BitPesa.co, a new global remittance company servicing Kenya's ever-expanding population, is planning to use bitcoin.
The company is targeting Kenya’s $1.17bn annual remittance market by offering a 3% cut-rate fee on all transfers, Bloomberg Businessweek reported today.
Bitpesa’s CEO Elizabeth Rossiello said the new service is aiming to gain 1% of Kenya's remittance market within a year of launching in March 2014: a figure that will equate to roughly 6,500 transactions per month.
According to Rossiello: "There are no other market entrants trying to solve the problem of the very high cost of remittances in Africa.”
Additionally, a report published by the World Bank back in January, titled Send Money Africa states that sending money to Kenya costs "about 9.2% of the value of the transfer". This is lower than the 11.89% average for remitting cash to African countries, but higher than the global average of 8.96%.
A serious contender
The report also reveals that African migrants often only have access to banks in order to make their remittances. These banks can charge as much as 19.8% and Western Union and MoneyGram international both charge rates as high as 9.2% on international transfers.
This makes BitPesa a serious contender in both the East African and global remittance spaces.
A different study conducted by the World Bank in 2010 reports that Western Union currently leads the remittance market in Kenya.
The company controls around 31% of the total market, with commercial banks accounting for 50% (of which, Barclays and Equity Bank Ltd lead the field with a 14% market share each). MoneyGram accounts for about 6%.
The World Bank also reported that “the region is the world’s most expensive for remittances because of factors such as limited competition and regulatory barriers". It compares unfavourably with Saudi Arabia and the UAE, where the costs of remittance is as low as 4.7% and 3.5% respectively.
The report also noted that a reduction to 5% "would be ideal" as it would add money to the budgets of millions of African families who survive on remittances sent from relatives abroad.
BitPesa is reported to be talking to two Kenyan commercial banks and one Kenyan telecom provider.
The mobile digital currency payments network in Kenya is more advanced than in any other nation, with Safaricom's M-Pesa currently servicing as much as 80% of the population and three other mobile payment networks (Airtel Kenya Ltd, Essar Telecoms Kenya Ltd and Telkom Kenya Ltd) providing similar services.
Recently, Kipochi announced that they would be providing M-Pesa users with a bitcoin wallet for their mobile phones in a move that may enable the Bitcoin protocol to unify competing private currencies Airtel Money, YuCash and Orange Money with M-Pesa under a common framework.
BitPesa's Nihal Majok said that BitPesa effectively allows users to "buy bitcoin locally so they won't even see that it's bitcoin per se, but it will be the trading platform behind it. It will be the transmission mechanism". At the other end, BitPesa will effectively let people cash out their bitcoins at a local shop and convert their money back into the local currency afterwards.
Sarah Wanga, a research analyst at Nairobi's ICEA Lion Group, said people feel safe putting money in banks because that's what they're familiar with, however, she believes that if this "new system markets itself right, makes itself a household name, and it's cheaper, I think it could become a threat".
Massimo Cirasino, manager of the Financial Infrastructure and Remittances Service at the World Bank said in a recent statement that "governments should implement policies to open the remittances market up to competition" and the East African Community is currently working on a system to "harmonise money transfer systems and regulations within the region".
Total remittances to Africa were estimated at around $60bn last year, so bitcoin could gain a real boost if it is able to tap into not only the market in Kenya, but the continent as a whole.
Feature image: Kenya magnifier via Shutterstock