LeEco is like the Netflix of China—except it also sells phones, televisions, and cars. Now, it’s moving into the US after acquiring the stateside television maker Vizio. Unlike some Chinese tech giants that seem happy to focus on a domestic market approaching 1.4 billion, LeEco has international ambitions. And to make those ambitions a reality, it’s embracing a bitcoin-like creation that can quickly and inexpensively move any country’s currency across borders and around the world.
This technology is called Stellar, an open source payments protocol that grew out of the bitcoin movement and is backed by marquee San Francisco startup Stripe. LeEco runs a dedicated online payments and banking company called LeFinance, and this subsidiary is now building services that will use Stellar to move money to and from businesses and customers abroad. Like bitcoin, Stellar provides a vast online ledger, or blockchain, designed to oversee the movement of money (and anything else of value) from one machine to another without the need for any kind of central authority or government to validate the transactions.
“We’re aiming to reduce the cost of capital, improve the efficiency of our operations,” says Linhui Gao, senior operations Director at LeFinance and the founder of LeFinance Blockchain Lab, through an interpreter. “We’re widening our influence globally, so cross-border payments is what we need.”
LeEco’s effort is still in the early stages—Stellar founder Jed McCaleb flew to China last week to help jumpstart the effort—but it shows where the blockchain idea may be most useful for businesses in the near-term. Bitcoin’s strongest proponents see the technology as a way to make money work just like the rest of the internet, freeing commerce from the grip of governments and banks. That dream isn’t exactly close to reality. But the blockchain idea may still have useful applications in the here-and-now. A blockchain offers a way of readily sending money between countries, which is still a difficult thing in a world where the borderless connections provided by the internet are only part of what’s needed.
At the moment, sending and receiving money internationally is expensive. The average cost of an international payment is between $25 and $35, ten times more than domestic payments, according to a recent McKinsey report. What’s more, existing technology for moving money between banks varies from country to country. The application programming interfaces, or APIs, that move money between banks are poorly designed, if they exist at all. Sometimes, payments travel via one-off messages or file transfers. And in many cases, the existing system just isn’t very liquid, due to the number of parties involved. “It’s a bit of nightmare,” says Anthony Barker, chief technology officer of the Paris-based international money transfer company Tempo, who spent 15 years working in the foreign exchange for operations like BMO Capital Markets and National Bank of Canada.
These are precisely the problems that Stellar is trying to solve. McCaleb was among the earliest bitcoin adopters, but he realizes that the digital currency idea has limited appeal in the West, which already enjoys a robust electronic infrastructure for moving money. At least for now, he believes the blockchain’s real power lies in its ability to move money in the developing world and across borders.
‘A network of one isn’t very useful.’
Today, the San Francisco non-profit that oversees Stellar announced that its payments network has plugged into existing money transfer operations in Europe, Africa, and the Philippines, including Tempo and the Philippines-based Coins. For Stellar to work—to provide a truly global network—it needs these partners who operate money transfer hubs, or “nodes,” on this network. At the same time, these partners gain because they can potentially streamline their money transfers using Stellar.
Stellar and similarly unified networks such as Ripple, Barker says, could help make moving money across borders easier and more reliable than the ad-hoc systems currently in use. A network like Stellar could also ultimately help money-movers cut costs, though this will only work if use of the protocol is widespread. “You need partners on the other side of the transaction,” Barker says. “A network of one isn’t very useful.”
Presently, even that modest dream for international payments faces obstacles. Earlier this year, Stellar was working to create a money transfer network in Nigeria, where just 35 percent of the population has access to traditional banking services, according to a 2014 report. More than half of the 17.5 million Nigerian adults who need to send money use informal channels such as prepaid debit cards and friends and family members traveling from place to place. Even so, the Nigerian Central Bank put the breaks on the Stellar plan this summer, banning money transfers by all but three large and established companies. It’s only now starting to relax these restrictions.
Barker says that governments still haven’t really woken up to the possibilities that technologies such as Stellar offer. “I don’t think the regulators understand,” he says. He and his company hope to change this. They’re among the advocates discussing blockchain technology with regulators in Europe, and they’re actively working to push Stellar into Philippines and China. According to the World Bank, only India receives more money in remittances from overseas each year than China ($64 billion) and the Philippines ($28 billion). Clearly, the demand for easier, cheaper ways to move money across borders is there. If big tech companies like LeEco can make blockchains work for money transfers, perhaps that momentum will start catalyze the technology for other uses too.