This is a guest post by Luis Buenaventura
Reinventing Money Transfers with Bitcoin
Bitcoin advocates often emphasise that the cryptocurrency’s greatest impact will be on the “other 6.5 billion” people who have otherwise been excluded from modern financial tools and services. But far from being the magic bullet that Bitcoin appears to be on paper, bringing it to the mainstream in the developing world involves a multidisciplinary initiative capable of surmounting some significant challenges.
Just last month, the Philippines gave birth to its 100 millionth citizen, a baby girl named Chonalyn. The headcount was largely symbolic; in truth, about a hundred other babies were being born at the same time around the country. It was, however, no accident that the press conference announcing the birth was held at Jose Fabella Hospital in Manila, a state-run center known for crowding mothers and their newborns five to a bed.
The population is growing by 3 babies per minute, and with the low-income brackets accounting for over 90% of our citizenry, it’s not altogether surprising that so many of us have to leave in order to find a reasonable wage. Indeed, the Philippines is the 8th largest source of immigrants in the world, and the 3rd largest in terms of sending remittances back home. The flow of funds from the fifty or so nations where the Filipino diaspora has presence comes to about 10% of our country’s GDP.
You couldn’t write a more appropriate problem case for Bitcoin.
With the average remittance cost from the US to the Philippines at 5.3%, Bitcoin is seemingly poised to crush the incumbents. That this isn’t already the case might be surprising to some (Bitcoin remitters in the Philippines have lowered that cost to just 1%), but the situation is actually far more complex than it appears on the surface.
A Global Local Presence
With over 10 million Filipinos currently living outside the Philippines, spreading awareness about a Bitcoin-based alternative is no small task. The diaspora is scattered across many different regions, professions, and contexts, thus making a single broad educational campaign untenable.
Any promotions espousing the benefits of Bitcoin-powered remittance (more succinctly, “rebittance”) also need to leverage the face-to-face nature of our various communities. Filipino migrant workers regularly congregate in parks, malls, and city squares around the world on the weekends, which will force most efforts to go offline with their delivery.
Indeed, the most significant competition that rebittance faces might not even be the established giants like Western Union and Xoom, but the small hyper-local shops that flourish by catering exclusively to these city-specific communities. Most of them charge flat fees (anecdotally, US$5-6 for transaction of under $3,000) coupled with a small margin on exchange rates (between 1 and 1.5%). When measured against these smaller competitors, the advantage that crypto-powered transfers represent is no longer quite as breathtaking
The Exchange Problem
Forgetting, for a moment, the challenge of educating our remote countrymen about the benefits of Bitcoin, the next obstacle then becomes showing them how to actually acquire BTC. In countries like the US, they may be able to fund their wallets via a Coinbase-connected bank account, but in other countries the answer is not as straightforward.
The act of exchanging fiat for BTC inevitably adds costs to the overall transaction, so even with an otherwise svelte 1% remittance fee, the total calculation at the end of the day may no longer be as competitive as we would like.
The Last Mile
Once the bitcoins have been acquired, the problem morphs into one of logistics. BTC is transferred from the customer’s wallet to the remittance provider’s, who then delivers the equivalent amount in local fiat to the specified recipient. Sometimes this is as easy as making a deposit at a local bank; other times, it means engaging a delivery partner to take the funds directly to someone’s doorstep.
There are literally dozens of ways to send money across the Philippines, and with no clear market leader, a Bitcoin remittance provider must integrate with all of them. Living in an archipelago of over 7,000 islands prevents startups from realistically building out their own logistics services, so they must learn to work with the existing infrastructure and deal with its associated costs.
The Argument for Rebittance
Given all the challenges detailed above, it’s important to take a step back and ask ourselves why we even want to go to all this trouble. In international financial circles, remittance providers are considered second-class businesses after all — a proverbial race to the bottom in terms of profitability.
With the average Filipino remittance amount at US$250, it’s likely that our collective activities in the local Bitcoin industry will result in a savings of US$2 to US$3 per transfer. That may seem like a very modest amount when compared with the effort involved, but not when viewed in the context of the bottom-heavy socioeconomic strata of the developing world.
With 90% of Filipino households subsisting on $10 or less per day, to say that every dollar helps is a gross understatement. By saving just US$30-40 a year, for example, the average low-income household could afford to keep their child in the public school system for a year longer. (Although public school tuition is “free,” transportation and materials are not.)
The diaspora plays an important role in poverty reduction because their remittances reroute a small portion of the world’s funds to a sector that would otherwise languish for lack of governmental support and external aid. Bitcoin allows us to optimize the money transfer process further, and squeeze out as much value as possible from a limited resource.
It’s not the most innovative use of cryptocurrency, nor is it the most lucrative. But from the standpoint of financial inclusion, it might just be the most important.
“QR Philippines” by Luis Buenaventura
Bitcoin advocates often emphasise that the cryptocurrency’s greatest impact will be on the “other 6.5 billion” people who have otherwise been excluded from modern financial tools and services. But far from being the magic bullet that Bitcoin appears to be on paper, bringing it to the mainstream in the developing world involves a multidisciplinary initiative capable […]