Tom Arnold and Tom Wilson
London (Reuters)-El Salvador may be promoting the use of Bitcoin to help foreign residents send money back home, but the largest remittance companies are cautious about providing cryptocurrency services is.
On Wednesday, El Salvador became the first country to adopt Bitcoin as a parallel fiat currency, with a move that could be a precursor to cryptography, which would become a more common way to transfer money across borders.
President Nayib Bukele has demonstrated the potential of Bitcoin as a currency for remittances to Salvadorans abroad.
However, if such a move escalate, only a small percentage of traditional remittance companies that send the majority of cross-border remittances, despite the potential long-term risks to the business. I’m just putting it out.
Every effort to enter cryptocurrencies is a double-edged sword, pushing down the fees that form the basis of their business.
“For Western Union and some other remittance providers, the majority of the remittance industry’s trading volume goes from developed markets to emerging markets, primarily cash-operated people (family and friends). Keep this in mind, “says Kenneth Schoski of the United States. Autonomous Research Payments and FinTech Analysts.
“Unless Bitcoin has been adopted and is widely accepted, these remittance providers will be relevant for the next few years,” he added.
Suchoski estimates that less than 1% of global cross-border remittances are currently cryptocurrencies. But in the future, crypto is expected to make up a larger slice of over $ 500 billion in global remittances.
Still, Bitcoin, in theory, provides a fast and cheap way to send money across borders without relying on traditional money transfer channels.
MoneyGram International announced last month that it will be able to buy and sell Bitcoin in cash at 12,000 retailers in the United States in partnership with Coinme, the largest licensed cryptocurrency exchange in the United States.
“We have built a bridge to connect Bitcoin and other digital currencies to local fiat currencies,” MoneyGram said in an email statement to Reuters. “As crypto and digital currencies become more prominent, the central barrier to further growth is the on / off ramp to local fiat currencies.”
Western Union, the largest money transfer business, has been tested with Bitcoin and crypto in the past and hasn’t come up with a good “use case” with significant cost savings, Suchoski said. ..
Western Union and other major companies such as Wise, WorldRemit, Remitly, Xoom and Ria Money Transfer did not respond to requests for comment.
In recent years, the money transfer industry has successfully moved from forwarding via physical retail stores to online. This trend is accelerated by the COVID-19 pandemic.
Cross-border remittances via mobile money increased 65% to $ 12 billion in 2020.
However, the transition from digital to encryption can be more difficult.
“It’s really hard to know how they compete unless they really lower the price-you can’t compete for free,” said Paxful, a popular and competitive crypto platform in Africa. CEO, Ray Youssef, a traditional money transfer company.
The World Bank reports that remittance companies are already under pressure to reduce fees by an average of 6.5% in the fourth quarter of 2020, doubling the 2030 remittance target of the United Nations Sustainable Development Goals. That’s all.
In contrast, Bitcoin transfer charges in Nigeria, for example, typically add up to about 2% to 2.5%.
Increasing regulatory costs associated with efforts to combat money laundering and terrorist financing is another burden for traditional remittance companies.
Western Union’s annual compliance costs have risen from about $ 100 million about a decade ago to nearly $ 200 million, Suchoski said.
That burden may increase.
The possibility of anonymous Bitcoin trading has long worried regulators for fear that it could promote money laundering and terrorist financing. Many crypto companies have tightened compliance procedures, such as requesting a user ID, which is a costly process.
“Bitcoin has been used in many underground transactions,” says Suchoski.
Remittance companies take time to add Bitcoin despite El Salvador’s move to Reuters
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