convert>deposit.
The entity who facilitates the operation will act as an anchor (in stellar terms). Here I have considered a service which remits from EU to Nigeria using stellar and so there are two anchors — one in each location.
- Collect: In this step, the RSP collects the money via a mobile app and it stays in EU bank account. Equivalent digital EURO stable coins (EURT) are already minted and there with anchor wallet.
- Convert: In this step, the transaction settles between suitable anchors in each location on a stellar distributed exchange (SDEX). This process is a pure buy/sell order execution in the order book and EURT stable coin is traded with NGNT stable coin. It is not needed to mint the stable coins yourself only, there are already trusted anchors in the SDEX who have provided them. You can buy them and trade again just like any other tokens.
- Deposit: In this step, the receiver anchor will be depositing the equivalent money into the beneficiary’s bank account.
Looking at the process, the following flow chart shows where fiat money moves and where digital token moves. Fiat money never leaves the bank account of local anchor, only digital tokens move. But how do they settle the digital tokens they have collected? — They trade it with someone else for other currencies. Since SDEX is open for all and one stable coin is enough to operate in one country, it will be well-managed liquid since there are always supply and demand. In that sense, someone will need the EURT with NGNT and the Nigerian anchor will get rid of it. Even if no one wants to get those EURT collected by Nigeria anchor, they can simply use Path Payment operation to convert them into NGNT tokens to get rid of them.
Remittance data flow while sending and receiving payment.
Following is how data flows from various servers and stellar anchors when you send and receive a transaction. The flowchart contains 2 different data flow.
- The one in black arrows shows the flow in case of Bob sending transaction to Alice.
- The one in blue arrows shows the flow in case of Bob Receiving transaction from Alice.
It is more of a technical side and as a non-technical person, I have created it. The detailed separate flow can be understood here.
Advantages of Stellar
- Stellar blockchain has a transaction settlement time of 5 seconds on average.
- The money moves physically and in open secure protocol and that all in real-time.
- Trust: I need to trust western union that they will deposit the money and nothing much in my hand, but in stellar, I can track the transactions on-chain. (not in case if memo feature is used by RSP)
What do you need to develop?
To build a remittance system you need to …
- have a regulatory license in the location you want to operate
- client-facing application using which people can deposit the money
- a trusted anchor in case of third-party anchor to know he will deposit the money to end beneficiary he gets from you
- own anchor in another country in case there is no anchor available and for that, you need to provide on/off-ramp payment processing service
- you might need to mint stable coins if not available (e.g. Tanzania has no stable coin and anchor)
- Market maker service or liquidity creator bot to always be up with an order in order book with latest prices(e.g. kelpboat.io)
Where and what should you learn more from here?
Still interested to know more? — I will drop some sources and topics to read more.
Where?
- stellar official guides
- Keybase of stellar — to ask questions to active community
- Youtube Podcast of SDF
- GitHub
What?
- Anchors
- Market maker bots and services
- How to create stable coins on stellar?
- Stellar Ecosystem Protocol — SEP
If it was helpful, follow me on my Instagram where I curate and post a lot of content regarding business and life. Contact me on telegram @tejassuthar777
