With Bitcoin constantly being under the news and often accused as a volatile and unsafe currency, it has finally found its presence on a really important role : Overseas Money Transfers.
This mechanism of transfer is going to be advantageous since it will also have an escape to the banks’ high transaction fess, something which is otherwise charged in the case of non-digital currencies.
Inspired by this, several start ups based on cryptocurrency, like:
- Bitspark in Hong Kong,
- And Satoshi Citadel Industries’ (SCI) remittance unit Rebit in Philippines, are planning to turn this into a concrete business model for further overseas transactions.
The start-ups claim that the cryptocurrency exchanges are not that easy though. Reduced liquidity on cryptocurrency exchanges and regulatory uncertainty are preventing the bitcoin based payments on coming to the forefront of overseas payment system. But once these problems are fixed, traditional business will face a downfall.
George Harrap, chief executive of Bitspark, a company performing transfers for is numerable remittance shops in Hong Kong, Philippines, Indonesia, Vietnam, Pakistan, Nigeria and Ghana says,
“Bitcoin is so much better as a mechanism to send money around the world. There’s a lot less overhead that you need to do”
Many of such start-ups such as Bitspark, do not deal directly with the individual customers, but instead provide the “back end” transfer mechanism for remittance shops.
These businesses do not hold cryptocurrency for a prolonged length of time, and customers’ transactions are resolved in minutes, rather than days. What they do is estimate the amount of money for the day, buy bitcoins before hand and sell them off immediately for the currency in the receiving country.
Kate Corporal, 28, a Filipina working at an international company in Incheon, South Korea, said she saved “huge” amounts of money by sending money home using Rebit rather than the traditional services. She adds:
“One thing I can guarantee is that the money I intended to send and the money that my family received was exactly the same. Using bitcoin is really helpful for many Filipinos … as every single cent that we send can be very significant.”
Lesser demand for cryptocurrencies in smaller economies implies that bitcoin prices have also gone down. Therefore, sending $100 to Indonesia or the Philippines via Bitcoin results in the equivalent of more than $100 at the other end. Furthermore, without the bank fees, the shops say they can charge their customers 25 – 75 percent less which is even better advantage.
But in markets with larger Filipino communities such as Hong Kong and Singapore, the competition is high and fees are low – roughly 1-2 percent, compared with 10-15 percent in South Korea. Hence, here the proposed model enjoys very little or no advantage at all.
Rebit which currently offers its service to send money to Philippines mainly from South Korea, Japan and Canada and is looking to expand to the Middle East.
“Rebit was only approved by Philippine’s central bank last year. South Korea’s backing away from banning cryptocurrency trading was encouraging, but more clarity was needed in Seoul and elsewhere”
In Singapore, start-up Toast had to give the use of Bitcoins in order to be licensed. It is now transferring money the traditional way but eventually plans to offer loans and insurance using blockchain technology and smart contracts – a product offered by bitcoin’s main rival Ether and others.
Aaron Siwoku, Toast’s founder said:
“If you bought cryptocurrency as part of a money remittance mechanism it is very difficult to get your remittance license in Singapore or anywhere else because the regulators are still not sure how they are going to govern cryptocurrency.”
The Western Union and Moneygram, which are dominating the current market, are testing Ripple’s XRP, a cryptocurrency which is smaller and more centralized than Bitcoin. But the transformation and change is policies doesn’t seem to happening soodAccording to World Bank estimation, the value of all bitcoins around the globe currently is approximately $160 billion, which is about 2/3rd of the Asian remittance market and about 1/3rd of the global one. This suggests that the local cryptocurrency exchanges cannot keep up with the cash flow demands of larger businesses.
Because of the volatility of the bitcoins, start ups avoid keeping the cryptocurrency for a long time. Bitcoin now trades around $10,000, 10 times higher than it did a year back, but half its December peak – a common swing for the emerging asset class.
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