The global remittances industry is now worth over $500bn a year and, for bitcoin advocates, it represents unimpeachable proof of the need for decentralized digital currency.
With high fees on international money transfers and few players in the market, the space is, to use the cliché, ripe for disruption.
Enter BitPesa, a bitcoin remittances company that integrates with Kenya’s mobile money system M-Pesa. Its success in challenging giants like Western Union in the Kenyan market will signal whether or not bitcoin can compete in the remittances market globally.
BitPesa CEO Elizabeth Rossiello calls herself a “devotee” of micro-finance champion Muhammad Yunus, who won the Nobel Peace Prize in 2006 for his groundbreaking work challenging poverty with small community loans.
“[BitPesa] is a social business, certainly for profit but we're not maximising our margins,” Rossiello told CoinDesk.
A former investment banker with a long pedigree in microfinance, Rossiello was new to bitcoin when co-founder Duncan Goldie-Scot, former Director of the International Financial Cryptography Association, approached her about the idea.
Bitcoin, she recognised, could help "cut through" the inefficiencies in international remittances and the underdeveloped banking system in East Africa:
“[When you’re] trying to butt your head against a system that doesn't work, especially in these markets when there's other things going on, anything that can cut through that just let's the sunshine in.”
With a 3% fee on transfers, BitPesa isn’t quite the peer-to-peer system bitcoin advocates dream of when talking up the potential for bitcoin in the remittances industry.
Indeed, when you add in the separate cost of buying bitcoin in order to transfer it, the effective cost to the user is likely to be 3–4% or higher depending on the exchange. Compared with Western Union, which has a 7% fee for sending $100, for example, to a mobile wallet in Kenya, it’s only possibly a little cheaper.
Rossiello argued that BitPesa’s low fees are unmatched for the service they provide and that as the business develops and increases in size, “our ability to offer cheaper margins will go up.”
Peer-to-peer bitcoin remittance transfers are currently unfeasible for a country like Kenya, she explained. There aren’t enough places to spend bitcoin and the people receiving remittances aren’t in the position to invest their money in a speculative project like bitcoin:
"People on Reddit go off saying this is just another middleman. People [in Kenya] are even more sensitive to income flows, how can they risk losing anything or [risk vendors] not accepting bitcoin? They can't just hold the [bitcoin], they don't have extra money to invest."
Furthermore, there is a £400 maximum limit on each BitPesa transfer because of the service's connection to the M-Pesa mobile money system.
“There is a limit because the amount of mobile money you're allowed to get in one transaction is 70,000 [Kenyan] shillings,” said Rossiello. In future, BitPesa plans to allow transfers to bank accounts, which would effectively eliminate this restriction.
The five-strong BitPesa team, which includes staff across several continents, as well as in Kenya, is paid in bitcoin and is going up against an antiquated and slow-to-adapt international financial system.
“International transfers are far more manual than anyone suspects,” said Amy Ludlum, BitPesa’s Head of Trading Risk Management. “There is somebody actually reading these comments on wires and, if they see anything that they don't necessarily like, they can arbitrarily reject them.”
BitPesa itself has experienced first hand the friction in the current system, recently having an international wire transfer rejected repeatedly by an intermediary before transferring the funds via bitcoin instead.
Ludlum declined to name the bank and says the transfer may have been rejected because of its connection to bitcoin:
“We can't know anything for sure because we don't receive any comments from these intermediaries, but the fact that it said bitcoin on this wire makes us think that may be the reason our funds were held hostage.”
The incident hasn’t held BitPesa back. The business is currently open to all customers, unless you’re in the United States.
“We're compliant, we just don't want to pay the [US] licensing fees,” explained Rossielo. “It's super expensive for a lean startup. $50,000 per state, that's crazy.”
Image credit: Digital Democracy / Flickr