This article discusses the ability to make small-value remittances, across border in a seamless manner, without incurring any high-costs that are typically associated with cross-border money transfers. These micro or small-value transactions can literally uplift economies. There are (in my opinion) Billions of Dollars worth of transactions, waiting to happen, if the framework for it is provider for.
If you have to transfer money from country A to country B, the process is relatively simple. You would most likely be using a preferred method of making your payment (Bank transfer, Western Union, a Walk-in Money Transfer Company, Mobile App, etc.)
In all the cases, there is a minimum that is set, before you can make a payment.
- Western Union may require that the minimum amount you can transfer is US$ 100.
- A Bank may set the minimum wire-transfer amount to be US$ 300.
- An MTO would ask you for US$ 150 as the very minimum.
- Your mobile-app for money transfer may require US$ 75 as the very minimum.
It is precisely these minimum amounts that are hampering additional transaction growth. On an interview conducted across the board for blue-collar workers and even white-collar workers who remit money back home, when it comes to the day they have to transfer the money (a task which has to be performed), they do dread it. They dread it not for the part of actually performing the task, but the money drain from their account in most cases can be a noticeable percentage of their income.
For blue-collar workers, it represents a significant percentage of their income. Anyhow, like I said, the money needs to be transferred and is done so.
82% of our respondents cited that they would love to have the ability to be able to transfer small amounts from time to time. US$ 10. US$ 25. US$ 5, etc. without thinking and without any heavy usage fees.
Herein lies the problem.
Why the need for Small-Value Remittances?
During our survey, we found out that the beneficiary in most cases would want to receive a small payment, but they know they can’t. For example, someone would want US$10 to be able to buy some dinner for tonight. The remitter would not even think twice about sending such money across, as it is a small amount, even on their salaries, US$10 is not to big a deal to send across. The only problem is that sending US$ 10 is no easy feat.
Deflated, both parties will now patiently have to wait for the next payday so the regular remittance can be done.
In countries like Pakistan, India, Nigeria, Nepal, Philippines, Argentina, Kenya, etc. sending across a couple of US Dollars means a lot. It means even more so, during special moments, or moments of micro-duress. For example…
- A birthday cake is US$12, wouldn’t it be great to send US$15 across so that a birthday cake could be bought?
- At the gas station and out of money, need US$ 7 would help out.
- Tuition fees due today, short US$ 35.
- Groceries bill overshot, need US$ 17.
Small value transfers keep the cogs of small businesses and low-income families going. They are super vital to our economy, yet, when it comes to small value transfers happening across border, there is no easy solution.
What solutions exist?
We’ve surveyed quite a few solutions. More or less, they employ one of the two solutions prevalent right now:
- Pre-funded Wallets: where by the Remitter has the ability to open a pre-funded wallet in the beneficiary’s country and then can do an inter-wallet transfer to the beneficiary’s account. The problem with this solution is that it needs to be prefunded. So the Remitter has to make a minimum deposit into the wallet, to be able to allow micro transfers. Kind of defeats the purpose if you ask me, but the more I think about it – Pre-funded Wallets can also be the answer.
- Bitcoin Transfers: the other solution is using Bitcoins (fractional Bitcoins) and sending them across. This is a great solution, except it does have its challenges. Buying Bitcoins in the US seamlessly and knowing how to use them is still not mainstream, though we will eventually get there. Selling Bitcoins on the receiving end can be a bit of a challenge. Not many people understand how bitcoins work. In developing countries, the ability to cash out using your bitcoins (in real-time) hardly exists. Sure there may be an example or two, but they don’t necessarily qualify for mass adoption.
A lot many companies are working on this problem. Most of them relying on the ability to use cryptocurrencies as the payment denominator and rails for the cross-border transaction. Some have already made their products, some haven’t. The goal is the same. Have a pragmatic solution to real-time, frictionless, cross-border small-value payments.
And the survey says…
The top five requirements we found in our survey regarding small value remittances were (in order of priority, #1 being the top more requested feature)
- Real-time Transfers & Credit. Being able to receive money in seconds, for the Beneficiary to be able to spend.
- Native Credit. The money should be natively be credited to their mobile wallet, debit card, bank account, etc. Nothing special needs to be done. No extra-steps.
- Low Cost for Transfer. Many would be okay to pay up to 3% (total) for the transfer of small value remittances. This means no fixed fees like US$1 + 3%, or 50 cents + 3%.
- Should be able to work with Non Smartphones. Not everyone has a smart-phone. The solution should be able to work with regular phones, yet still be agnostic of the carrier (i.e. no core requirement of using the USSD channel)
- Wider Acceptance. Work on a larger adoption by the distribution channels on the receiving side.
Any successful company that wants to be able to harness the power of small value transfers (or remittances) will essentially have to obey or address the five axioms above.
What’s Stopping Us?
A question I hear many times is “What’s stopping us?” – Answer honestly is nothing. It just required a more dedicated will and resources at making the existing products better to be able to extrapolate their usage to the small value transfers market.
From the list above, you can clearly see, each individual element is very much addressable. There is no rocket science here. Some might argue, greed (aka ROI) is an issue for those who invest, who am I to disagree? It could very well be the case. Solutions that are prevalent right now, have added steps, that perhaps can best be terms unnecessary. The fluidity of the system is not smooth and seems to be missing.
A system that is able to use Bitcoin and Pre-funding of wallets on the receiving end, can make this solution possible. The mechanics can be addressed in many ways, and are not too difficult to chalk out.
For what it is worth, this transaction set is desperately missing from the market. In closing, I do want to point out, one company that does excite me on such a system is Ripple. By integrating into the Ripple wallet and Ripple Gateways (with your payout wallet), such a system can very well work.
Now you may or may not be a Ripple fan, in which case, feel free to use Bitcoins (which by the way can be handled natively by Ripple) or go the Stellar route. The answer lies in the mix of using such technologies and experimenting.
I don’t claim to know the answer completely, but I can say with surety, the demand for such a product is sky-high.