Though leading cryptocurrency bitcoin is facing crackdowns by various governments across the globe, it's experiencing a surge in the overseas remittance market.
Instead of being used as a currency, bitcoin is increasingly being used as a medium for global money transfers. It allows the user to do away with the high costs charged by traditional banks and money transfer services.
Many people around the world regularly send money to their families and loved ones living far away in their respective native countries. The latest report by the World Bank projects that global remittances topped $596 billion in 2017, of which $450 billion was sent to developing nations.
India is expected to retain the top spot among remittance recipients, with a projected figure of $65 billion, while China ($63 billion), the Philippines ($33 billion), Mexico ($31 billion), and Nigeria ($22 billion) hold the next spots on the list. (For more, see Three Things to Know About the Remittance Economy.)
The traditional model of remittance works as follows.
An individual working in the U.S. may remit a dollar amount to his/home home country in Asia or Africa, for example. He/she walks into a shop called a Money Transfer Operator (MTO), hands over cash at the available exchange rate, and then the MTO starts the process to send the money to the destination country. The MTO charges for its services.
In reality, the MTO is only acting as a frontend agent. The operator has to use the service, software, and system that are actually provided by a bigger remittance software provider (RSP), like Western Union (WU) or Moneygram. Due to a lack of financial capacity and availability of software systems, the MTO may only receive a fraction of the charges it takes from the customer, as the bulk is pocketed by the RSP. Additionally, MTO may also need to pay other regular charges for installation, subscription, and system maintenance.
For the end user, this increases the overall cost for the transfer, as the MTO and the RSP try to pocket the maximum fees. Additionally, there is a lack of transparency in the exchange rates offered to the end customer, who takes another beating in the form of unfavorable rates.
How Does Bitcoin-Based Remittance Work?
Bitspark, a bitcoin remittance company based in Hong Kong, is offering services to send money to countries like the Philippines, Indonesia and Vietnam. It offers a cloud-hosted solution for MTOs in developing nations that works seamlessly with little to no banking infrastructure.
Through a simple internet connection and free software/app running on a suitable device, MTOs are able to send and receive a customer’s money without any additional overhead fees for installation, maintenance, and subscription charges. All the details of the transactions, including the customer’s KYC (Know Your Customer) and other anti-money laundering necessities, are stored in a secure and low-cost database, which may also be a blockchain.
The businesses simply make an estimate of the amount of money needed for a day or for a particular remittance, purchase equivalent bitcoins in advance, and immediately sell them for the fiat currency in the receiving nation. The business is almost free of any risk as it does not hold the virtual currency tokens for a long period of time, and customers' transactions are performed within minutes.
Big Savings on Transfer Costs
The benefits are overall lower costs to the end customer, quicker global money transfers within minutes, no additional costs to the MTOs, a higher share of commission for their agency role, and safe and secure regulatory-compliant business mechanism.
The Bitspark user is not required to have any knowledge about the underlying blockchain technology, as the easy-to-use interface offers simple steps to processing the money transfer within a few seconds.
Bitspark also launched its Sendy mobile app, which works as a mobile wallet as well as a MTO locater. After completing suitable verification, any Sendy user can start working as a top-up agent and can earn commissions for any top-ups he/she facilitates for the other users.
Startups offering a platform for bitcoin-based remittance services are mushrooming. Another similar service, Rebit, offers money payments to the Philippines mainly from Canada, Japan and South Korea, and is planning to expand to the Middle East. Bloom, Payphil, and coins.ph are other players operating in the Asian region using a similar model.
The Bottom Line
Essentially, such businesses do not directly deal with the remitting customers. Instead, they provide an alternative backend system that works on bitcoin transactions. Traditional remittance providers are trying to fend away emerging competition.
The Economic Times reports that “the giants Western Union and Moneygram, which dominate the current market, are testing Ripple's XRP, a cryptocurrency smaller and more centralised than bitcoin.” (See also, How Tech Companies are Disrupting the Untapped Remittance Market.)
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