Introduction
The financial industry in Africa is a rapidly growing sector. According to the World Bank, the continent's GDP is expected to increase by 7% each year in real terms through 2035. This growth will require far more capital than is currently available, and so it's crucial that African businesses have access to reliable money transfer services.
Remittances are an important part of the global economy, and many countries rely on them for vital services like business, healthcare and education. However, remittance services are not always accessible or reliable across Africa. In fact, many African countries report high rates of outflow due to poor banking infrastructure and limited access to financial resources.
This makes it difficult for people who need these services to receive payment or for businesses to make hassle-free transactions across Africa. The International Organization for Migration (IOM) estimates that 2 billion people worldwide do not have access to formal financial services, including remittances from abroad; this number includes over half of Africa's population.
In this article, I will walk you through how the lightning network can streamline remittance processing across Africa Borders.
Here are the highlight of what this read;
- What is a lightning network?
- Problems with the remittance process in Africa.
- How lightning network can streamline remittance issues across Africa.
Since this article is geared toward non-technical readers, I will not be stressing about the technical jargon in lightning.
What is a Lightning Network?
The Lightning Network is a network that runs on top of the Bitcoin blockchain. It allows for instant and low-cost transactions, which can be used for business transactions. It's no news how the world is changing and moving fast toward cryptocurrency adoption, however, there are a lot of barriers to how individuals and businesses could process payments and receive funds locally or across African borders. While there are many solutions out there in the present day, it all boils down to how remittance is subject to regulation and ease of this payment processing.
The Lightning Network is an off-chain solution which means transactions are carried out without being broadcast on the blockchain, but instead routed through what are called "payment channels." These channels enable you to make multiple transactions at once without having them all recorded on the main blockchain. Instead, each channel has its own transaction history which is stored independently by each party involved in making payments through their respective channels (each channel has its own set of ledgers). Because these transactions don't have much information attached about who paid whom or how much they owe each other right now - only when one of those parties wants to access those details (for example: when someone wants cashback on goods bought) - then we need some kind of intermediary system to do this.
Problems with the remittance process in Africa.
Africa's remittance process is a mess.
It's so messy, in fact, that it's hard to know where to start. It's plagued by high fees, too much paper works and confusing rules, making it tough for people who want to send money to get it done right.
The most common problem with remittance within Africa is a simple one: it's too expensive.
In Africa, many people live in rural areas where there are no banks or other financial institutions that can handle international transactions. In these areas, the only way to make payments is by using a mobile money service or agency banking. Unfortunately, this service costs between 2% and 6% of the total value of the transaction.
Another issue with remittances in Africa is that they often take too long to process. This can cause problems for both individuals sending money and those receiving it—the sender might have to wait days, weeks or months depending before their money arrives, while the receiver might be unable to access their funds at all if it takes longer than expected.
If you're sending money from one African country to another, then things get even worse; there are no international wire transfers available in most countries (or at least very few). That means that if you want someone in another country to receive your money, then you'll have to transfer funds through an intermediary agent (like Western Union or Moneygram). And those agents often charge ridiculous fees for their services.
It gets even more complicated when people try to use FINTECHs solutions
How lightning network streamlines remittance issues across Africa.
Fast payment
The lightning network is much faster than traditional payment methods. Lightning offers instant payments, which means you can send money from your wallet to anyone else’s without waiting for confirmation, unlike bitcoin on-chain transactions. This makes it ideal for businesses that need to receive payment from customers instantly and at very low costs.
The lightning network does not require any third party, thus saving on fees and speeding up clearance time. In addition, it is open source! That means there are no permissioned entry requirements; anyone can join the network if they have a bitcoin wallet (and some not too technical knowledge these days). As such, everyone has access to this technology including people who wouldn't otherwise have access due to a lack of financial literacy among Africans in particular.
Access to the global marketplace
The Bitcoin Lightning Network is a protocol that allows users to make instant, free and secure payments across the world. You can use the network to send and receive money in any country or region where merchants accept Bitcoin payment methods.
Cheap fees
Bitcoin transactions require fees that are usually around 3% of the amount transferred, but on the lightning network, these fees are as low as 0.5%. This makes it cheaper than traditional methods such as International payment platforms or bank wires that can run up to 5-6% of funds transferred (depending on where they're sent).
Additionally, because there is no middleman involved in these transactions—and thus no risk associated with them—the lightning network can process millions upon millions of transactions every single day without any problems whatsoever! This means more profits for businesses who want to accept remittance payments from other countries using their existing systems; if you've ever tried sending money from one country to another via any International payment platform or wire transfer then you'll know how expensive those services tend to be! The future looks bright indeed for everyone involved: businesses will be able only to pay higher rates if they want to access this new marketplace; consumers will benefit greatly by receiving ultra-fast and secure transfers across borders at minimal cost; governments worldwide will see increased tax revenue generated by crypto-currency users who send funds abroad regularly instead.
Easy set up due to the open-source nature of the network
The lightning network has been described as a "second layer" of the bitcoin network. This means that it does not need to be installed on your computer, or even connected to your computer in any way. The only thing you need is something called a “lightning node” which can be installed on any device (tablet, phone etc). These nodes store information about who sent what and when they sent it, so they act as records of transactions in the digital world. A user will open up their wallet through their web browser or mobile app and send money from one place to another without having anyone else involved in the process at all! They just send an amount through these nodes directly into someone else's wallet without having to go through banks or other intermediaries.
In conclusion, the lightning network is a fast, cheap, and easy way to process remittances. It also has the potential to help businesses in Africa compete with global competitors. So far, we have seen many companies adopting this technology and beaming results in terms of revenue growth and cost savings.