While the math-based currency does lower the bar of entry for startups, and local technological innovation could further improve the competitive advantage of so-called “rebittance” companies, Buenaventure argued that most of the cost is currently made in “the first and last mile.”
While Bitcoin does a great job realizing cross-boarder transfers of money, the distribution of physical cash was the expensive part of remittances all along – a problem Bitcoin hasn't solved.
The first and the last mile
Most rebittance startups agree with the main premise as presented by Buenaventure. Bitcoin does not make rebittance cheaper – at least not yet. All four companies acknowledged that the bulk of the cost is made in the first and the last mile, the part of the remittance process that doesn't really involve bitcoin. As such, rebittance startups are not particularly well positioned to compete with existing giants Western Union and MoneyGram as far as costs go.
HelloBit co-founder and CEO Ali Goss explained:
“These companies have very large foreign exchange (FX) departments, and they're basically able to bring the cost of sending money across boarders down to zero. We're talking about big movements of money, which they do when prices are favorable. They might even make money doing that, as opposed to it being a major cost.”
As such, Goss continued, bitcoin doesn't actually remove that much friction. Rather, it can make it worse.
“With bitcoin, you're adding a third currency,” Goss said. “You go from U.S. dollar to bitcoin, and then from bitcoin to whatever the local currency is. You're adding an extra FX move right there alone. That increases friction. On top of that, small startups don't have a big FX department, and they don't have the big abilities that come with such a department ... they're generating more costs for themselves, not less.”
Hannah Kim, COO and Head of Product at Volabit, added:
“In addition to costs, perhaps a bigger problem is that Bitcoin companies in many countries – most notably the U.S. – cannot develop sustainable partnerships with cash-collecting and distributing networks due to unclear regulatory implications.”
SatoshiTango co-founder and CEO Matias Bari agreed, but emphasized that he is quite hopeful for the future, saying:
“I agree that rebittance is currently not cheaper than existing alternatives, but I do think that costs will lower as long as companies in the space grow and are able to charge less for the same service. That is a path we need to walk. But it is going to happen in a couple of years when the industry gets bigger and healthier and some mechanisms used today probably change for better ones, allowing us to improve our processes and lower fees.”
The only company that disagreed with Buenaventure's assessment was Bitex, the Latin Americawide bitcoin exchange that offers remittance services within the region as well.
Bitex co-founder and Chief Marketing Officer Manuel Beaudroit stated:
“In this region there's a significant reduction in cost when using bitcoin, from 15, 20, or 30 percent to 6 or 10 percent in most cases. Though it is true, though, that the main added costs are in the first and last mile, where the branch offices usually charge 2.5 percent to 3 percent.”
The rebittance companies generally agreed with Buenaventure's conclusion that Bitcoin does help smaller startups get a foot on the ground in the remittance industry, while they also acknowledged that adoption of local virtual currencies or other fintech solutions could severely cut costs.
But the rebittance companies pointed out that one other aspect is even more important: innovation. The open nature of Bitcoin allows for startups to use this technology in new and innovative ways, and this is where they believe the rebittance industry should really get its edge.
“I would not say that the remittance industry is stagnating,” Volabit's Kim explained. “Rather, the industry is being forced to evolve quickly by learning what works and what doesn't. The remittance population is as diverse as its use case, and looking at success cases like Transferwise it’s clear to see that there are opportunities to reach people that are more open to online, tech-forward solutions.”
This was seconded by Goss, who's HelloBit transformed its remittance company into a sort of “Uber for cash” where users act as “human ATMs.”
“Smart people need to come up with smarter things, and we will ultimately see the innovation occur that will make using Bitcoin for remittance cheaper.” Goss said.
“But that wasn't our goal. We knew early on that it wasn't going to be cheaper right off the bat, therefore what we asked ourselves: What could we do that's different? So, with HelloBit, you might pay more sometimes, but then you’d pay more for an additional service. You get the money delivered to you. Though it may be more expensive than picking it up at Western Union, or maybe the same price, you have the added benefit of delivery, which is a completely new distribution model. And out users are able to settle right there with their phone, rather than having to need a bank account.”
Bitex's Beaudroit agreed that rebittance companies should focus on alternative markets rather than the markets that are already served by the existing rebittance industry.
“I see bitcoin playing a fundamental role for remittance company when needing to move funds crossborderly, more focused on B2B (business to business) than B2C (business to customer), at least for the following couple of years,” Beaudroit told
SatoshiTango's Bari acknowledged that rebittance companies will need some time to find the best way to utilize Bitcoin, too. He believes this will be a long process, with many failures on the way, but that this is healthy for the market as a whole.
“It is normal that we see a stagnation after some two years of absolutely excitement,” Bari said. “It is common; it’s a Darwinian process of selection among companies.”
And, drawing a comparison to the automobile industry, Bari said:
“You know Ford and Chrysler. Find out how many car companies were funded 70, 80 years ago, at the same time those two were funded. Hundreds. They couldn’t make it. It took many years until they became these amazingly huge companies. But when they first started they were startups, not knowing where to aim.”