International money transfers are a multi-billion dollar global industry. It is often used by migrants to send money back to their home countries. Or companies use it to send remittances to their global workforce.
Some firms also use these services for large sum transfers for B2B transactions. However, the companies that facilitate international money transfers often charge an exorbitant fee, which becomes a challenge.
Cryptocurrency claims to offer a solution to this problem. People have to pay much lower fees while transferring money using cryptocurrency. That is why the use of cryptocurrency is increasing beyond trading assets for investors to international payments. The primary reason is that cryptocurrencies do not follow the conventional rules of currency conversions, which makes the process faster and less expensive.
The use of cryptocurrency is also evolving into other aspects of conventional currencies, such as earning, spending, saving, borrowing, or lending. In the initial days, established payment companies were skeptical of using digital currency for their transactions.
But in the past few years, a growing number of companies have started focusing on using cryptocurrency to facilitate payments, including large sum transfers across borders.
Some big names like Microsoft, Tesla, PayPal, and Expedia have started to accept cryptocurrency payments. Even major card networks like Visa and MasterCard have announced plans to move into the crypto payment space.
El Salvador’s Move to Make Bitcoin Legal
The use of cryptocurrency for international money transfers has gained significant momentum since El Salvador became the first country to start accepting bitcoin as legal tender. The move to embrace bitcoin as a legal tender was proposed by President Nayib Bukele and approved by the nation’s Congress on June 9, with 62 out of 84 votes in favor.
Bukele wants to use cryptocurrency remittance to help El Salvadorians living abroad. He wants them to be able to send money back home without having to pay exorbitant fees. The small country does not have its own currency and used the US dollar as legal tender. Bukele says that adopting bitcoin as legal tender alongside the US dollar will bring financial independence for the country.
The country’s economy relies heavily on the money sent by its citizens living and working abroad. The World Bank data shows that international money transfers to El Salvador were almost $ 6 billion in 2019 in value. That amounted to almost one-fifth of the nation’s GDP. This ratio is probably one of the highest in the world.
Adoption of bitcoin as a legal tender will offer a quick and less expensive way for the citizens to send money across international borders, without the need to rely on typical remittance forms. President Bukele assured that the adoption of bitcoin would not affect the macroeconomics of the country.
Cryptocurrency’s Potential In Remittances
Several start-ups across the globe are providing cryptocurrency-based remittances. BitPesa is a company that offers crypto-based remittances for five different currencies in Africa. The firm has transacted almost $ 235 million in bitcoin to date and has a database of more than 26,000 customers.
Coinbase, which is one of the largest cryptocurrency exchanges in the United States, recently entered the market with a $ 76 billion valuation. It offers international remittance services using a variety of cryptocurrencies and promises instant transfers with zero fees between Coinbase accounts.
They only charge a small fee for transferring money to other platforms. PayPal also allowed its users to purchase and hold cryptocurrencies. It also made it possible for US customers to pay international merchants with a selection of cryptocurrencies. The payment would get converted into the local currency during the transaction.
Crypto purists claim that it cannot be considered as a real example of payments made with cryptocurrencies, as the amount gets converted in the end. However, this type of transaction does protect the merchants from the volatility of several cryptocurrencies.
Western Union has only started testing the waters with cryptocurrencies through their partnership with Coins in the Philippines. The mobile wallet allows account holders to spend using both local currency and cryptocurrencies.
The aim is also to make it easier for the people in the Philippines to receive cash remittances from across the border. MoneyGram International announced a partnership with Coinme, another of the largest crypto-cash exchanges in the United States. It will enable people to buy and sell bitcoin for cash at 12,000 retail locations all across the US.
However, cryptocurrency still remains a marginal element for several established remittance market players. Despite El Salvador’s move, some of the biggest remittance firms are still reluctant to offer cryptocurrency services.
On the other hand, spokespersons from crypto platforms state that conventional remittance companies will soon have a hard time competing with them unless they slash their prices. It is true that most leading remittance firms are already facing a lot of pressure to cut their fees. Currently, remittance companies charge an average of 6.5% as fees, while cryptocurrency transfer fees range between free to 2.5%.
There is an undeniable growth in the interest and support for cryptocurrencies from consumers as well as payment companies. It seems inevitable that we will see an increase in the use of cryptocurrencies for international payments in the near future.
However, it is yet to be seen if it can rival the flow of conventional remittance and card transactions. There is no doubt that the use of cryptocurrencies for international money transfers has a long way to catch up.