I had the most fascinating conversation with an ex-card company man a few weeks ago. He made a statement that caught me thinking, and so I figured I would pen it down. His statement was provocative – “What companies like TransferWise and many other fintechs challenging the status quo of banking are doing is nothing more than legalised Hawala!”
Money transfer as an organised ecosystem has existed since the 8th Century, when traders and travellers used to cover great distances and ran the risk of being robbed if they had all their wealth with them. Trade itself began to cross great distances, from the Far East, across the Indian Subcontinent and onward to the Middle East. The Silk Route. We believe that what we see today in the banking systems, and the fintechs that are sprouting around us as being ground breaking, but they haven’t fundamentally changed a thing!
The word Hawala today comes with a heavy connotation of corruption, criminality, and post 9/11, a very clear red flag for money laundering and the funding of terrorist activities. But looking just a little closer, you’d find that the fundamental structures are almost identical to what modern banks and fintechs like TransferWise are doing. They expertly manage a money float. This involves money transfer without the actual movement of money. Even today, in every country around the world, including Singapore with such a high penetration of formal banking; most migrant workers here use a Hawala system to move money home to their families in Indonesia, Malaysia, the Philippines and on. The word itself denotes “Trust”. There is no binding contract, certainly none that would hold up in a eyes of the law.
There are some really facinating variations of this trade. One of them being that a transferee gets one torn off half of a bank note of a low denomination, and he/she has to produce it on the other end to the Hawala agent in order to verify the bank serial number and thereby confirming you’re the authorised recipient. Lose that note, and you lose your money too.
Now that being said, maybe there’s an interesting segway into the world of cryptocurrencies. What happens to your tokens if you lose your private key?? In essence, the principal is the same. Hawala is the decentralised world of remittance, and it’s been around for many lifetimes.
So what is the real fundamental difference between a TransferWise, or a DBS, verses a Hawala network, with thousands of agents in cities across countries, across continents? My belief, virtually nothing. Perhaps what is most poignant is the fact that like many people, the folks at TransferWise saw the highway robbery of fees and exchange rate spreads that the banks were making, and have found their niche in breaking those down to the ultimate benefit of everyday people.