The digital currency, Bitcoin, is slowly getting into the massive remittance market.
Abra, a startup remittance company is planning to offer its service without any charge.
This is possible as the company takes advantage of the digital currency, Bitcoin, and has recently received $12M in funding. They plan to service people from all over the world, marketing its service as “private, secure, and instant.” However, no specific date was given as of yet.
According to Abra CEO, Bill Barhydt, “…it (Abra) is an app that facilitates storing digital currency equivalent to US Dollars directly on your smartphone and transferring your money from your Abra App to any other Abra App anywhere in the world.”
There are other remittance companies using the new technology like Africa’s BitPesa, Southeast Asia’s BitSpark and North America’s Align Commerce and the Philippines’ Coins.ph, although Abra is the first to ambition a global network.
Is this the future of remittance?
The remittance market is worth $582 billion in 2014 according to the World Bank. Remittances to India and China contributed largest followed by the Philippines with $25 billion.
These startup companies are marketing the Bitcoin technology as a cheaper way to send money back home as it removes the 10% fee that traditional remittance companies usually charge.
What is Bitcoin anyway?
Bitcoin is one of several cryptocurrencies available. It was invented as a peer-to-peer online payment system that does not require a trusted central authority, like a bank.
Imagine buying something online but instead of paying for it using PayPal, or a credit card, or a bank-to-bank money transfer, you pay with bitcoin. This time, there are no banks or clearinghouses involve in the process. Just thousands of computers connected to an online ledger called the blockchain.
But don’t worry:
Unlike banks who needs to verify your identification and location (and takes days to complete transaction), using the Bitcoin guarantees anonymity. The computers only process the Bitcoin ID to make sure that no one uses a Bitcoin he/she does not own (and it only takes a few minutes max).
So how does it work?
If we follow the Bitcoin’s premise, the peer-to-peer sharing nature of this technology does away with the traditional transaction fees from banks; therefore, it costs almost zero dollars.
There is no central authority, instead it is an open source software and anyone can peek into it – to mine bitcoins, copy or improve the system. Any software updates are done only after a consensus of miners, with the technology’s interest at heart. The numbers of miners involve in decision-making acts like a check and balance system and protect the technology from being manipulated.
People who have issues with privacy also find the use of Bitcoin attractive because it promises anonymity. However, this also attracted people from black markets.
Is it risky?
Like anything, using Bitcoins is not without risks. Supporters hope that these problems will be resolved as the technology improves over time.
Country to Country Regulations
Experts believe that bitcoin remittances are unverified and no model has been thought out properly yet. The costs of remittances come from other incurred expenses where bitcoins does not seem to offer any advantage.
Experts argue that fees are not due to greedy remittance companies but rather due to the cost of compliance and regulations of the countries involved in the transaction.
This is the reason why Coincove was forced back to its drawing board after it was regulated out of the US market. Another startup in Ghana, Beam, backed away from receiving bitcoins remittances and instead offers “value remittance” due to bitcoin being expensive after computing the exchange cost between local currency and digital currency.
Different countries will always have their regulations to secure financial stability from money launderers and even terrorist threats. Other countries will be open about this new technology like Norway or completely close its doors like China. Startup companies have to consider this and innovate along the way or else risk losing their biggest marketing strategy which is having little to no fees.
In addition, bitcoin’s worth fluctuated wildly within its 6 years of history. In the beginning 1 bitcoin was only worth a few dollars but in 2013 it was worth $1,000 per 1 bitcoin. Now it is worth around $230.
With the exchange rate varying greatly and quickly, companies should secure protection against currency exchanges.
Another problem that plagued the use of this technology are hackers. The blockchain system itself is secure but the bitcoin “wallets” where individual/company bitcoins are stored had a history of being hacked and “stolen.”
The use of bitcoins have not replaced the use of credit cards in yet, in fact, Visa and Master Cards processes $32 billion dollars a day compared to the digital currencies $50 million a day in 2014.
Not a lot of people understand or have even heard of bitcoins and other digital currencies. It may even be hard to convince traditional users to switch from tangible currency to an online currency.
The remittance companies are targeting developing countries and although it is great to receive money without any fees, it might be difficult for most of this population to even have their own smart phones or a reliable Internet connection.
Is it worth it?
Right now, bitcoins have a lot of issues to work on especially in the remittance market but we should remember that the bitcoin is only on it’s 6th year.
Many are raving about it and hailing it as the new innovation in the financing world in 500 years. There may be many skeptics but there are also big name companies investing in this new technology.
Supporters are comparing it to when the Internet was first introduced back in the 1990s – social media sites were not even thought possible. But look at the way it change our society and how we embrace it as part of the human necessity.
Dr. Lawrence Summers, a former U.S. Treasury secretary is quoted saying that “ the “substantial inefficiencies” of an outdated financial system make it “ripe for disruption.” That alone means it would be “a serious mistake to write off [digital currencies] as either ill-conceived or illegitimate.”
Yes, the bitcoin has an uphill battle in the remittance industry and it is not without fault or dark histories. The bitcoin has a lot to improve on and as a digital currency, it might not be the best option in the future, but experts believe that the technology behind it will.