There has been a lot of excitement on the Internet lately about Bitcoins and their possible use as a medium and currency for International Remittances (Cross Border Money Transfers).
It is safe to assume, that if Bitcoin remains and stabilizes, it would definitely be used for instantaneous wire-transfers. Migrant remittances for 2013 from developing countries are estimated to be US$ 414 Billion (Source). A lot many players in the remittance space are looking at leveraging Bitcoins for the one-way transfer, quick transaction time and universal coverage where ever an Internet connection is, for purposes of Home Remittances. With more people jumping on to the Bitcoin platform, is it safe to say that Western Union is dead and Bitcoins will rule the remittance market? (Read this article on Gigaom on: Western Union responds to Bitcoin buzz, sort of).
Personally, I don’t think that the likes of Western Union, MoneyGram, RIA, et. al. are about to call it a day and wrap up their immense money-transfer network & business. The old saying, if you can’t beat ’em (in the online space), join ’em, might just be true for these online giants.
Bitcoin, whilst promising a very bright future for payment, has a few issues that would need to be ironed out, before it can start slicing a very small piece of the remittance pie.
Not Everybody Uses Bitcoins: While every magazine, newspaper and blog is covering Bitcoin, it is far from mainstream. Even in the online world, an incredibly small fraction of of users are actually using Bitcoins. This would have to change. As more and more merchants start adopting bitcoins, and thus promoting more users to sign-up and pay for the products/services via bitcoins, then slowly you will see an emergence of the adoption rate for Bitcoin shoot up amongst the migrant workers who are online (or mobile) and can use Bitcoins for transfers.
MTO Adoption: Money Transfer Operators would also need to adopt bitcoins and possibly have to forego their relationship with the Big 3 (WU, MG and RIA). Rather than each migrant worker having their own bitcoin wallet and bitcoins, they could very easily walk into an MTO and buy bitcoins on the spot and transfer them.
What Price is it? If a Bitcoin is worth $ 1,00 (for example in Chicago) and you buy it and send it across to Bangladesh, what is the price that the Bitcoin would be changed into local currency if the price of Bitcoin itself is fluctuating?
If the price shoots up to $ 125, who keeps the $ 25 gain? and if the price drops to $80, who will cover the $20 loss? The volatility in Bitcoin pricing is a serious deterrent (at present) in the Money Transfer Market.
The Dodd-Frank Act, specifically Section 1072 requires that all money transfers be done in such a way, that at the time of transaction booking the Sender should know exactly at what rate is the recipient going to be getting their money at, something that is just not possible with the volatility that bitcoins are now experiencing.
Gateways/Market Makers: Whilst bitcoin is all the rage in the West, is it all the rage in migrant recipient countries like India, Pakistan, Bangladesh, Philippines, Mexico, etc?
The answer is No! (not yet anyways!)
Central Banks (or the equivalent regulators) of these recipient countries would have to roll out a frame-work to enable Bitcoins to link with their existing currency and banking system. This would invariably bring bitcoins into regulation – a thought on which many banks would be scratching their heads. Who do they regulate? A virtual product? Getting it right with Bitcoins, will take some time, so don’t be looking at quick rollouts of Bitcoins in the developing world as far as remittances are concerned. At least not legally speaking anyway.
Market Makers or Gateways in developing countries are almost non-existent right now. If one has to send money to rural India, who changes these bitcoins into Indian Rupees? If you allocate a regional or country level gateway, then more charges are being introduced and the question of conversion price needs to be answered.
It would be interesting to see how the remittance space matures with Bitcoins, especially when alternative currencies and networks are out vying to compete for this segment (Ripple immediately comes to mind).