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Does Bitcoin/Blockchain make sense for international money transfers?

Bitcoin money transfer: competing with fast elephant

“I think we will know when bitcoin has reached prime time when it is transferring more value each day than Western Union or Money Gram…”

Roger Ver, November 2013

Bitcoin money transfer is usually discussed in either sensational or downright misleading way. There is a significant category of Bitcoin or, currently more popular, blockchain stakeholders and observers who seem to be completely vested in this innovative product’s awesome potential and are unable to entertain a deviating opinion. This very smart and capable, but, unfortunately, close-minded group believes that Bitcoin cancels a need for regulation and would soon destroy Visa, Western Union and “banks.” Articles written for and by such audience are easy to find, and we will not link to them to avoid enabling such either outrageously ignorant or deceptive opinions.

Rational view of Bitcoin/Blockchain for sending money

In this context, we are always grateful to find discussion about Bitcoin/Blockchain for remittances which attempts to be more objective. Here are some examples: Bootstrappers guide to bitcoin remittances, Tackling bitcoin price swings OR

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or

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However, even more reasonable experts seem to be de-emphasizing a fundamental diversion in understanding of Bitcoin/Blockchain value that shall be considered for its potential in international money transfers. Here are the key points made by proponents, usually taken at face value.

Large segment of consumers is suffering without Bitcoin/Blockchain money transfer

The unexpected tragedy of the financial system” is quite representative in this regard. What is common about these articles is seemingly absolute lack of a field research or basic customer surveys. For example, there are monthly government reports that analyze consumer complaints about providers of financial services. Reading such report for the US market, there are relatively few complaints about money transfers and most of those are centered around fraud, not exactly a strong suit of Bitcoin with its embedded anonymity:

complaints-by-service-cfpb-august-2016

Source: http://www.consumerfinance.gov/data-research/research-reports/monthly-complaint-report-vol-14/

Speaking with enough low-income consumers who transfer money internationally, one could quickly discover that there is no “tragedy,” and, what is most puzzling, this segment is not even that eager to save on sending money:

Inter-American Dialogue Survey - Feedback 2016Why? It is not because low-income senders are lacking infrastructure. A large portion of SaveOnSend’ “cash” users have a smartphone and a bank account which could be easily linked for an online money transfer. BUT they are sticking with a cash agent, and, as the result, are paying 3-5-10 times more for sending money home. Counterintuitive? Yes. Tragedy? No.

Target segment for bitcoin money transfer

Target segment for bitcoin money transfer

And that is why, offline-to-online shift in remittances is happening at a crawling, 1-2% annually, pace and will be taking decades, not years. This is not unique to remittances. Such slow adoption is actually quite typical for other types of financial transactions: from cash to plastic cards, from checks to online billing, or from a “swipe-insert” plastic card to a “touch” payment with a phone or a watch.

Bitcoin/Blockchain money transfer can help the needy

Articles about FinTech-Bitcoin-blockchain are often trying to invoke “unbanked” “poor” or “women” as the reason and special focus for money transfer startups. Instead of simply acknowledging that these startups are primarily founded to make money and accumulate market power, we are asked to believe in their higher calling. Not surprisingly, such articles are always missing two critical components which would make those claims believable: 1) specifics on targeting such segments, 2) explanation on how to make money with such targeting:

Bitcoin money transfer for unbanked

This argument is misinformed on both the sending and receiving ends of a money transfer transaction. By definition, most of the senders who transfer $200 per month to their families in India, China, Philippines, Mexico have money. Which means that majority of them have both a bank account (70+% for Western Union and same for MoneyGram) and a smart phone. For example, there were only 7% of Americans without access to banking services in 2015. 69% of migrants in US had access to banking in 2016, more than doubling from 30% in 2005:

Inter-American Dialogue Survey - US Bank Ownership 2016On the receiving end of remittances, being unbanked is not a significant inconvenience or cost issue. With around 550,000 Western Union’s agent locations, money could be easily picked up by the great majority of such unbanked recipients (30% of those locations see NO remittance activity). There will always be pockets of consumers who live in extremely remote areas, but reaching them with an advanced technology in a cost effective way is simply unrealistic at this point (more on that later).

can bitcoin money transfer be available in remote places?

There is virtually no advantage between receiving money into a bank account vs. picking them up from a cash agent – in most cases, a provider’s margins are the same for either method (check for yourself with SaveOnSend app). Moreover, one of the top reasons for migrants’ use of informal channels is tax avoidance (read this research). Bitcoin provider could address such concern by promoting Blockchain’s anonymity, but no established startup might be willing to take on such risk (more on that later).

Many of the original Bitcoin remittances startups were founded before 2015 by people without a cross-border expertise who did not know these facts and had a sincere hope to help unbanked with remittances. Founders of recently launched Blockchain-based startups came from the industry, and such information became a common knowledge… but new Blockchain startups keep repeating the same message of helping “2 billion unbanked” while targeting digitally savvy and better-off consumers:

Everex Blockchain Startup Aug 12 2017

Source: https://www.everex.io/, August 12, 2017

And what about those poor-unbanked-women that Fintech stakeholders talk about so much? They will be just fine. Even if Fintech, Bitcoin, Blockchain, Mobile Money, Big Data or all digital innovations combined disappear tomorrow, the old technology has been sufficient in eliminating poverty:

Poverty rates 1820 2016

Bitcoin/Blockchain money transfer is instant and, thus, doesn’t carry the FX volatility

The “nearly-instant-free” transfer via Bitcoin was true to some extent up until the middle of 2015, but the Bitcoin community has been unable to solve a technical problem which led to systematic transfer delays and higher fees (see details here). Regular cross-border money transfer is already evolving to a real-time payment. For example, in the world’s largest corridor, USA-to-Mexico, many providers already deliver funds in a day or less and more will join (check for yourself with SaveOnSend app):

comparison-of-providers-usa-to-mexico-500-bank-to-bank-dec-6-2016

Comparison of Providers: USA to Mexico, $500 transfer, bank-to-bank linked accounts, December 6, 2016

Money transmitters like Xoom or TransFast could already send money virtually instantly for 70-90% of bank-funded transfers. They have developed a better risk management and bank connectivity, and other providers will eventually catch up. With other providers, consumers could get an instant transfers if they are is willing to pay a bit more for using a debit card. Why does a bank transfer takes days while a debit card is instant? Because instead of using a private rail of Visa and MasterCard, banks had to rely on outdated government networks which could take few days to confirm a transfer. But not for long. Australia, UK and few other countries already implemented near-real-time payments capability. Similar implementations in other countries, such as USA and Canada, are already under way, with most developed countries expecting to launch near-real-time rails by 2020.

So any speed advantage of Bitcoin-blockchain is being eliminated, plus a transfer via Bitcoin-blockchain carries an FX conversion disadvantage, a double-whammy:

– since Bitcoin is more volatile than pretty much any other currency, its internal spread is higher (see the chart below for 2015), and so is its spread for each conversion

– Bitcoin needs to be converted extra time or sometime even twice. For example, for sending money from USA to Mexico, it needs to be converted an additional time (USD-MXN vs. USD-BTC-MXN). For an USD-to-USD conversion when sending money from USA to countries with an option of multiple receiving currencies, like China or Philippines, Bitcoin needs to be converted twice vs. zero times with regular remittance providers.

Ref_Rates_1_Edited

Here is how HelloBit’s co-founder and CEO Ali Goss summarizes this conundrum in the insightful article by Bitcoin Magazine:

“With bitcoin, you’re adding a third currency,” Goss said. “You go from U.S. dollar to bitcoin, and then from bitcoin to whatever the local currency is. You’re adding an extra FX move right there alone. That increases friction. On top of that, small startups don’t have a big FX department, and they don’t have the big abilities that come with such a department … they’re generating more costs for themselves, not less.”

Bitcoin’s key FX challenge remains an insufficient liquidity in many corridors. The spreads are so high that even die-hard Bitcoin players are using non-blockchain rails to complete transfers for those destinations. Yeap, you heard this right, EVERY so-called Bitcoin/blockchain money transfer startup pays banks to process a large portion, sometime a majority, of its cross-border transfers. Here is ZipZap in this interview to CoinDesk:

“ZipZap uses a combination of traditional (Swift) bank payment rails and blockchain technologies to find the least expensive and most efficient transfer option…”

Bitcoin can dramatically reduce remittance prices

Most of the potential savings for international money transfers could be realized today, immediately, IF ONLY senders stop going to cash agents and spend 3 minutes linking their bank accounts on their smart phones using their existing providers like Western Union or Ria Money Transfer. Not understanding why so many senders continue spending 3-5-10 times more while having a bank account and a smartphone will likely lead to many disappointments for Bitcoin money transfer startups and their investors down the road (read our analysis of fundamental difference in behavior of senders from USA to India vs. Mexico).

Examples of such disappointments are frequent – see the “Graveyard” section toward the end of this article or read these insights from Bitcoin entrepreneurs. But still too many Bitcoin remittance stakeholders keep repeating an outdated adage of a 10% average margin by “traditional” providers and that Bitcoin solution is 250x cheaper:

Pantera Capital Investor Newsletter - September 2015

Pantera Capital Investor Newsletter – September 2015

Same notion is prevalent among Fintech experts. Here is Chris Skinner on a Breaking Banks podcast (starts at 32:45):

“Now using companies like Abra a US citizen could send someone in Philippines a hundred dollars with hardly any commission taken off, compared to 25% or more being taken by traditional players.”

Instead, spend 30 seconds on SaveOnSend app to find the actual commission for sending different amounts…

Comparison of Providers - USA-to-Philippines, $100, bank-to-bank, July 15, 2017

Comparison of Providers: money transfer USA-to-Philippines, sending $100, bank-to-bank, July 15, 2017

… or read the latest brief from WorldBank. You would quickly discover that the weighted average global margins have been falling to 6% (Western Union‘s global margin is ~5.5%, Ria Money Transfer’s – ~4%). So why are we seeing so many articles about high costs of sending money internationally? Because it was the case in the past, and it is hard to change our mindset to a fundamentally different input. As usually happens, high margins attracted more competition and prices have dropped 20-30% in the last 8 years alone:

global-weighted-average-for-sending-usd-200-till-q3-2016

Source: https://remittanceprices.worldbank.org/sites/default/files/rpw_report_sept_2016.pdf

Moreover, there is a huge difference in prices of remittances across top outbound countries:

Remittances prices across outbound countries March 2017

Source: https://remittanceprices.worldbank.org/sites/default/files/rpw_report_march_2017.pdf

Such data is hard to gather and maintain, so the real prices might be even lower as was discovered in this study:

South Africa to Zimbabwe $200 WB data vs. Independent

Source: http://www.finmark.org.za/wp-content/uploads/2016/11/cross-border-remittances-2016.pdf

What is causing South Africa to be 5+ times more expensive than Russia? Most experts claim that it is due to two issues, de-risking by banks and exclusive partnership with retailers by Western Union and MoneyGram:

“A major barrier to reducing remittance costs is de-risking by international banks, when they close the bank accounts of money transfer operators, in order to cope with the high regulatory burden aimed at reducing money laundering and financial crime. This has posed a major challenge to the provision and cost of remittance services to certain regions.”

“… the core issue with WU is their exclusivity clauses that have been used for decades to successfully lock markets to one provider, who can then increase their mark-up fees as there is no alternative.”

Neither of these reasons is the case when comparing South Africa and Russia. It is easy to blame “banks” or “Western Union,” but the real root cause is usually with opaque or corrupt governments that favor banks over MTOs and Fintech.

More relevant for Bitcoin-based remittance providers whose customers tend to be tech-savvy early adopters, margins for online remittance in top corridors are in the 1-3% range. For example, in the world’s most advanced corridor, USA-to-India (see reasons in this SaveOnSend article), many providers don’t charge any fees for digital transfers and their FX markups are typically around 0.5-1%:

FX margins comparison across providers - remittances from USA to India till July 7 2017

Or review the FX markups for another world’s top-10 corridor, USA-to-China – for 6 months in 2016, Western Union was charging ZERO, no fees or FX markup, for sending money online, from-to linked banked accounts:

FX margins comparison across providers - remittances from USA to China till July 7 2017

It is true that Western Union and TransferWise transfers could take few days, so if Bitcoin providers could offer their services for free AND in real-time they would have an advantage… as long as their investors don’t mind a business model with a negative variable margin. Some Bitcoin/blockchain remittances startups claim that they already offer such service:

zebpay-misleading-comparison-of-remittances-from-usa-to-india

But hiding behind a small font is a misleading comparison between sending money with a popular, easily verifiable fiat-to-fiat method and a transaction originated in Bitcoin with no mention of a Bitcoin-to-fiat spread. On top of that spread, Bitcoin providers are charging increasingly higher fees (source here):

Bitcoin txn fee 2017 YTD till July 10

The fee volatility got so bad that in October 2017, Bitspark, one of the more prominent B2B providers of Bitcoin money transfers, switch away to another blockchain.

Since 90% of remittances are still received in cash, could consumers save money by receiving cash from Bitcoin / Blockchain ATMs? Nope, it is even more expensive:

Bitcoin ATM fees Sep 23 2017

Source: https://coinatmradar.com/charts/#by-country

But where could Bitcoin/blockchain significantly reduce cost of remittances? Not where most of them are focusing today. In the following top-10 global corridors, each $10B+ in annual volume, including four covered by SaveOnSend app, margins for online transfers are generally below 4%:

Top 10 Remittance Corridors 2015

Source: https://openknowledge.worldbank.org/bitstream/handle/10986/23743/9781464803192.pdf?sequence=3&isAllowed=y

As we mentioned before, keep in mind that some of those corridors allow for same currency transfers, for example, USD-to-USD from USA to Philippines or China. This naturally eliminates a need for a provider to manage FX volatility and leads to a very attractive pricing for consumers:

comparison-of-providers-usa-to-philippines-500-usd-to-usd-bank-to-bank-oct-13-2016

Comparison of providers: money transfers from USA to Philippines, USD to PHP, $500, bank-to-bank, October 12, 2016

On the other end of the spectrum, there are numerous tiny ($1-5M) corridors, especially in intra-Africa, with obviously very little competition and, hence, much higher margins:

Most expensive remittance corridors 2015

Source: https://openknowledge.worldbank.org/bitstream/handle/10986/23743/9781464803192.pdf?sequence=3&isAllowed=y

The smaller the corridor the less likely is the return on building localized digital capabilities. That is why, Western Union only enables digital transfers from less than 20% of worldwide destinations (40 outbound countries via a webiste including 18 with a mobile app):

WU Digital Coverage May 2017

But Bitcoin/blockchain startups are different, right? Unlike profit-maximizing Western Union, these startups were started to help those in need:

American Banker article on Bridge21 April 7 2017

Source: https://www.americanbanker.com/news/remittance-startup-uses-bitcoin-as-a-bridge-between-bank-accounts

So which desperate Sub-Saharan Africans Bridge21 decided to help first? It started with offering digital services to well-off customers in the world’s largest and one of the most saturated corridors, USA-to-Mexico, where a margin for such service is already 1-3%:

FX margins comparison across providers - remittances from USA to Mexico till July 7 2017

There is a narrow case of “mobile money,” a term that typically implies that money are paid from a customer account with his/her telecom provider. Despite being piloted by Western Union in 2007, mobile payments remain a tiny portion of global remittances mostly used for transfers to few African countries like Kenya and Tanzania. It took off in those countries due to inadequate bank-card infrastructure for payments .

The most famous examples is M-Pesa launched in 2007 by Vodafone. Many experts mistakenly believe that M-Pesa helped poor Kenyans with financial inclusion. In reality, banking industry in Kenya was already rapidly expanding and well-off consumers just had one more convenient option for sending money.

Penetration of bank accounts in Kenya 2005-2011

Source: https://fred.stlouisfed.org/series/DDAI01KEA642NWDB

Remittances volumes among those countries in Africa tend to be relatively small and are, thus, outside of focus for digital expansion by incumbents or Fintech startups. As the result, a mobile money method could be the most cost effective options for these corridors when compared to cash-to-cash sending:

average-remittances-cost-intraafrica-cash-vs-mobile

Source: https://t.co/LFGgG5qpOD

Another argument in favor of Bitcoin’s ability to reduce remittance costs is to focus on small amounts with an underlying assumption that such transfers would dramatically increase in quantity (e.g., if it costs little to send $10 to homeland, lots of migrants will begin initiating lots of small transfers). While some increase in smaller amount transfers is expected (read this interview with Western Union’s executive), there is no evidence of a major trend. Even for smaller amounts, some mainstream providers are not charging any fee, in essence, creating variable-only pricing based only on the FX markup (see top three rows in the table below). With those providers, it already costs less than $1 to send money, so even if a Bitcoin transfer is free the price advantage wouldn’t be enough for consumers to care:

Bitcoin money transfer challenge: $20, USA-to-Philippines, Bank-to-Bank, April 15, 2015

Bitcoin money transfer challenge: $20, USA-to-Philippines, Bank-to-Bank, April 15, 2015

Bitcoin-Blockchain can dramatically reduce correspondent banking cost

A typical pitch of Bitcoin-Blockchain startup includes a picture like below which shows a multi-step process for customers (retail or business) who want to transfer money internationally. It then naturally proposes a blockchain-based solution which eliminates the need for all intermediaries letting consumers and business interact with each other directly as they do via email:

SWIFT presentation on digital disruption September 2015

Even while only planning a pilot with Stellar, the head of blockchain initiative in a large Indian bank is already describing key benefits in this PR article:

“This technology is enabling us to conduct business a lot quicker, cheaper with lower error rates and lower vulnerability to cyber threats. It is helping us eradicate the need for post transaction settlements which are cumbersome and expensive.”

While seemingly intuitive and simple, two conditions would need to be met in order for a blockchain solution to present a significant cost advantage: a) costs of those specific back-end processes need to be a substantial component of a provider’s P&L, AND b) existing providers are deploying those processes in a substantially inefficient manner.

Let’s review financial statements of publicly-traded consumer remittances companies.

Western Union 10K 2014

Western Union 10K 2014

It becomes apparent that most of their costs are related to payments for receiving and discharging funds from-to customers, customer acquisition, channel infrastructure, customer service, and risk-management-compliance, not in recording transactions or moving money internationally (read this SaveOnSend article for more details). Hence, providers are eagerly looking for more cost-effective ways to collect and distribute funds vis-a-vis customers, acquire customers, deploy offline and online channels, service customers, manage risks of releasing funds before getting paid… not functions where Bitcoin seems to be offering a distinctive cost advantage. For example, Western Union spent HALF of all expenses in 2014 on “agent commissions” – whether underlying currency is fiat or bitcoin wouldn’t seem to make any difference.

Or, let’s consider fraud-related expenses – the major issue in the remittance industry, like the case of “employee impersonation” at Xoom or when people lie about 1) having sufficient funds in their bank account or 2) not sending money or when hackers take over online accounts. Again, it is not clear why a Bitcoin-based provider would be much better at preventing such “front-end” fraud unless it is a so-called “full Bitcoin” transfer (no on- and off-ramp conversion with fiat). This will be indeed a potentially safer infrastructure, but a very slim chance of mass adoption unless we start seeing billions of dollars spent on PR-marketing globally. More than 20% of Western Union’s workforce is dedicated to a compliance mostly to oversee 550,000 cash agents, but its digital arm performs most of such compliance functions automatically.

And what do large remittance providers spend on correspondent banking? As we describe in this SaveOnSend article, it costs them 0.01-0.1% of revenues and is managed by a global team of 2-5 people. Compare that with their compliance and risk management activities which involve 10-20% of the total company staff (for example, it is 15% for Transfast). Nevertheless, by 2017 most of the large financial institutions and government financial entities were busy experimenting with various distributed ledger technologies, on Blockchain or via more private variants. Such test-first-think-later approach had no positive surprises (example here):

“One of the main lessons from this experiment is that the versions of distributed ledger currently available may not provide an overall net benefit when compared with existing centralized systems for interbank payments. Core wholesale payment systems function quite efficiently…”

Bitcoin money transfer will destroy Western Union

Obsession with crushing Western Union seems to be a huge distraction for many remittance startups, Bitcoin or not. One thing is to have a crazy audacious goal, another is to keep talking about it as if such goal could be a reality in the next several years. To put things into perspective, 9 years since it got its act together, Xoom and Transfast are around 1/10th of Western Union’s transfer volume, and after 6 years, Remitly is 1/4th of Xoom’s. Remittances’ latest darling, TransferWise, is growing very fast, but it is still far behind Western Union:

Money Transfer Providers X-border Volume Comparison 2014-2017 Q2

Moreover, TransferWise’s business model is constrained to bank-to-bank transfers, therefore, its revenue would likely to stay marginal in comparison with Western Union’s (learn more in this SaveOnSend article):

Money Transfer Providers Total X-border Revenue Comparison 2014-2017 Q2

If we are to believe Rebit and Bloom, the biggest success story of Bitcoin for remittances so far, 20% market share, is in the Korea-to-Philippines corridor. It would imply $1-2 million in a monthly transfer volume among its biggest providers, Sentbe and Payphil. OKLinks’ co-founder, Jack Liu, corroborates this magnitude:

Keep in mind, this particular corridor, with $0.2-0.3 billion in an annual transfer volume, is tiny in comparison to top source countries:

Top 5 remittance source countries for Philippines

Source: http://www.pewglobal.org/interactives/remittance-map/

Since Rebit, Bloom, and OKLink have a vested interest, their extraordinary claims must be independently verified. For example, even such relatively small volume seems unlikely as the central bank of Philippines estimates volume of remittance transactions involving ALL inbound corridors and all virtual currencies to be around $2 million per month. The claims of “20% market share” have been continuously re-printed after the first appearance in September of 2016, always with absolutely no evidence. In public and private interactions, SaveOnSend repeatedly asked all these startups to send us data for validation… and we are still waiting:

Understanding why this corridor and these startups have been so much more successful than anyone else globally is a crucial next step in Bitcoin’s evolution for remittances. Instead, we keep seeing another clever way to misinform a general public about the world leader in remittances that transfers 1,000-10,000 more funds than the largest Bitcoin-enabled startup:

Money transfer - Western Union vs Bitcoin

Money transfer – Western Union vs Bitcoin

In the meantime, Western Union has proven to be quite agile in adopting to digital evolution. It was the first to provide an online channel in 2001, the first to experiment with mobile money in 2007, and has managed to maintain a resounding lead in digital cross-border transfers:

Money Transfer Providers Digital X-border Revenue Comparison 2014-2017 Q2

Western Union was also the first among well-known remittance providers investing in blockchain startups and experimenting with blockchain:

As you saw in the previous comparison tables, Western Union is at times less expensive than some of the so-called Fintech startups (see this SaveOnSend article for more on that topic). For example, look at the margins across providers in the world’s largest remittances corridor, USA-to-Mexico:

comparison-of-providers-usa-to-mexico-500-bank-to-bank-dec-6-2016

Comparison of Providers: USA to Mexico, $500 transfer, bank-to-bank linked accounts, December 6, 2016

And that maybe the biggest “blind spot” of Bitcoin-based or remittance startups in general. They have an image, wishful thinking, of Western Union as a cash-only business which missed telephony and kept hanging onto telegraph. The reality is quite different. Western Union would exploit Bitcoin-blockchain rails as soon as they become a viable alternative. Remember, profits and costs are in the first and last mile not in the rails (read this SaveOnSend article for more details). And Western Union’ transfer volumes and stock price are stagnating but don’t point to signs of imminent demise.Western Union Revenue and Market Share 2006-2016

WU vs SP500 till Jan 20 2017

The only reason preventing mass Bitcoin money transfer adoption is [enter your favorite]

Articles like this highlight something unique about stakeholders in a Bitcoin money transfer community, both startup founders and their investors. Rather than learning and embracing a challenging reality of consumer remittances today, they prefer to believe that Bitcoin by itself is a “game-changer” for remittances. The are betting on a miracle of new technology taking off once enough remittance consumers hear about Bitcoin features. What would drive such mass-awareness is typically some “game-changing” event, pick your favorite:

  • Donald Trump becomes a president and halts all remittances for undocumented migrants from Mexico

  • Economic collapse in a large country results in hyperinflation (Greece, Venezuela)

  • A large retailer agrees to accept Bitcoin for money transfers

  • Bitcoin remittance startup cuts its fees and conversion rates to zero

  • Low-income consumers learn to use advanced smartphones

  • Government supports adoption of blockchain/Bitcoin

Rather then asking why NO ONE is using Bitcoin / blockchain including their neighbors, family or friends, industry pundits prefer to ponder about poor people in mysterious Africa (read more here):

“Potentially, Africa’s huge unbanked population combined with the burdensome process of opening and operating a bank account should make Bitcoin an instant hit. However, its adoption has been irritatingly slow even though the basic infrastructure is not missing. It is estimated that by the end of this decade that 80 percent of the continent’s more than 1.2 bln population would be using Smartphones. Then what hinders Bitcoin penetration in Africa?…”

Lack of of any noticeable Bitcoin / blockchain adoption is a sobering reality almost 10 years after the release of Version 0.1 – it is evident across all regions and use cases. And the excitement of ever rising price of Bitcoin seems to have little impact on stalling number of transactions:

Bitcoin txn change 2 years till Aug 14, 2017

Do you remember exuberance in 2014 when thousands of merchants agreed to accept Bitcoin? Let’s check on status in 2017:

  • CheapAir.com: “…it certainly hasn’t taken off…”
  • Dish Network: “…we have not seen growing enthusiasm…”

While Bitcoin and blockchain impact is invisible for remittances and shopping, three segments represent around 90% of all usage: long-term investors in Bitcoin using this currency for a diversification, traders in Bitcoin hoping to capitalize on global discrepancies in Bitcoin exchange rates with local currencies, and evaders of taxes and capital controls who want to move money out of their countries illegally:

As this somewhat amateurish video is trying to explain, for 10-15% premium tax evaders buy Bitcoin for cash in countries like India and China, then sell it on exchanges in a developed country (Bitstamp or Kraken), and deposit laundered money in that country. Because of Bitcoin’s widespread role in money laundering and tax evasion, the US tax authority (IRS) requested the names of Coinbase customers in late 2016.

If same consumers who waste billions of dollars on cigarettes, junk food and alcohol don’t want to embrace a game-changing innovation, then maybe it is not that innovative. Even more grounded Bitcoin remittance participants feel it is reasonable to compare Bitcoin with Skype and WhatsApp, but they seem to forget two most basic principle behind success of any innovation:

1. Manifestation of product-service virality takes weeks-months not years. WhatsApp and other “viral” giants spread like fire to millions of users and didn’t require second guessing. Nothing even remotely close has been transpiring with ANY bitcoin-based apps, and the active user base of the ones focused on remittances is typically measured in hundreds. Yes, it is possible, that one day in the future somebody will invent a fundamentally better bitcoin remittance app than anything available on the market today, but that has nothing to do with existing startups and their investors.FastestGrowingUserBase

2. The happier consumers with their existing choices and the more work required by them to adopt, the more branding and marketing efforts are required to initiate said adoption. They should also embrace a harsh implication that an abundance of satisfactory options impedes adoption not only among customers but also among necessary business partners. Why would a grocery store engage with a brand new provider that has a miniscule remittance flow if they already have a satisfactory working relationship with “Western Union” and other well-known brands? Read how CEOs-founders of Bitcoin remittance startups describe this particular challenge: BitSpark, Abra and Rebit.

So the biggest barrier to mass adoption might be that a Bitcoin community is still dominated by idealists who are stuck in the “Bitcoin=Internet” paradigm rather than skeptical practitioners who would consider Bitcoin to be just another novelty. Whether it is a new brand of vodka, clothes, car, or remittances, the real “game changer” is in superb execution of more-or-less standard playbook. Miracles are known for tardiness.

Specific examples of Bitcoin money transfer providers

Keep in mind that for all their talk about transparency Bitcoin remittances startups remain secretive about their performance, so we wouldn’t be surprised if any of them disappear tomorrow.

Graveyard – closed or pivoted away from Bitcoin consumer remittances:

  • July 2016: Freemit (investors: Alchemist Accelerator)

  • January 2016: Romit (investors: 500 Startups, AltaIR Capital)

  • November 2015: BitPesa (investors prior to pivot: DCG, Pantera)

    Launched in 2013, BitPesa initially was the best-known “use case” for Bitcoin consumer remittances to few countries the middle part of Africa. However, as BitPesa kept struggling with gaining traction among consumer remittance users, it discovered that its typical early adopter was a small business owner who occasionally sends money. Facing this reality and struggling in the initial outbound market, UK, BitPesa expanded its marketing efforts to potential senders from other countries like Canada and USA and began targeting B2B cross-border payments (see informative presentation by BitPesa’s CEO). BitPesa has raised close to $2M to date and its transfer volume has been growing at 30%/month from $50K in January 2015 reaching $400K by July. As of November 2015, nearly all of its customers were using BitPesa for business needs.

  • October 2015: Bitstake->NairaEx

  • August 2015: Beam (investors: MTT Group)

  • July 2015: Cryptosigma->Toast (investors prior to pivot: Startupbootcamp)

  • June 2015: 37Coins (investors: 500 Startups)

  • April 2015: Buttercoin (investors: Google Ventures, Y Combinator)

  • 2015: HelloBit (investors: 500 Startups)

Interesting Companies to Watch:

Abra (A Better Remittance App)

When on September 10th, 2015, Abra announced that it raised $12 million in funding, it was a seminal moment for Bitcoin’s evolution for remittances. For the first time ever, there was a startup with enough funds to acquire 100,000+ remittances customers. This made Bitcoin for remittances no longer a hypothetical question. We were finally able to compare Abra’s progress with initial trajectories of established remittances startups:

  • TransferWise: raised $7 million in its first 2.5 years, reaching $35M in monthly transfer volumes

  • WorldRemit: raised $7 million in its first 4 years, reaching $50M in monthly transfer volumes

  • Remitly: raised $11 million in its first 3 years, reaching $2M in monthly transfer volumes

By August 2017, Abra had just 73 users a day…

Abra’s vision was indeed groundbreaking. Enabling consumers to act as ATMs could eventually be a replacement for hawala and catalysis for speeding up a slow shift from off- to on-line method of sending money. Abra was not looking to modify behavior of end-users. It was hoping to enable a cash-to-cash method habitual for 90% of remittance transactions. The fact that Bitcoin is somehow involved was also purposefully hidden from consumers also not apparent (check out Abra’s landing page).

Abra was launched in February 2015 with a fascinating premise, but a comical-borderline-bizarre pitch. At that point, it was hard to imagine a better parody on the disconnect between bitcoin’s ardent fans and reality of money transfers than this presentation and the follow-up reaction. Please watch it, only 6 minutes:

This pitch won 2015 “LAUNCH Festival” Award. Moreover, the Abra app was hailed as the finally arrived “uber for remittances” and “Western Union killer.” If you are not inside of the bitcoin bubble, you could be forgiven for chuckling few times while watching the video. Abra presentation starts with: “I wanna talk to you about Mexican immigrant named Bill” and proceeds with painting us a story of human suffering of someone in Mexico who has to “drive 2.5 hours” to the nearest cash agent. Abra had a solution for those apparently greatly inconvenienced folks: “human teller”… and ignorant judges loved such silly idea.

Considering the ubiquity of cash agents, it is not hard to imagine a place that is so remote. There are numerous small villages, 50-100 residents, in such hard-to-reach places which remain there for historical rather than economic reasons. For anyone who ventures to such villages few gaps become apparent in Abra’s presentation: a) Mobile data connectivity, which could be spotty even around NYC, is usually non-existent once you are this far from larger cities and infrastructure, there is just no business case for deploying such capabilities, b) comfort-trust of technology, especially as it relates to money is far behind in its evolution, c) while it is usually very safe to live in those communities, the overall protection coverage by government is quite limited. So this “uber for remittances,” “killer app” will be deployed to THESE areas?!

There might be definitely one segment who could be eager early adopters: criminals. There is finally an app for them which allows to quickly identify somebody with money in a vicinity and thus significantly improve effectiveness of victim targeting.

Thief

Joking aside, even if we stop worrying about common sense and just go with this story, how would it look as an investment? Spending on localization, wireless data, customer service, etc., all to serve few people in remote areas seem understandable if those were marginal expenditures to piggyback on key metropolitan areas (same way how Western Union can afford 30% of its 550,000 agent locations without any remittance activity), but not as a targeted investment.

But investors who gave Abra $12 million had no inclination to waste money by targeting remote villages. Helping “poor” is a good PR, but as all other fintech startups, Abra was also going after tech-savvy consumers in major metropolitan areas of top global remittance corridors. It quickly became apparent that “P2P” was also just a PR. Most of Abra’s distribution in Philippines were not “human tellers” but the same pawn shops used by traditional remittances providers.

From the beginning, there was also an obvious question about Abra’s ability to make profit considering that they only charge 0.5% on each side of a transfer assuming all FX risk. At least for now, bitcoin spreads are higher and hedging is very hard to find, hence, it is quite expensive (mining businesses in developing countries are already looking for the same hedge). If we add Abra’s own gross margin and each side’s markup of 1%, the total margin gets to around 3% which is on the high-end for corridors like USA-to-Philippines (check SaveOnSend app for other corridors):

FX margins comparison across providers - remittances from USA to Philippines till July 7 2017

Abra started by trying to sign up thousands of “human tellers,” but nine months after getting funded the startup pivoted to a very different offering: typical bitcoin wallet focusing on consumers with linked bank accounts and offering a cash-out via convenience stores. Abra’s initial focus was on the USA-Philippines corridor which is in bull’s eye of all incumbents and top remittance startups. Learning this a hard way, sixteen months after a $12 million funding round, Abra all but gave up on its original pitch. It now focuses almost exclusively on a wallet play and pitching it as a global domination:

In the end, Abra’s initial focus on remittances became a repeat of another venture in same space, Boom Financial. Founded in 2008 by Abra’s management, Boom was pitched as “the first cross border mobile banking service in the US” (on a side note, same was claimed in 2012 by Remitly). Over 2008-2012, Boom raised $28 million from RRE Ventures and others, and… nothing.

Out of all failed bitcoin remittances startups, Abra’s pivot was the most disappointing. On paper, its target segment and user experience were distinctive and had a promise of making a real change for a large portion of cash remittance users. Instead, Abra became another mundane wallet app for better-off consumers with bank accounts. In just 2 years, Abra’s focus changed from helping “Mexican named Bill” with cheap remittances all the way to helping affluent American Express cardholders to invest in Bitcoin for a 4% fee:

Abra and Amex Email Aug 2017

Source: Abra email marketing, August 1st, 2017

We can only hope that a blockchain technology evolves, and some other startup could finish what Abra started. Of course, another hurdle that such startup would need to clear is a regulatory approval of its business model. Abra wanted to claim that it was just a technology company that didn’t own money transfers. That would have allowed Abra to avoid spending time and effort on compliance and licenses (see another SaveOnSend article on that topic). While it would be a welcome change for governments to embrace Abra’s interpretation, it is unlikely.

Rebit.ph

So far, Rebit has raised only $100K. This is a minuscule amount considering that it costs around $50 to acquire a new customer. Rebit’s more fundamental challenge is that its model is not fundamentally different from a typical remittance provider – read this article from its former insider.

Its repeat customer base is in hundreds, but Rebit is also attracting one-off users, in total generating 50-100 daily transactions. Rebit doesn’t charge fees making money on the FX-Bitcoin spread. Read Rebit’s extensive update and Q&A on Reddit.

bridge21

Startup was launched in January 2017 targeting the world’s largest remittances corridor: USA-to-Mexico. bridge21 is capitalizing on a difference in Bitcoin pricing between USA and Mexico at times offering a below interbank exchange rate. Founded by a former Western Union executive and is not shy of a standard PR, bridge 21 grew to $100K in weekly volume of money transfers in the first 9 months (which is in line with the initial trajectory of non-Bitcoin remittances startups).

Other interesting startups to follow:

Question for YOU: which bitcoin money transfer provider do you think has a practical chance to reach 1% market share in ANY global corridor in the next several years? Please describe your brief rationale in the comments section below.

Regulatory aspect of using Bitcoin for money transfer

Judges

Compliance with KYC-AML regulations is another existential questions for Bitcoin remittances. Banks are already dropping small regular remittances providers and even have serious concerns about working with the largest providers of remittances (read more in this SaveOnSend article). Here is a senior banker describes why their bank won’t open a correspondent account for a Bitcoin/Blockchain provider of remittances:

“Our bank is careful NOT to aggressively address new frontiers given potentially high penalties or even simply being in a penalty box by regulators. Concerns are obviously similar to those with regular providers of remittances: money laundering, gambling, drugs, or within other prohibited industries. Unfortunately, I don’t see a path forward in the near term: we won’t be able to monitor or control their flows even if we were to hire more people in compliance or invested more in the systems.”

Read this article on whether such compliance is even feasible. Faisal Khan does a great job discussing various aspects of Bitcoin’s legality and compliance for sending money internationally in his “The Lure of Remittances for Bitcoin Startups” article. Some providers are hoping that if they are MSB-licensed outside the US, they could have an online website and provide money transfers from the US to their country – see Faisal’s response here. Finally, read his step-by-step instruction on how to make Bitcoin international money transfer compliant.

For Bitcoin regulations in USA, state-by-state, read here.

Overall, we understand why a cross-border remittance provider requires more scrutiny than a company in a lending space like Lending Club or Kabbage. The additional risk of money laundering and terrorism financing might outweigh any potential benefits. At the same time, we are concerned with applying an excessive amount of regulation to this seemingly promising innovation. While many in the bitcoin community believe that bitcoin dominance is around the corner, we have a more cautious view that bitcoin money transfers are going to remain a tiny phenomena for years to come. So when we notice how governments or banking organizations are gearing up regulations and imposing limitations (FinCEN Fines Ripple, WellsFargo shuts down Bitfinex transfers), we are worried that Bitcoin’s remarkable potential would be validated much later on because of these premature efforts. Like with crimes in a non-bitcoin space, anybody is welcome to raise a concern, but so far there seems to be more fear about what might happen rather than an objective assessment of bitcoin’s present danger (see “Bitcoin Still Confuses Bankers” for a macro view on this vector).

At the same time, Bitcoin ecosystem must massively step up its efforts to fight off criminals using this innovative technology. Too often we hear excuses about anonymity rather than seeing a proactive termination of criminal activities. Where are the cases of identifying tax evaders among its customers by Coinbase, Kraken, Bitstamp? In the case of a global Ponzi scheme by MMM, it is technologically feasible to identify and shut down accounts of the scheme participants:

MMM Global Website, April 30, 2016

Source: http://mmmglobal.org/what_is_mmm/, April 30, 2016

This massive scam is disproportionately targeting low-income consumers in Africa and South-East Asia. Governments of affected countries took urgent actions. For all the talk about helping the poor, what has Bitcoin community done to stop this fraud?

Making Bitcoin money transfer a reality

There is a long-term vision for Bitcoin-based remittances: as the currency itself becomes stable in the next 10 years, there would be another wave of startups to market Bitcoin as a storage of value and investment. While those startups are also likely to burn out, they would pave the wave for a mass adoption of bitcoin. And at that point, we will finally start seeing new breed of “killer” remittance apps that take advantage of FULL Bitcoin, currency & ledger.

Bitcoin money transfer - moving cash in China

Bitcoin money transfer – moving cash in China

In a short-term, a bitcoin-based remittance providers might be better-off starting in lower-volume-higher-margins corridors that we discussed above. Outside of legal realm, there is an intriguing case for Bitcoin-based remittances as the transitional “hawala” replacement. For some top global destinations like China, informal remittance channels might be on par or higher than formal. Why senders prefer a shady route instead of “western union”? Privacy & Taxes. Based on our discussions with residents of Chinese communities around NYC, we learned that a) many of them seem to work without paying taxes, b) they also seem extremely secretive of their earnings, both for safety and reputation reasons, c) they perceive a real risk of a bank or remittance provider sharing their transfer information with authorities and/or crime syndicates in USA and China. Without commenting on legal aspects, a Bitcoin-based remittance provider, super-localized and focused on complete anonymity, might bring such “unbanked” segment into the fold of using online tools. Then, maybe some of such users would be less hesitant to try a licensed remittance provider.

There are also opportunities to showcase power of Bitcoin in war-torn countries like Somalia, Libya, Syria. Banks don’t allow remittance with such countries, so a Bitcoin provider would have no legal competition.

We are eagerly awaiting the day the first bitcoin money transfer provider could be added to SaveOnSend app, assuming it won’t be one of the existing players simply adopting parts of a bitcoin-blockchain technology. To enable such startup, we would overlook its understandably tiny market share and potentially not-the-best pricing. There are only 3 rules:

  1. Licensed as a money transmitter n USA’s 10 largest states (CA, FL, TX, NY, IL..)

  2. Independently verifiable 100s of happy customers, representative of a typical mass-market international money senders: monthly-quarterly transaction, $0-3K range, sending to China, India, Philippines, or Mexico

  3. “Bitcoin-seamless” – customers send USD and receive destination currency, but don’t have to do something extra just because of bitcoin

We are wishing you “best of luck” on this unbelievably difficult journey! If we missed anything, please leave a comment.

  • Sam Warner
    • Sam, thanks for commenting. Yes, transferring bitcoin-to-bitcoin is virtually free, but how is it relevant for 99.9…% of typical frequent senders among immigrants and their recipients back in India, Philippines..? What do you think is missing in our post about needs of these consumers, existing supply of services for them and challenges facing bitcoin-centric providers in this context?

      • Sam Warner

        I don’t know, that’s a good question. Do you know how the bitcoin users in India and Philippines find it relevant? Someone should ask these foreign bitcoin users how is bitcoin relevant to them. I know they’re out there. What goods and services do they buy with bitcoin? How many others do they transact with? Who and where are these others? And have they ever purchase something outside their nation with bitcoin? Someone should ask them these questions. Another thing I would add, besides bitcoin being virtually free to transfer, is the difficulty for gov’t to stop bitcoin transfers.

        • OneMillionGateways

          “What goods and services do they buy with bitcoin?”

          Answer: they don’t, they sell them to other people for profit or speculate on the price going up. The only people that buy bitcoin in those places can be described as middle or upper class (a considerably smaller portion of the population) for wealth preservation or transfer.

        • Today? Not much, at least in India. It is still very early days for Bitcoin as a currency. One day, perhaps 5 years away, however, they’ll be able to buy everything with bitcoin. It’s simply a superior form of money that no fiat currency will be able to compete with once it has grown large enough.

      • OneMillionGateways

        I know of a Philippines Bitcoin remittance company that does this, they don’t tell consumers anything about Bitcoin (which is always a mistake, I can explain why in person), instead they offer a 2% fee instead of the 7-15% Filipino’s are normally charged in places like Korea, Japan, and Thailand. The average transfer is $300 every week (as the foreign workers get paid weekly in cash). They then allow the Filipino family member to collect the cash at an in-country Pawn Store (which reaches 90% of the countries population of whom only 10% have bank accounts) after which they sell any extra Bitcoin they have to local buyers.

    • Hasher

      I’m a Bitcoin enthusiast and remit money to the Philippines once in a while.

      The reality is, using Bitcoin is still not worth it- FOR NOW. The cost for normal user are

      (1) fiat to btc (1-5%) + plus conversion delay due to bank

      (2) btc (1-5%) + plus conversion delay due to bank

      (3) bitcoin network fee

      I wish the adoption of BTC can come sooner so that we can remove at least (2) or (1) or both.

      But again, one you became a real Bitcoiner, you cannot leave and go. I still has big hopes for Bitcoin.

      • Hi Hasher, thanks for providing specifics. Have you had experience with providers mentioned in our article, Rebit or Abra?

  • D.R.

    What about RIpple? Do you think Ripple is a revolution for a cross country payment system?

    • Thanks for asking. We are not only focusing on consumer remittances. For B2B players like Ripple, better follow somebody like Faisal Khan – e.g., see his response here: http://qr.ae/L5Fjr

      • OneMillionGateways

        Ripple is fine for 1:1 consumers transfer to. Read my book http://rippleinvestmentguide.com/

        • If you could take few minutes, might be great for readers to see key points why Ripple has advantage vs. existing methods for consumers. They could then proceed to your book for more information. Thanks

          • OneMillionGateways

            Sure! 1) For cross border payments Ripple settles instantly (a few seconds, Bitcoin at 10 minutes to an hour is not “instant”) 2) Consumers can expect to receive the best possible exchange rate on the internal currency exchange. 3) No need to purchase a third asset (bitcoin, gold, etc) to send the payment. 4) When consumers KYC with a gateway (or soon to be released identity features) they won’t need to KYC themselves anymore (reducing complexity and costs for consumers and money transmitters). 5) For money transmitters, this allows them to legally bypass unreliable or slow banking infrastructure in many markets. Money also does not need to leave the country of origin, making compliance with capital controls easier. Hope this helps!

          • Thank you. This is probably a rationale for why Western Union is “considering” a pilot with Ripple. The big question is around IT: whether a multi-year effort and $$$ it would cost to move from an existing infrastructure onto Ripple would be justified by potential long-term cost savings and/or business growth.

          • OneMillionGateways

            I would estimate that an organization their size would require maybe a dozen servers for redundancy. The key for them to maximize the benefit would be getting their banking partners to use it which they may or may not be able to do easily.

  • Alex B.

    Great exercise in pragmatism and a necessary reality check for the “reddit crowd”.

    It needs to be said though that competent and resourceful Bitcoin users have options available to them that are without doubt superior to traditional services and infrastructure. I can say that with confidence being one of Rebit.ph user ( and possibly “power user”). Looking at the options available from your app no companies rivals Rebit same day 0% send-to-bank-account rate

    On the other hand I agree with the sentiment of this article and the need to call-out the numerous hyperboles and “world-changing” claims of certain industry entrepreneurs. It is indeed likely Bitcoin will remain a niche method for international remittances for years to come. I have always maintained that Bitcoin’s true promises for frictionless international money transfer can only be realized once there is incentive to hold bitcoins and use them to purchase goods and services. To build Bitcoin services in this fiat environment is fitting a square peg through a round hole.

    • Alex, thanks for commenting. Agreed on your long-term vision, we hear similar sentiments from those who are in trenches of Bitcoin remittances (see comments here: https://www.linkedin.com/pulse/bitcoin-blockchain-true-economic-freedom-miguel-cuneta)

      About you personal experience with Rebit.ph… do you mind clarifying if you are OFWs or using Rebit for business payments?

      • Alex B.

        I run small vacation resort in the Philippines. I’ve used Rebit.ph for business payments and transfer of funds to friends and workers. Works flawlessly.

        The key, of course, is to have an established account at any reliable Bitcoin exchange w/ preferably minimal account funding fees. This way you limit your exposure to Bitcoin’s fluctuations which is obviously a no-no for the average consumers. BitReserve is an interesting service that will shield you from such exposure provided you trust them with your money.

        Speaking of them, they have an interesting experiment going on with Banco Azteca in Mexico for the USA-Mexico corridor. You should look it up if you havent’t!

        • Thanks for responding. Small business customers like you might be indeed a better early target for Bitcoin remittances rather than migrants. You went through the trouble of initial learning-setup which most of migrants would simply not consider for relatively small savings (see attached table).

          Do you know any OFWs by any chance? Curious how they would react if you share with them your experience, e.g., what it would take for them to try it? When we ask this question, the response so far have been categorically negative.

          • angelo

            I am an OFW working in Bahrain… I send about 1000 US dollars monthly first into pesos then to bitcoins..because there is no bitcoin exchange here in bahrain. Volatility in not an issue because i actually send directly to my peso wallet which is actually bitcoins stored in peso. And from this peso wallet (which is actually bitcoins in pesos) I can send it to my other bank accounts pay my bills with discounts and buy cellphone loads with discounts also. I use the popular bitcoin exchange in the Philippines. Sending money to the philippines using fiat is already cheap here in bahrain because of competition and economy of scale. But my initial calculations/estimates point to some more savings if i use bitcoins.

            Obvious advantages of bitcoins: flexibility, I can send small amounts to my relatives using the bitcoin exchange

            I believe bitcoin has a bright future in remittance. It should also be useful to travellers to have some bitcoins.. I can always print some paper wallet and spend it. Even even if I lose all my physical wallet, ATM cards, credit cards, I can still use my bitcoins through a paper wallet as long as there is internet available and printer…that’s wonderful!

          • Hi Angelo, thanks for sharing your experience – very helpful and great that you are enjoying the use of Bitcoin! If you don’t mind, please share what made you convinced to try Bitcoin for the first time and how popular Bitcoin among other OFWs in Bahrain?

          • tobeybutterfly

            Here you can find a similar resource of all Bitcoin exchange with fees and rates:
            https://currencyguru.info/exchange/comparison
            seem interesting…

  • OneMillionGateways

    Bitcoin can’t but Ripple could.

  • ROHara

    Factually incorrect about Western Union….. worked example. 200GBP sent to Thailand via cash agent … Fee=£14.90 Using Western Union online … Fee=£16.90

    So for Western Union …. their online process is more expensive than their cash agent – which is crazy.

    2nd point… just like the Philippines company mentioned by others… there is a Thai company (coins.co.th) that does payouts via 7-Eleven.. There are a lot more 7-Elevens than WU offices in Thailand. It also does cashout at one of the major bank ATM’s without a debit card.

    Even with the double currency conversion, avoiding Western Union for the UK to Thai remittance is about 10% better for the receiver.. I proved that with a worked example that you can read about on reddit.

    You can read it at this link.
    http://www.reddit.com/r/Bitcoin/comments/2x7p6w/remittances_a_worked_example/

    • Thanks for commenting. Please point to a specific sentence in a blog which you think is “factually incorrect”.
      We don’t know much about corridors outside of USA. Lower margin for sending cash vs. online would seem very strange. In corridors we are tracking, using a cash agent costs 3-5-8x more (check with our app).
      Double conversion is less about today’s state of prices and more about underlying long-term disadvantage of using Bitcoin. I.e., Western Union has slightly more room to lower margins and still be profitable than a Bitcoin provider. In general, agreed that Bitcoin-based remittance providers might be better off focusing on maybe smaller volume but higher cost corridors… hoping that Western Union & Co don’t notice a loss in market share for awhile. Will update the post with this insight. Thanks

  • VanniP

    Well-written and thought-provoking article. The fact that remittance costs can be lowered via digital channels is a no-brainer (the Xoom model), the addition of innovative value transfer protocols like Ripple or Bitcoin is the new news that can lower costs even more vis-a-vis SWIFT. For me the exam question is how to get remittance users to use a next-gen digital service (assuming they have access to the appropriate tech), and that is mostly a question of marketing and distribution I’d think (not an expert, but I think most of WU’s costs go to regulatory compliance and physical network). I find it fascinating that consumers are willing to waste time and money on “traditional” methods even if they have the technology that would enable better, faster methods. A few hypotheses: (1) the real problem is getting cash in/ out of digital remittance “wallets” – relatively easy if you have a bank account or card, close to impossible otherwise; need to really consider partnerships with prepaid card/ ATM providers and retail store chains to facilitate access (2) the user experience for these methods is still quite under-whelming for the most part – the majority of users are high-income and tech-savvy, not exactly your typical target remittance customer (3) general lack of awareness and understanding – a real investment in consumer education needs to be put in place, going far beyond billboards in the NYC subway a la TransferWise. I’d imagine cracking these is key to getting significant traction.

  • IndianUncleSam

    This is an unbelievably through and well written article. I frequently send large sums to India and have been reading up on Bit Coin. This article does a great job of summing up all the considerations and is very informative. And I found this great website that i never knew about. I just used Xoom like everyone else. Bookmarking SaveOnSend and sharing it with friends. Keep up the good work guys !!

    • Dear IndianUncleSam, thank you so much for your kind words – SaveOnSend is a completely free/nonprofit service, so appreciation from our readers is what we are striving for. If you haven’t got to them yet, we have specific articles on sending money to India and about Xoom. Please feel free to subscribe to the future articles and to follow us on Twitter. Happy sending!

  • Milly Bitcoin

    Glad to see some rational analysis of Bitcoin. That is something you rarely see in the world of Bitcoin. Many of the people who latched onto Bitcoin early did so because they were promoting a political agenda that is otherwise a non-starter. Your post starts off by quoting Roger Ver. He is a great example of what I am talking about:

    -He claims Bitcoin will end wars as part of the “Bitcoin Not Bombs” movement. While it has never been fully explained, somehow if the whole world switched to Bitcoin as the one and only currency then governments could not borrow to fund war. Even if that were somehow true governments would also not be able to borrow to do other things either. There is a variation to this that all government expenditures could be tracked on the blockchain. Of course the same people promote systems where transactions cannot be traced so it is unclear why governments could only use the traceable type.

    -He went to jail for selling illegal fireworks. He claims he got the harsh treatment because he publically accuses the federal agents at Waco, TX of being murderers.

    -He gave up his US citizenship. Then he complains that he can’t get back in and complains because a clerk at passport window did not adjudicate his complex legal issues.

    -He sued Bitcoin companies for breach of contract yet his lawsuit says he does not actually have a copy of the contract that he claims was breached.

    -He runs the Bitcoin Bounty Hunter web site. Speaks for itself.

    -Made videos about Mt. Gox saying they looked solvent. Speaks for itself.

    -He says the federal agents who busted Silk Road are “the violent ones.” He makes no mention of the murder-for-hire plots of the guy who was busted. He donated to the legal defense and he used the guy’s mother to make videos that promote his political agenda.

    -Intimidated Ripple into selling him currency without following the money laundering regulations. I believed they were fined $750K.

    Some people go around calling this guy ‘Bitcoin Jesus’ and they think he is a driving force behind Bitcoin adoption. I personally think he is mentally unstable and he only attracts irrational and ignorant people.

    • Hi Milly, glad that you liked this article. In our personal experience with Bitcoin’s players, we come across many good people and some are super-capable (much more than us). Many totally bought into the idea of Bitcoin as the “world-changer” and are blocking other viewpoints. Some are quite aware of pros/cons from our article, but are courageously proceeding in order to build something entirely new (e.g., check out this startup – https://www.youtube.com/watch?v=370loNRVSvk). Compare these efforts with the mindset of typical remittance startups that we are describing here: https://www.saveonsend.com/blog/money-transfer-hacks/?

  • Belfrics India

    Nice informative post about bitcoin. I would like to share one of the finest Bitcoin market place in India named Belfrics , this is the best bitcoin trading in India.

  • Patrick Dugan

    Abra’s stance may be problematic depending on how decentralized their operative algorithm is. It sounds like Abra is underwriting their balances centrally and likewise their counterparty risk with the hedging market maker is a central counterparty. I am working on 100% software based components that would definitively mitigate any shadow of interpretation that there is an operating and regulatable entity involved in the interactions, other than the counterparties in a spot trade (the “human” teller equivalent).

    I am glad Abra is burning these VC funds doing it 80% decentralized so we have some precedent. Their UX is pretty slick. Let’s see how it translates to conversation rates. What’s App for money will be a thing, eventually, right? Is there anything fundamental to money, such as cultures of secrecy, that might inhibit similar viral growth? Perhaps.

    I am working with people in West Africa so it’s an interesting test bed and small traction is still very transformative.

  • gubatron

    Sending money should not be so hard. It’s just sending money.
    99.9% of people that want to send money are not laundering money or doing illegal shit. Therefore, sending money should be just like sending an email, and yes, screw all that regulatory bullshit, let us send money, it’s just money and this is 2015, and the world will need money to be as fast as everything else.

    Also, if you want to launder money, Bitcoin isn’t a great option, all records are public and easily traceable, if you want to launder money, use US dollars.

  • to sum up blockchain money transfers will help in cost and time and bitcoin is one of the blockchain derivatives that we can use in this purpose

  • As a confirmed Bitcoin ‘fanboy’ and one who sees Bitcoin as a superior service to all non-Bitcoin remittance services, I am happy to admit that SaveOnSend isn’t a traditional, rent-seeking, immorally repugnant entity like WU is, who still to this day charges upwards of 24% of a transfer fee in some markets, such as between 2 different African nations. You guys even have rates far below the global average of 10% as stated by the World bank. So good on you guys for not being evil. I’m a capitalist so I have no problem with what you guys appear to be doing at all, nor should any other bitcoin fanboys.

    Further, I’ll happily state for the record that because bitcoins aren’t accepted by local merchants (usually) at the receiving end of transfers, for now there is no argument that a fiat-to-fiat solution is what remittance customers (or more to the point, recipients) need. Bitcoin isn’t a “solution” for most people yet.

    …But look at the growth trend. Remittance may not be driving it, but bitcoin’s acceptance rate at merchants around the world, and more importantly, it’s acceptance in peoples’ minds, is not in doubt… There is nothing but time between today and the day that everyone, everywhere, has their own bitcoin wallet and a balance in it. This is unavoidable.

    And the Bitcoin transaction network, although not yet ready for such high volumes, was designed perfectly for that use with no other services required. It was simply designed for a world that doesn’t exist yet, but can’t fail to come about in time.

    When that day comes, the words “fiat to fiat” will sound like a curse. On that day, people will actually think “Wow, why would you want to do that?” if you suggest sending them money in any other form than bitcoins… And the days isn’t a generation away, either. The numbers show daily adoption uptake, and the use-cases are bombarding the public from every angle at the same time!

    In short, you aren’t fighting a ‘proto-superior’ remittance challenger. That’s not what’s going on here and your whole article seems to assume that is all that you’re up against.

    What you are fighting in Bitcoin is a solution to a Thousand different problems and industries. In some like remittances, it’s not superior yet. In others like Notaries, it is in fact, quite superior and better services exist using bitcoin than the public can even conceive yet.

    All it will take is more general understanding of how the bitcoin blockchain is the most secure and accessible of all possible places to store all documents and records of any kind, and people will start looking for everything to be ‘backed up’ on the blockchain. It’s only a matter of time, perhaps less than 5 years until this is the mainstream sentiment.

    So again, congrats on your awesome remittance service. -But don’t plan on remittance services of any form to exist in 5-10 years… Bitcoin wallets will be in everyones’ hands by then and you’ll all WANT to keep bitcoin balances for spending on everyday things.

    • thirdalbum

      Or in short, when Bitcoin is so ubiquitous that we can spend nearly anywhere in Bitcoin and many people earn in Bitcoin (particularly if they travel a lot) then the cost and difficulty of remitting money with Bitcoin will approach zero.

    • Hi Luke, thank you for commenting. The challenge with your rationale is that you are describing a vision, but without specifying a practical path to get there. With the latter, it is virtually impossible to have a fact-based debate on the former. See the section “Making Bitcoin money…” in our article for our attempt at connecting two.

      Btw, we are not a remittance provider but a non-profit information portal. We don’t send money, don’t make money, we are just sharing what we know and are hoping to create a fact-based discussion on this fascinating topic.

      • Neil DeJong

        Facts are that blockchain based technology is a decentralized automated trustless ledger. This decreases the risk in trust for distribution, monitoring, and regulation that no other system can do without inheriting costs to manage that risk.

        The cost to manage that risk of transmitting money is one of the larger cost to the banking industry. This is why banks are investing into blockchain technologies like it is 1995 dotcom boom. This is why most of the world using bank will knowingly or unknowingly interface with blockchain based tech.

        Even after banks develop full blockchain ledgers, if they do not embrace a true open source decentralized based ledger such as btc. The cost of entry into developing and deploying open source standards that do is very low. So overpricing or cornering sectors of the market will not provide value to banks. What will is creating great banking systems that are valued on their ease of use, protection of customers, and access to new innovations that benefits the customer.

        In that sense, BTC markets and wealth will transfer into whatever markets provide benefit, insurances to be diversified and store wealth in virtual currencies and maintain liquidity into new ledgers or the best ones will come in the forum of exchange disrupters like bitshares.

        We might call this BTC in the future or it might be called lots of things; just as the internet is tcp, arp, ip, email, Netscape, Facebook, connectivity, and much more.

        Thank you for writing the article as the market research in how BTC interacts with certain market segments. However, what is not measured is the rate of change in these segments and the trend. Ever new technology is more expensive then it is worth at the time of making until it has been refined.

        I think we need to define exactly all the current market sectors and find the magnitude of effect of them on btc. Then measure the rate of their change and impact and finally add in any possible near future events that might delay or advance development to gauge what the market value of this sector really is in the next 3-5 years. Past that I believe it is too hard to predict.

        • Neil, thanks for responding. We can’t have a discussion unless there are facts to consider. Can you provide specific dollar figures for your following statements:

          “The cost to manage that risk of transmitting money is one of the larger cost to the banking industry.”

          “This is why banks are investing into blockchain technologies like it is 1995 dotcom boom”?

          If you want to find specific figures on rates of change, read this section in our article: “Specific examples of Bitcoin money transfer providers.” In short, for C2C x-border remittances, number of repeat customers in those startups are measured in hundreds in each corridor, and monthly transfer volume is in hundreds of thousands $USD. Come back in 6 months to find if this has changed a lot.

  • Sinclair Skinner

    BitMari.com is focusing on remittances to Zimbabwe which is plagued by high fees. We are working with the Zimbabwe authorities and major national bank with several branches and thousands of existing costumers. http://youtu.be/3es-ndzZbjM

    • Hi Sinclair, thank you for checking in. Could you provide a bit more information about BitMari: when was it launched, what is its current monthly transfer volume, which corridors does it cover, how many repeat customers does it have and what is their demographics?
      Good luck!

  • Zverev Aleskeevich

    Good article, and mostly correct. However, you’ve missed some large costs involved with sending money internationally either inside the banking system, or with a transfer agent such as Western Union. I regularly send large amounts of money from the US where I work, back to my family in Canada. When I send an international wire, it costs US$50 for me to send it, and CAD$15 for my wife’s bank to receive it. The problem is that somewhere along the line, either at the branch in the US or the branch in Canada, we need to transfer US$ into CAD$. That transaction is always at a rate that is 5% off of the official currency exchange rate – making the transaction very expensive if sending thousands of dollars.

    The same is true for sending with Western Union – who (if I want overnight) charge $200US to send the maximum $2000. And I still need to exchange currency which costs me the 5% skim off the exchange rate. Also, when sending money out of the US using WU anything above $500(I think that amount), and you have to interview with a security agent from WU who wants to know absolutely EVERYTHING about you and the person who you are sending to – including when, how, and how often you communicate, relationship, purpose of the money, etc. Creepy as hell – and in my mind a substantial cost.

    What do I use now? Well, I receive a portion of my pay in the US through BitWage. The money is deposited into my wallet and currently there is no fee, and the USD/BTC exchange rate is usually within 0.5%. I then pay my Canadian bills through a Canadian company called Bylls.com. They charge between 1% and 3% and limit the bills to $10,000CDN per month.

    I send the remainder of my BTC to a Canadian Bitcoin exchange where I buy Canadian dollars for a fee of 0.5%. The USD-BTC-CDN dollar transactions have never cost me more than 2% (remember the banks who were skimming 5%) and on many occasions, I have made a profit, as much as 7% better than the published USD/CAD exchange rate.

    Last step – I initiate an Interac (Canadian interbank system) transfer from my Canadian BTC exchange to my wife’s Canadian bank account. This transaction costs $1.50 and takes about an hour. My BTC exchange places an arbitrary limit of $1000/day however, and they usually take one business day before they actually send it. This is my biggest delay – and it also results in my wife waiting for money, so it is not yet ideal.

    Overall, this method saved me thousands of dollars last year that would have instead gone to the banking system.

    • Hi Zverev, thanks for responding. We rarely see margins that you are quoting for Western Union – right now, they are charging ~3% FX markup. TransferWise is charging 1% fee for USD-to-CAD and no FX markup, also look up Ria Money Transfer and Transfast. Very glad that you found a Bitcoin solution that is working for you – just keep in mind that for customers who are price-sensitive and are willing to spend time on shopping around there are other options besides Western Union for USD-to-CAD. You should only use a bank for international transfers when sending very large amounts USD-to-USD or when they give you a custom quote.

      For cost structure of money transfer providers, please see our other article: https://www.saveonsend.com/blog/money-transfer-services/

      • Zverev Aleskeevich

        Thank you for the info, I will not use any service that delves into my privacy the way WU security department does – and since they are all regulated the same way, I think that would exclude all of them.

        Here is a screenshot of WU rates as of 10/5/2015. The posted exchange rate for USD to CAD is $1.31. WU is paying $1.2396. This is a 5.68% FX mark up.

        • Thank you, Zverev – you are right, this is incredible expensive for such popular corridor as USA-to-Canada. Great that you found both less expensive and less intrusive option with Bitcoin. We also heard about an opportunity to sometimes even make money. If it is not too much trouble, when it happens next time would you mind sharing with us all records so we could publish such interesting case?

    • Laszlo

      Zverev,

      For your particular case, and If you are allowed to open a bank account in Canada, let me provide you a small secret. Try opening a Canadian bank account with RBC (Royal Bank of Canada). Once it is opened, ask your Canadian RBC branch to open an American counterpart account in the USA with RBC Bank (a US bank). You will then be able to transfer money from the USA to Canada for free, and vice-versa… Yes for free! You can transfer money from USD in the US to USD accounts in Canada, or USD in the US to CDN accounts in Canada. I have both USD and CND accounts in Canada. You pay only the FX rate – which is usually the bank rate anyways…

    • B Heistein

      Thank you so much for your reply Zverev! This was great news for me as my mind has been wrecked for months now. 🙂
      The reason being is that I am South African and living in Ireland. My father left me some cash in his will and things are the worst they have ever been in South Africa at the moment which means that I would receive about a 1/3rd of what I would have about two years ago if I transfer the money over now in Euros. And unfortunately things are just getting worse back home so it looks like the best thing is to just bite the bullet and get my money over a.s.a.p which pains me greatly also because that is my poor father’s hard earned money his whole life that he was saving as he was not a big spender at all. It actually came as a shock to me that he had something in his will as he only ever had the bare necessities. Anyway, I obviously want to get the most out of it and now since reading your post I think my answer is to set up a Bitcoin account. Thank you again and take care!

  • Charlie Gillig

    Fantastic article. Well-researched and right on the money.

  • David Dinkins

    This is an excellent, well-reasoned, and insightful piece. It would be better, however, without the obvious bias you have against the bitcoin community. Terms like “hypocrisy” don’t add much to the discourse, and make it seem like you have a bone to pick rather than an objective, rational argument.

    I do particularly like how you pointed out that the actual cost of money transfer using “traditional” methods is in fact quite low, and that much of the cost of using these services is in ordinary overhead, such as commissions, that would be present in any formal business that was based on bitcoin transfer.

    I think the ultimate goal for bitcoin and other digital currencies is to make things so simple to use that people can send value from one person to another directly, without ever interacting with a middleman. Circle is one company that is working hard on that; it is now possible to send money with low or no fees directly to other people using Circle Pay. They use the Bitcoin network to send the transaction, but Bitcoin is never actually mentioned in the marketing. It’s merely a back-office function.

    Theoretically, if the Bitcoin software was more user-friendly and currency conversion was easier or a non-issue (due to a universal, stable bitcoin value), then Bitcoin could be used to transfer value from one wallet directly to another without relying on third-party companies.

    In short, your arguments are valid if you are comparing for-profit “traditional” remittance companies with for-profit Bitcoin-based remittance companies. I think the ultimate goal of the Bitcoin community, however, is to cut all companies out of the equation and send money directly peer-to-peer for virtually free. The rub, of course, is that a rural Bolivian farmer can’t do a damn thing with a bitcoin. IMO, that’s the problem to solve.

    • Hello David, thank you for writing. If you read our other articles, you will notice a broader theme in our “bias” – it is not specific to Bitcoin, startups, or incumbents – we are anti-misleading:
      https://www.saveonsend.com/blog/money-transfer-hacks/
      https://www.saveonsend.com/blog/money-transfer-startups/

      If you find any inaccuracies or omissions in our articles, please let us know. On your point about Bitcoin’s future, we are also looking forward to so-called “full Bitcoin” becoming a reality at least in a particular, albeit small, country. Unfortunately, the impediment is not just related to acceptance for a Bolivian farmer but also to blockchain’s anonymity. KYC/AML regulations necessitate ability for governments to track every transaction which, by design, requires an established intermediary.

  • Thorough and nicely written although somewhat biased. Nothing to dispute here. Bitcoin’s true value proposition will be realized once the ecosystem matures. Frictionless when used the way it was intended. Take out the centralized services and VC’s have to look elsewhere for the next big one.

  • hughht5

    not charging any fee, in essence, creating variable-only pricing based only on the FX markup

    FX markup IS A FEE. I wish people would stop seperating flat fee and the hidden FX fee.

    • Agreed, that is how players like TransferWise and TransferGo are trying to differentiate themselves by charging only the fee and no FX markup. Let’s see if other providers will eventually follow in the same direction

  • Micah Theard

    It seems to me the bottom line when it comes to remittance could be compared to when the car first appeared on the scene. Before the car we had horses and all roads where built for horses. Cars had to navigate those roads and at the time there was a discussion as to if the car was going to make it due to all the issues it faced dealing with the infrastructure of horse trails. Until they started paving the streets and cars then became the obvious choice. We are in the middle of the same infrastructure emergence. It is not isolated in remittance it has to do with crypto currency across the board being a much better solution than Fiat is and has been. The most valuable feature is not being subjected to government wildly printing the money and lowering its value spending it on worthless wars and corruption. People want this new money to happen so they will keep supporting it even if it is harder to work with in most cases and even if it cost more many times. We are tired of not being in control of our money. So remittance will keep growing but will be best when you do not have to buy Fiat in the end.

    • Micah, thank you for commenting. Conceptually – we agree with you that Bitcoin is a fascinating invention and we will be happy to publicize any traction by Abra, Rebit, BitX and others. However, hope you also realize that absolute majority of consumers whether online or in offline migrant/expat communities do not seem to care about “being subjected to government….”. Moreover, the difference between the best Bitcoin bitcoin remittance provider vs. best known regular digital providers (Western Union, TransferWise, Transfast, Remitly…) doesn’t seem to be that significant. As you saw in this article, consumers in large corridors can already send money relatively conveniently, cheaply, and quickly. So it might be less about horses vs. cars and more like gas vs. electric cars. What do you think?

  • Oliver

    We at Remitsy (https://www.remitsy.com/) make business payments to China with Bitcoin. Working fine so far 🙂 Thanks for this article!

    • Hey Oliver, please educate our readers with facts and lessons, so we could learn. What is your transaction volume? Who is your largest segment? How are you different from others like Align Commerce?

  • John Smith Jr

    I have been reading lots of posts, quality here is great but feel you dropped the ball and use qualitative statements and innuendo more than fact here to discount the applicability of bitcoin.

    Given more market liquidity bitcoin would represent a vastly superior technological advancement with significant benefits over traditional cash-2-cash models. The very real problem is that a lack of market liquidity, traditional market controls, and excessive bureaucratic regulation are impeding adoption. Were very early in the lifecycle.

    Also a point I found disturbing is the characterization that a desire for anonymity is in some way suspect. Anonymity is not a crime and should not be characterized in a pejorative manner.. The fact is all over-the -counter cash transactions are today anonymous and certainly not everyone is a criminal or tax evaders . Just like all gun owners are not serial killers. This associative tactic to try and make a point is as bad as the apples vs. oranges comparative tactics you denounce with the manipulative marketing (lies) used by some new market entrants.

    Hyperbole is a 2 ways street and all incumbents with a vested interest in any ecosystem cannot be trusted to have a neutral opinion. Saveonsend included. My advice is do not undermine your brand of trust by engaging in tactics you find deplorable in others.

    • John, thank you for reading and commenting. Anonymity is not a negative or positive generically – it is just not an option when it comes to sending money. A more cost-effective option than cash-2-cash is full online since it avoids a cash agent fee and some other costs. Many providers already offer such method – that is why you see that a full margin from USA to India could be so low (0.5-1.0% is in a break even range). Whether Bitcoin/blockchain is a superior rail is yet to be seen – Western Union has been experimenting with this idea, and so are couple other major providers. It has been a year since Abra had a major round, so we will know soon enough.

  • Ihor Mocherniak

    Keep in mind that for a minimum of the primary 2 years, bitcoin was fully unknown outside of terribly choose circles.
    Second, bitcoin is handling the subject of cash – arguably the foremost necessary social construct in human history. With Facebook/Twitter/etc, what do you risk by exploring the service? much nothing except a trivial quantity of their time. If they do not am fond of it, or the service goes away, they don’t seem to be very penalized in any tangible method.
    Bitcoin has real risk related to it, thus it stands to reason that individuals would be weary. because the technology solidifies, it’s possible this tiredness can decrease and other people can feel a lot of and more leisurely obtaining concerned.
    It additionally got to be completed that seeing as bitcoin is AN internet-based technology, most concerned square measure in technologically literate locations. Governement currencies and ancient payment networks in developed square measureas are usually pretty sensible, therefore the would like for lots of what bitcoin brings forward is not very apparent initially look. i am fairly sure that the those who may benefit the foremost from bitcoin (much of the developing world) are not even responsive to its existence.

  • John Adams

    Please suggest me how can I convert Canadian Dollar into dollar.

    • HI John, thanks for asking. Have you found anything cheaper than TransferWise? For sending $300+ CAD, they charge 1% fee and no FX markup, and 1st transaction is free if you get invited by an existing customer (a-la Uber)

  • Definitely great post and also the comments below. Few years from now there will be more other company that will support the bitcoin like trading and other services. Company should also find a solution on the current trend or their competitors will outrank in terms of innovative.

    https://www.coinloft.com.au/

  • That Western Union vs bitcoin is really wonderful. Bitcoin has a point. When bitcoin protocols can deliver big ammount for adequate period of time most banks can withdraw their licenses

  • Burnage Boy

    Genuine question: doesn’t converting a major currency (e.g. USD) into a cryptocurrency (e.g. BTC) and then back into a restricted currency (e.g. INR) make sense – at least theoretically?

    You’re right to point out the cost of double conversion (USD -> BTC, BTC -> INR) and the knotty User Experience; however, wouldn’t doing it this way get money into India pretty much instantaneously, rather than having to wait 3-5 business days?

    The problem it solves is speed. Consumers using MTOs might not be too bothered by that, but businesses certainly are.

    • Hello Burnage, thanks for reading and asking a question. We cover this in the article – almost every established provider could already send money in near real-time. Most could do it when you pay with a debit card, some, like Xoom, could do it even from a linked bank account (they absorb the fraud risk)… but they charge more for such service. So if a Bitcoin provider could do this in near real-time and nearly for free, then theoretically it could be a winning formula (practical question is how to make money with such model) for now – keep in mind our discussion in the article about the reason for a current delay among established providers: outdated payments infrastructure. However, it is being modernized across the globe and in couple years providers in US could do what could be done in UK and few other countries already: send money in near real-time from a linked bank account

      • Burnage Boy

        You’re saying that nearly every established provider can get INR to a beneficiary account in near real-time? But your own data doesn’t even back that up. Xoom is the quickest in your table at 4 hours, followed by Moneygram (3-24 hours). Worldremit say 24 hours and Fintech darling, Transferwise, 96 hours.

        As you know, MTOs do this by using pre-funded nostro accounts, or by establishing large credit lines with local onshore banks in India. That exposes the MTOs to significant amounts of intra and inter-day currency risk. For consumer payments of small value that works fine, but not for larger commercial payments – hence my question. (I know you guys concentrate on the consumer space, but I thought I’d ask the question anyway)

        [By the way, I’m sceptical of the speed of payment claims made in your table. I know for a fact that not all of the MTOs in your table can do it in “almost real time”. INR is an onshore currency, so you have to get the USD to your bank in India. From there you have to convert the USD to INR. And then you have to send the INR on its final leg to the beneficiary account, via the local ACH network. Xoom might be big enough to pre-fund their nostro accounts in India with USD – and hence instruct payments to beneficiaries before “sold USD” funds hit their account in India – but several of the others aren’t. That’s why even Transferwise take 4 days.]

        My point was that using cryptocurrencies as a liquidity mechanism to solve for speed is both theoretically and practically viable – at least for larger business payments.

        I agree with your general thesis about BTC for cross-border consumer remittances; however, I’m not so sure it necessarily holds for larger business payments – hence the rise of companies like Veem (backed by Google Ventures) or Wyre.

        • Hello Burnage, sending method is the key here. Xoom could do it from a linked bank account, other providers – via a debit card which is a real-time rail. Either way, it is more expensive that the cheapest alternatives with 0.5-1% total margin range.
          B2B for the SME segment is a less evolved market for many reasons including a need for an integrated solution rather than a simple money transfer. Without commenting on specific companies, none of the so-called blockchain providers use a blockchain rail for all money transfers, some don’t even use it for majority of transfers. At the same time, first UK, Australia and now US, Canada and many other countries are modernizing their payments infrastructure, and SWIFT recently successfully completed B2B pilots. So it is unclear whether any current blockchain advantage might remain in few years.

  • Bitcoin is far more easier when it comes to international transactions, however even few hours you need to wait for all nodes to come together can be a pain too. Especially when you`re using digital currency and hope for instant one

  • Aditi Singh

    This is not really far from happening. Bitcoin can be the next currency. -btcmoneysystem

  • conan007

    Western Union is not competitive in terms of rate or even speed (see https://www.finder.com/western-union-vs-transferwise ). Their only advantages are their physical stores but any educated person could make better choices.

    The beauty is bitcoin is it can make cross-border transfer where it is impossible. Take China for example, it has strict control on their citizens’ foreign currency purchase. How could anyone overcome this without the tools like Bitcon? In the past, people could get around of this by purchasing cash in black market but then how did you take large amount of cash abroad?
    I have heard stories that China’s custom tighten the scrutiny so anyone taking cash over the limit were asked to deposit back in a domestic bank before going abroad. Now wonder one of the largest demand for Bitcoin is China (http://boingboing.net/2016/12/26/real-time-map-shows-which-coun.html )

    • Hello Conan, thank you for your comments. We also used to have a somewhat simplistic view of money transfers. But after couple years of field research we understand some nuances and wrote this article. While overall Western Union is charging 15-20% “brand premium”, there are corridors where it could be very competitive (read more here: https://www.saveonsend.com/blog/western-union-money-transfer/). Alternative, sending cash via Western Union is expensive but fast. People like using Western Union even when they know of cheaper options. Education plays a smaller role than a culture in this case. On your China example, when a wealthy person uses Bitcoin to avoid capital controls, it damages both the Bitcoin reputation and enables an easier corruption and money laundering… no simple answers here.

  • vinod gupta

    Nice and informative article.It is almost become reality transferring money internationally using bitcoin. I have query suppose sending large sum of money to India by bitcoin transfer wallet to wallet and sale them in India for convert to INR. But this money government can consider as income and put income tax on it. If anyone experience about India local tax laws on this issue,please advise . Is there another way to transfer money by bitcoin also?

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