Max Keiser and Stacy Herbert
Max Keiser and Stacy Herbert
Bitcoin was celebrated for its potential to disintermediate banks from settlement in global transactions, but many of the remittance companies in the space depend on these very institutions as partners. In going through the traditional banking system, their ability to lower costs is impeded. Hope for cross-border micro-payments in bitcoin has also dissipated amid the blockchain scaling discussion.
There are about a dozen companies in the world using blockchain as the rails to move money from one country to another. While Bitcoin’s promise to transform the remittance industry resulted in numerous startups, most of the platforms use bitcoin or ether as behind-the-scene rails, still dependent on traditional financial institutions to move the money.
While oftentimes more efficient than traditional options, this model fails to empower consumers in the manner peer-to-peer electronic cash could. While Bitcoin has demonstrated certain quirks when it comes to a cross-border cash platform, few projects have pursued cash-transfer and remittance solutions on Ethereum.
Remittance industry margins are razor thin and volume is the key to success. “This industry is dominated by big banks and large liquidity providers who can sustain volatile markets,” says Lane. “Fintech companies have to work with the banks and even use legacy banking platforms in which money doesn’t actually cross borders.”
The inroads blockchain technology has made into the world of remittance were highlighted last month at the United Nations. The Remittance Technology awards (RemTECH) from June 16-18 during the UN Global Forum on Remittances, Investment and Development. Five out of 11 companies recognized for their price, speed and partners used blockchain.
“Even though large money transfer companies still don’t see the importance of the breakthroughs of blockchain-based and Bitcoin remittance startups, the RemTECH Judging Panel was impressed by some of the solutions presented by companies like Bitso and Everex, just to name two of them,” Hugo Cuevas-Mogh, Director of the RemTECH Awards told Bitcoin Magazine.
Recognized for “Service Originality” at the event, the Singapore-based Everex was the only Ethereum company nominated, and indeed the only Ethereum company focused on cash-transfer services. Blockchain-based RemTECH award nominees included Bitex, Cashaa, DigitalX and OKLink.
Everex uses Ethereum, blockchain and smart contracts to create programmable applications so individuals in cash-based society can earn public financial reputation and access other financial services. CEO and Founder Alexi Lane isn’t convinced by ‘rebittance’ – the term that has generally referred to the use of bitcoin in cross-border transfers.
“Using bitcoins works in the ‘onramp’ country such as US,” explains Mr. Lane, whose company recently opened up its token sale. “The user spends USD, the company buys bitcoin, and sometimes users don’t even know it. Bitcoin is then sent to another country where it’s sold for local currency and local currency is paid to the recipient. It doesn’t work as smoothly the other way around in ‘offramp’ markets where demand for bitcoin is very slow than in onramp countries, such as developed nations, therefore the business is not scaleable.”
While bitcoin-based rebittance is working, Everex doesn’t believe it to be the workable model long-term. “The companies who need liquidity have to sell on exchanges, then do bank wire transfers to off-ramps to, say, ‘Philippines because not enough Filipinos want to buy bitcoin yet,” says Mr. Lane. “Still, ‘rebittance’ generally is definitely a great use case for bitcoin, ether and blockchain.”
Mr. Lane says an issue with using bitcoin is the amount risk companies take on due to bitcoin price volatility. The digital currency must be hedged. “We propose to have a stable coin on the Ethereum blockchain based in smart contract code recognizant of anti-money laundering and Know Your Customer laws, and designed with national currencices in mind,” the CEO notes.
People transact based on national currency over the Ethereum blockchain just like they exchange bitcoin, only without the price uncertainty. “Exchanges happen on cash-in and cash-out much smoother because you’re changing USD to another form of USD, crypto-USD, then selling crypto-USD for, say, crypto-Peso.”
Key to Everex’s vision is its ability to use blockchain technology to collect data about users and transactions so service providers can identify who is eligible for lending, currency exchange and insurance services.
“We are analyzing our user’s financial data in order to offer financial services to them, such as lending, insurance and others,” explains Mr. Lane, who believes the concept of cross-border payments won’t exist in the near future.
“We don’t send e-mail internationally or visit websites through virtual borders,” he says. “It is one seamless experience. This is the future of cross-border payments and its made possible by Ethereum.”
According to the World Bank, transaction fees average 7.45% globally for sending money across borders. In many remittance corridors, they’re even higher. Money from Africa to the U.S. or Europe can cost more than 20%. Fees can also be high in Africa. The World Bank says that to transfer 33,000 Angola Kwanza (approximately $200) from Luanda to Namibia, it costs $50. Remittances altogether worldwide totaled $429 billion in 2016.
Those Bitcoin and blockchain services nominated for their innovations in remittance-technology were AirPocket, Bitso, Everex, Moneytis and Trulioo. Alongside Everex, Bitex, Cashaa, DigitalX and OKLink, as mentioned above, were recognized for their innovations.
Justin O’Connell is a financial technology researcher focusing on blockchain. He founded the companies Gold Silver Bitcoin and Cryptographic Asset, as well as helped to launch the largest Bitcoin ATM software provider in the world. His work has appeared in Bitcoin Magazine, Coin Desk, Crypto Coins News, Hacked, Merry Jane, NASDAQ and VICE.