Luis Buenaventure, co-founder of one of the best known bitcoin remittance companies in the space, Rebit.ph, has published a blog post on Medium claiming that the cryptographic currency does little to help cheapen remittances.
Bitcoin remittances, better known as “rebittances” (a term Buenaventure claims to have popularized), allow customers to send cash to friends or family abroad. Effectively, this means that only the rebittance service itself uses bitcoin, both the sending and receiving end of the transaction merely touch cash. Since it is cheaper to send bitcoin around the globe compared to fiat currency, companies such as Rebit.ph aim to compete with existing remittance giants like Western Union and MoneyGram.
In his sobering blog post, however, Buenaventure severely nuances the advantages of using bitcoin in this manner. According to the Rebit.ph co-founder, who departed the company last August, bitcoin doesn't really enable cheaper remittance from a customers' point of view. This is because nearly all of the costs made by remittance (or rebittance) companies are in “the first and last miles” of the process anyway. In particular, it's converting digital money into physical cash, and distributing this cash to the different end-points to be picked up locally, that bears most of the cost. Buenaventure says it makes little difference whether the funds made it there as digital dollars or as digital bitcoin.
In the case of the Philippines, where Rebit.ph is most active, the end-points consist of local pawnshops that hold a firm grip over the national remittance market, Buenaventure explains:
The pawnshops are the last mile , and no one, not even the banks, are close to touching their aggregate dominance. As such, they can charge whatever they want for their services, and the oligopolistic nature of the industry ensures that there is very little difference in price between one provider and another.
The costs of a bitcoin-powered remittance and that of a transaction powered by MoneyGram or any other traditional provider are markedly similar, because the local currency needs to flow through the same physical channels.
But using bitcoin instead of fiat currency behind the screens is not completely pointless, Buenaventure maintains. Most importantly, the flexibility of the cryptographic currency allows rebittance companies to set up shop with far fewer startup costs. Since SWIFT transfers are slow, competitors such as Western Union and MoneyGram need to hold plenty of fiat currency in reserve locally in order to keep up with demand. The speed of bitcoin transfers, on the other hand, allows rebittance companies to get hold of local fiat currency much faster.
“This 'prefunding' strategy is the main thing that young bitcoin remittance startups are now able to circumvent. Instead of advancing $100,000 to each country that you want to do business in, you settle each transaction in real-time with bitcoin. From a cost perspective, it’s the difference between building a huge server farm versus pay-as-you-go hosting on Amazon AWS, and is a true game-changer.”
Moreover, Buenaventure wraps up his blog post on an even more positive note. If it were possible to bring the costs of the last mile down, he argues, rebittance services would start to make a lot of sense. Buenaventure believes this cost could be brought down specifically if local currency systems advance from physical cash to digital currency, as this could cut local cash distribution offices out of the loop.
While this is nowhere near reality in the Philippines and most other developing countries, it is not that far-fetched of an idea, as some Third World regions are already progressing in that direction. The best known example is Kenya's M-Pesa, a mobile phone payments system used by almost all Kenyans to transfer mobile minutes.
“The perfect solution appears to be a hybrid between the current bitcoin remittance startups and the ubiquitous mobile-money network that currently exists only in our dreams,” Buenaventure concludes.
“If we can use bitcoin to replace SWIFT during the international part of the journey, and employ the local mobile money network as our domestic transport, then we’ve really got something. Until then, associating bitcoin so directly with cheaper remittances is perhaps missing the point: the cryptocurrency has illuminated an even larger problem that it simply cannot solve on its own.”