Connecting with the billions of unbanked people is an important part of the overall integration of blockchain technology into everyday financial transactions. As with most technological innovation, the initial ledger of success with cryptocurrency and blockchain is achieving a critical mass of users. Only once millions of people are using a crypto-based money transfer service can we say the market has stabilized - and we are still very much in the early stages of this technology integrating into remittance markets. How do you build a critical mass of crypto-users in the remittance market?
The only way to build a critical mass of users in the remittance market is to display the facts and rely on the better judgment of consumers. While it might take some time for people to switch from Western Union (because of a trust built out of habit), it is only a matter of time before a majority of users transition to the cheaper, faster, and more secure form of money transfer that blockchain can provide. It is the job of fintech startups to design the product and push this legacy industry into the future.
In assessing the money transfer options in 2018, it is clear that the old dogs are facing more competition than ever from digital-first fintech startups. Here, in broad strokes, is a summary of the money transfer options available to users today: Money Transfer Options in 2018
Western Union. Has a range of locations across the world and is focused on individual cross-border payment services. Roughly 80% of total revenue comes from customer-to-customer transactions. They also have a digital platform, through which they made 10% of total customer-to-customer revenue in the fourth quarter of 2017
, and has been growing steadily for years
MoneyGram. Operates through an agent system, with physical stores agreeing to be Moneygram locations. Have been outperformed by digital-first startups like Xoom, which lead to their merger with Euronet Worldwide (the company that owns Ria).
Ria. Has a global network of agents and company-owned stores for physical and digital money transactions. Reported epay revenue
of $734 million in 2017. Owned by Euronet Worldwide, who recently completed the purchase of MoneyGram. 2. Digital-First:
Transfer Wise. A money transfer service launched in 2011 with offices in London, Tallinn, New York, and Singapore. The TransferWise system is based on a peer-to-peer money transfer network but is not, as of yet, operating with blockchain technology. The TransferWise system
avoids currency conversion and traditional bank infrastructure by taking a money transfer from a sender and redirecting it to the recipient of an equivalent transfer going in the opposite direction. As of 2017, the company announced profitability after six years in operation.
Paypal. Paypal operates an online payment system that does require an official bank account and Visa card, but otherwise removes the need for paper money transactions. It is a publicly traded company with a number of subsidiaries, including Venmo and Xoom.
Venmo is a free digital wallet that comes in the form of a mobile application and is compatible with crypto trading and investing. The company reported $12 billion in transactions
over the first quarter of 2018, an 80% increase from 2017.Paypal states on their website that international transfers range from $2.99-$4.99, depending on country of origin and destination. Xoom
is a popular platform for sending money remittance markets. It has 1.3 million active users in the US and has been making advancements into lucrative remittance markets like India. Paypal bought the company for $890 million in 2015.Back in 2014, Xoom's CEO spoke about the potential integration of Bitcoin
into their mobile application, but nothing has materialized as of yet.
World Remit. A digital-first money transfer service that focuses on migrant workers and global expatriates. The company was founded in 2010 and reports over 2 million active users of their mobile and desktop money transfer services.Like Xoom, it is possible to buy and sell Bitcoin using a World Remit account. WorldRemit
charges $3.99 for international transactions between most countries, including a premium on the exchange rate.
Remitly. Remitly offers a mobile transfer service for person-to-person money transactions. It is the largest independant remittance company in the United States and recently announced expansion into Australia, a country with a large remittance market due to the large East Asian immigrant population in the country. Sending money via the Remitly mobile app can be done via a traditional bank account or be sent as a cash pick to a specific location. The price is the same for either bank or cash pick, and the cost varies depending on the currency in question, the amount of money being sent, and the speed at which the customer wants it to be sent (there is an Express service). Remitly does not have any plans to enter crypto markets. According
to CEO Matt Openheimer, this is because he does not see crypto as solving customer pain points as of yet. 3. Digital + Crypto:
Abra. Abra is a tech company at the intersection of financial services and crypto trading. They offer an "all-in-one" cryptocurrency wallet and exchange app for IoS and Android. The wallet can hold up to 25 types of crypto coin and 50 types of fiat currency at one time, and the company is always adding new crypto coins as they see fit. The company was founded in 2014 and has offices in the United States and the Philippines, the two markets they operate in. What is the Abra mobile App?
The Abra mobile app let's users deposit and extract money using a credit or debit card, a wire transfer, a branch transfer, or a supported cryptocurrency. Users do not need a bank account to sign-up with Abra, as the company has a network of physical tellers that act as ATMs for people wanting to send cash.
In terms of functionality, the Abra wallet operates different than a standard crypto exchange. Abra is built upon a blockchain system that connects to each user's mobile device, storing and encrypting the user's transfer history on their individual device. The upshot is that Abra never touches any funds, acting as a transactional platform rather than a currency conversion and transfer service. How does Abra combat Bitcoin's price volatility?
Abra has quite a complex behind-the-scenes infrastructure. Bill Barhydt, the CEO of the company, gave a description to Techcrunch
that is worth summarizing. Here is what he said about Abra's inner workings:
User's get a self-created smart contract for each transaction. The contract shorts the price of BTC and is written into the blockchain, thus ensuring the user will receive the fixed amount as stated in the contract.A counter-party is included in each contract, though the counter-party goes long on the price. This creates the economic equilibrium to ensure the transaction will go through, with any additional profit falling to the counter-party going long on the price. Barhydt mentioned that exchanges and mining companies are willing counter-party participants. He also stressed that users need have no idea that this is all going on behind the scenes. Jim could send USD $50 to Steve in Manilla, and even though the money changes into Bitcoin behind the scene, Jim and Steve always see it as USD $50.In terms of their revenue model, Abra charges a 25 cent fee for transactions with an Abra teller. They also charge counter-parties a small fee for the smart contracts.
BitPesa. BitPesa is a mobile-first platform that offers a currency exchange and payment platform to users in "frontier markets". Founded in 2013 in Kenya, BitPesa now services a number of countries across the African continent, focusing most of their efforts on streamlining remittance and business payments from Europe to Africa. They have offices in Nairobi, Kenya, Lagos, London, Luxemburg, and Dakar. Part of BitPesa's success was building off the work of M-Pesa, a mobile payment service launched in 2007 that caused the initial disruption to the African banking industry. Hundreds of millions of Africans already bank with their phones, which means Africa is already a continent that can get behind decentralized banking. What is the BitPesa app like?
Like Abra, BitPesa leverages the Bitcoin and the blockchain to offer real-time settlements at affordable wholesale rates for customers between the UK, EU, and Africa. Cross-border transactions are immediately converted into BTC purchased by BitPesa, before getting converted into the domestic currency of choice. The price and speed make it an appealing option for remittance customers and businesses alike. How does BitPesa combat Bitcoin's price volatility?
Elizabeth Rosiello, CEO of BitPesa, has explained on MSNBC
the strategy they employ to ensure price stability in their transactions. BitPesa buys up enough BTC to perform the daily volume of transactions. As the exchanges are done in seconds or minutes, the chance for a major spike in price to impact an in-process transaction is miniscule. Not only that - as Rosiello points out in the video, the volatility of domestic African currencies is much weaker and more volatile than Bitcoin, meaning cryptocurrency is actually the most stable option for remittance and cross border financial services on the continent. Bringing It All Together
In an industry where mergers and monopolies have held sway for years, seeing so much competition is a breath of fresh air. Digital-first options are leveraging blockchain to reduce cost and increase speed for peer-to-peer cross border transfers. As the market continues to grow, and regulators are slowly warming up to the idea of blockchain technology and crypto coins, the range of fintech companies mentioned above are only the tip of the iceberg in terms of what is possible. ABOUT THE AUTHOR
Nick Tarsi is an Associate Partner with Morgan Hill Partner's
based in the Tampa area. Nick works with tech-enabled client companies to help them go from start-up to scale-up. Nick has 3 years experience in management consulting
, with a specific interest on emerging technology and change management. He has combined his professional experience with personal passions, including blockchain and decentralized organizations, to provide clients with the vision and execution needed to excel in their respective areas.