This two part article profiles some leading or well known providers in these two payment categories – Payment Service Processors (retail purchases and recurring payments) and Remittances. In this concluding section, we cover the remittances landscape and profile three remittance start-ups that use bitcoin and the blockchain as a payment rail.
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| Bitcoin remittance platforms use the blockchain as payment rail with over the top applications for payments, exchange and delivery. |
The Global Remittances Landscape
Bitcoin remittance companies provide money transfer services to remote recipients. Remittance is a major opportunity area of disruption in the global remittance $600 billion remittance market. The existing remittance industry is dominated by two or three large players who set fees between 10-25% of the remittance value, a topic of much debate for a long time.
Remittances are an indicator of global migration patterns and tracked closely with global bodies such as the UN, World Bank and IMF. The World Bank tracks global remittance payments actively as they constitute a major source of income for some of the economically weakest sections especially in developing countries. Fees which can eat up a sizeable chunk of small payments are a major concern.
As per the World Bank Factbook, average worldwide cost for remittances is 8%. High fees are probably one of the reasons, that illicit and informal channels are believed to constitute an even large size of the remittance market. The World Bank's estimates that a saving of 5% points in fees can result in $16 billion savings for remitters. (Source: Migration And Remittances Factbook 2016 by World Bank Group, also available online.)
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A composite view from World Bank's online remittance prices database showing average transaction costs for money transfer between US and Philippines. The averages vary depending on source and destination. In this example a $200 USD transfer takes an average of 4-5 days. |
Technology is seen as the solution to address delays and high fees involved in cross-border, cross currency exchanges and an alternative like bitcoin may be part of the solution.
Despite this opportunity, Bitcoin remittance start-ups have had mixed success – partly due to licensing and regulatory barriers and also due to “last mile connectivity” – delivering in local currency to remote recipients which requires a brick and mortar set-up at the point of transfer.
In this post, we profile three remittance start-ups that have been in the news for their growth or innovative models that can disrupt the existing structure of the remittance industry.
Coins.ph
Philippines is the third largest market for inward remittances, after India and China. Philippines is considered bitcoin friendly due to a favourable public opinion of bitcoins, neither is the government attempting any active regulation to throttle out cryptocurrencies, which explains why bitcoin remittance start-ups choose Filipino peso remittances or operate from the country.
Coins.ph was founded in 2014 by Silicon Valley entrepreneurs Ron Hose and Runar Petursson.
Coins.ph provides bitcoin and other crypto-currency wallets and payments platform services for retail merchants in Philippines. Coins.ph has built a payment layer using banks and existing payment services. They also address last mile connectivity by allow their existing merchant networks such as convenience stores and partner pawnshops (an on the ground pervasive local network in the Philippines that provide money transfer services for the unbanked) to act as a peer to peer network using their “Teller” app. Senders can buy and sell bitcoins and convert to pesos using their coins.ph wallet. Pesos can be transferred via a bank deposit, ATM withdrawals, through tellers, mobile payments or doorstep delivery.
Abra
Abra (A Better Remittance Alternative) Android mobile remittance app went live in February 2016 but it has been in the news a long time before. Abra has attracted widespread media coverage, recognition (an award at San Francisco Launch Festival 2015) and funding from high profile investors such as American Express.
Abra was founded in 2014 by another Silicon Valley serial entrepreneur Bill Barhydt, a former director at Netscape.
Abra aims to disrupt the global remittance industry dominated by Western Union and Money Gram on the price front. It uses Bitcoin’s blockchain as their platform rail to move fiat remittances between end users, using an Uber like peer to peer Teller model. Users can load their Abra app using bank debit cards and send money to anyone in the world. Recipients do not need an Abra app or bank account. Human tellers who can be local businesses or individuals make cash payments to the recipients for a fee.
Abra manages the bitcoin to fiat exchange using “smart” hedging to cover exchange risks. Neither Abra nor the teller network act as custodians for customer funds.
BitPesa
Another region under served by the global banking and remittance system is sub Saharan Africa where remittance fees are the highest in the world, although recipients are among the economically poorest and many depend on remittances to survive. Countries like Kenya, Nairobi and Tanzania also have poor banking connectivity. M-Pesa the revolutionary mobile payments platform has already innovated the digital payments ecosystem in Africa bypassing plastic payments.
BitPesa, a bitcoin based remittance start-up was launched in 2013 by Elizabeth Rossiello and Duncan Goldie-Scot. BitPesa initially supported remittances from UK to Kenya. A sender could buy bitcoins using the BitPesa wallet. Recipients could receive the equivalent of Kenyan shillings on their m-pesa accounts.
BitPesa is currently facing hurdles with bitcoin acceptance. Its contenders include banks and mobile operators in Kenya, all fighting for a share in the mobile payments industry where M-Pesa is the dominant platform. The Kenyan Central Bank does not recognize bitcoin as legal tender. BitPesa has been offloaded from the largest mobile network and operator of m-pesa, safaricom on grounds of not being licensed as a currency exchanger.
BitPesa in the meantime, continues to grow. Its services are now available in Kenya, Nigeria, Uganda, and Tanzania.
Summary
The remittance industry is ripe for disruption through digital payments and the blockchain. Despite challenges to bitcoins, the economic value for the financially excluded and small payments segments is undeniable. The advantage of Bitcoin in supporting low value transactions and lowering costs of transactions is directly applicable to the remittances industry.
Having recognized this, the landscape of bitcoin based remittance solutions continues to grow.
In the next series, we profile bitcoin exchanges and the blockchain vs bitcoin debate.
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