Why Bitcoin Remittance Services Should Leave the 'Bitcoin' Part Out
Luis Buenaventura is head of product at Satoshi Citadel Industries, the parent company of Rebit.ph, a Philippine bitcoin-based remittance service.
The sister cities of Hong Kong and Macau currently house more than 200,000 migrant Filipinos between them.
The breakdown is fairly homogenous in terms of occupation: the largest group consists of 160,000 Filipinas working on Foreign Domestic Helper visas on the Hong Kong side, with a little under 17,000 on the Macau side.
Together, the two groups transferred over $380m back to their families in the Philippines in 2013, amounting to between 30% and 40% of their collective wages.
The remittances industry has become something of an obsession of mine over this last year, as we have begun the long process of thoroughly educating ourselves on the Overseas Filipino Workers (OFW) situation around the world and rolled out our bitcoin remittance service.
There's an oft-touted statistic when discussing the 'global remittance challenge' that I love sharing: in 2014, an estimated $436bn will be remitted around the world by migrant workers, and $47bn of that will be spent on transaction fees.
It's a great soundbite, because it's so startling. $47bn! That's five times India's education budget, 14x South Africa's healthcare budget, and the entire GDP of Kenya.
"Surely, there is something we can do about this," I naively thought, at the start of this process.
It was a staggering proportion of remitted funds lost to the (arbitrary?) costs of transmission and, in my mind, that constituted the proverbial industry that was ripe for disruption. Of course, it's never as simple as that. There is, after all, a huge difference between the possibility of disruption and the ripeness thereof.
Upon closer inspection, in fact, it appears as if the remittances industry is being quasi-disrupted on a fairly regular basis.
Inside a remittance hub
During Rebit.ph's recent trip to Hong Kong, we spent hours talking to the patrons and vendors at the popular mall World Wide House (WWH), which on a Sunday constitutes the densest concentration of Filipinos in the country.
Each of WWH's four floors have a dozen or so separate remittance establishments, and every one of these shops had lengthy queues extending outwards from their respective windows.
As the financial capital of Southeast Asia, Hong Kong's remittance industry is predictably competitive. Each shop reportedly pays upwards of 55,000 HKD ($7,096) in monthly rent, so only the strongest businesses survive.
The most popular of these shops is probably the Franki Exchange Co. Even in this fiercely competitive environment, they have managed to open three branches in the same mall, practically one per floor.
A quick inspection of their rates shows why. Their pricing is cheap — almost unbelievably so — and their workflow is streamlined enough that they are processing customers at a rate of nearly one per minute. The average Filipino remitter can expect to queue up for about an hour to send money home, which is important if you only have one day a week with which to run all your errands.
Uneven playing field
However, Franki Exchange and its rivals are not really disrupting the industry, so much as optimizing their own business processes to extreme levels.
For all intents and purposes, they are no different from any other remittance provider – using large amounts of liquidity on the receiving end of the transfer to ensure quick turnaround times, and reconciling the transactions internally in bulk at a later date.
It's this 'pre-fund' remittance model that makes it prohibitively expensive for a new player to come in and attempt to innovate. Most businesses simply wouldn't have enough capital to be competitive.
But that is the nature of remittances when you are dealing with traditional fiat currencies. Your customers can't wait for days to be able to receive their cash – they need it in hours.
To make this possible, vast cash reserves on the Philippine side are needed in order to quickly fund the payouts. Internal reconciliation then occurs after the fact, using the not-so-swift SWIFT network or the legacy automated clearing house (ACH) system, which both take days and several correspondent-bank hops to move cash from one country to another.
This is, in a roundabout way, why the disruption of the money transfer industry seems imminent.
Cryptocurrency allows reconciliation to occur in real-time, meaning that cash reserves don't need to be nearly as vast. Instead of a week's worth of reserves, you now only need enough for a day, significantly levelling what used to be an extremely uneven playing field.
Bitcoin in the background
At a bitcoin panel in Hong Kong in October, we spoke about remittance challenges, the OFW situation, and the solution we were currently road-testing in the market.
Other members of the panel included Dave Shin of Paywise, an enterprise payment solution looking to replace SWIFT, and Matt Ventura, who operates various Genesis1 Bitcoin ATMs in Macau. We were all, in our own ways, approaching the remittances challenge from different sides and it was helpful to see the growing local interest.
Just over a month later, the first cash-in, cash-out remittance solution powered by bitcoin was piloted in World Wide House, with Bitspark in Hong Kong acting as the intake and Rebit in the Philippines acting as the payout.
Reconciliation occurs in real-time via bitcoin between the two companies, in a fraction of the time required for traditional fiat.
Filipina domestic helpers could hand over HKD and be assured that it would be magically available for pickup as pesos (PHP) at a neighbourhood pawnshop 800 miles away within the same day. Even in this limited trial at World Wide House, the interest generated was palpable.
In this situation, bitcoin is invisible. It is about as relevant to the customer as SMTP is to the average Gmail user – that is to say, not at all. The only things that matter to the customer are that this new service is offering cheaper remittances and is at least as reliable as any other traditional provider.
The Hong Kong–Philippines remittance corridor is, by itself, a huge opportunity, but it's important to remember that it's just the tip of the $30bn Philippine money-transfer iceberg. And then beyond that, there is the even larger $436bn global market, a vast ice shelf of opportunity.
The amount of customer savings that a truly disruptive solution could generate would be enough to put millions of children through school, invest in diaspora-supported infrastructure projects and have a significant impact on the poorest sectors of our world.
It seems that all we have to do in order to make this happen, is leave the 'bitcoin' part out of it.
Disclaimer: The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, CoinDesk.
Hong Kong traffic image via Shutterstock. WWH images courtesy Luis Buenaventura/Satoshi Citadel Industries
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