The remittance industry continues to grow at a rapid pace each year. The much cited data by the World Bank (mainly because there is a lack of available data aggregators) points to an industry of approximately $600bn and growing in many emerging markets by 5%+ yearly. Payments sent from overseas to maintain families back home are the mainstay of many economies (in cases like Tajikistan it’s estimated to be almost 50% of GDP) with the vast majority of these payments taking place in cash at MTOs (Money Transfer Operators) around the world. The humble MTO is therefore an essential part of global trade providing access for billions of unbanked people globally to easily send money home at their convenience in a form of payment they use and trust. Often these MTOs are small shops with 1-3 employees who due to their limited size and scale, opt to become part of a larger agent network. The biggest network of MTOs globally is the well known Western Union company, with others like UAE Exchange, Ria and Xoom making up the rest of the market and while their business model and services are tried and tested for many decades, the advent of digital commerce is bringing new opportunities for MTOs and new threats for the incumbents.
One of the biggest changes over the last 5 years has been the supremacy of the smartphone enabling digital payments and commerce, most notably in China where payment apps often have hundreds of millions of users with the likes of Alipay and Wechat. These payment applications however still run ontop of the existing slow, expensive and cumbersome financial system, requiring payment app companies to have various banking relationships, regulatory requirements and FX partners to be able to do what they do, no easy (or cheap) feat. But this is changing with perhaps the second most important technological innovation in the last 5 years, the emergence of Bitcoin and Blockchain technology.
Bitcoin is a peer to peer digital currency and operates completely outside the existing banking system with nobody being able to exert control over transactions and accounts (unlike banks) enabling secure payments anywhere in the world instantly for free. A Bitcoin has a value like any currency and is freely traded 24/7 around the world (at time of writing that value is $750 USD per 1 Bitcoin) and maintains a public record of every transaction ever to take place on the network ensuring complete transparency and oversight. Unlike the infrastructure Alipay and Wechat use, which requires integration with new banks, payment providers and intermediaries in order to enter a new market or country, Bitcoin does not and is open to anyone anywhere in the world to build onto of. Does it therefore make sense that we can apply this underlying infrastructure to improve margins and business operations for MTOs? Most definitely, yes.
MTOs join agent networks because its often A) the easiest way to gain access to the largest amount of destinations for customers to receive money B) They do not have their own in-house payment processing systems C) Its the only option if you want to offer cash in cash out services. Therefore for Bitcoin and Blockchain based services to make an impact they must do the above as well as the existing providers and offer a sweetener ontop to incentivise existing MTOs to make the switch. MTOs customers have cash and the recipients want cash, their customers generally do not know of nor care about Bitcoin so it’s best it is used as the underlying means of currency transmission without the customer needing to know anything about it.
So what actual benefits can MTOs see using this new underlying infrastructure? Well, hedging and FX costs are no longer necessary for the platform providers. Western Union and other MTO networks need to hedge and trade currencies everyday to settle payments between their stores because they cannot send each transaction individually in a bank wire transfer on behalf of their MTOs, thats way too expensive (wire transfer fees are $20 minimum anywhere in the world). However this is now possible with Bitcoin based systems because every transaction can be sent individually as there is no need for a bank wire to do it. This also eliminates the need for hedging currencies as each MTO transaction can be converted to bitcoin instantly and then sold for cash at the other end just as quickly. This means platform providers can offer better rates and commissions to their MTOs who can then enjoy higher margins or pass on the savings to their customers.
These new systems can also offer benefits in easy integration options for mobile payments apps, compliance automation, auditability and transparency and other innovations of having a cloud based platform for MTOs not ageing software installed on a computer like exists currently. This can drive new customers to MTOs and enable them to save and make more money and is why I started my company Bitspark to do exactly this.
This technology reduces the barrier to entry for new providers to offer new products and services. Previously only an exclusive club had the banking relationships, the right deals and infrastructure to offer MTOs a solution but with bitcoin/cryptocurrency based technologies, none of that is necessary- ensuring greater competition and a better deal for MTOs. It should be noted that Bitcoin is the first such technology to do this but there are others and there will continue to be new innovations in this field. Emerging markets are booming around the world and so is the remittance industry, people are using smartphones more and more each year and the necessity to offer cash based services continues to grow also- for the MTOs of the world it can be a defining moment to jump onboard a new set of tools and services or be left behind in an increasingly global and digital world.
