Category Archives: Banks

Bitcoins $430 Billion Remittance Opportunity

The rise to prominence of bitcoin has produced a lot of talk around the world for its supposed potential to transform the global remittance industry. This is no small feat, having a potential of $430 billion in global trade. Given that this online currency is almost as easy to implement as sending mail is, it’s hard to believe that only fringe attention has been given. There has been tremendous talk of it’s growing potential,  however, despite all the promise, the platform for the use of bitcoin and other digital currencies is yet to be adopted on a wide international scale.

Looking at the figures

Looking at the Philippines as example, a country that receives the third highest amount of remittances in the world. The figures are quite interesting. In 2013, the Philippines received $26 billion worth in remittances. In 2014, the figure rose to $27.5 billion. At the moment, the annual growth of the remittance industry in the country is between 1 and 2 billion dollars annually. Behind Philippines comes Mexico, which enjoyed a $23 billion windfall in 2013. However, Mexico’s stake in the remittance has been on the decline since the beginning slowing of main street in the US starting in 2008.

For both Philippines and Mexico, the bulk of this money seems to originate from the United States. 98% of Mexico’s remittances come from the States while the Philippines obtains 30% of its total from the same source. Taking a closer look on the other hand, tells you that over $10 billion of the Philippines’ totals does not actually come from the US; it is simply re-routed there from countries in Europe, Australia and Asia.

What this tells us is that despite seeing a slow down the US economy, financial services in the US remained healthy. The United State having the world reserve currency is still the financial hub of the world. Many of the world financial institutions funnel economic trade through its American financial centres and this is a factor when transferring money. Not only does this make put transactions under US regulation it also increases transactional fees. The current monetary and economic system is still fairly centralized and lacks commercial diversity. The industry is ripe for innovation.

Putting the argument in perspective

It is not easy to imagine a bitcoin company starting from scratch and beating established money transfer services like Money Gram or Western Union. However, it is very possible to start a bitcoin transfer service to serve a small, targeted clientele. Establishing yourself if you do not have the financial wherewithal to open branches around the world can be an issue but through global collaboration, peer networks can be created? Independent businesses will have to work together to build a divers money transfer landscape. You will also have to assume that most of the migrant populations in many countries do not understand or care about the machinations of crypto currency, but this will slowly evolve.

The solution

Rebit (Philippines), Bitpesa (Africa) and Airbit (Indonesia) are some of the services that receive and convert bitcoins into currency ,sending them out to recipients at the end . There are no risks here because the final user is never gets to handle any part of the transaction.

The snag here is that to make a transfer, a client has to first convert currency to bitcoins. This technicality allows for the inclusion of an informal intermediary, a strategy that could potentially put a different business out of work. From the outset, this assertion seems laughable, but it is far from it. An in-depth look will give you an exact picture.

How it works

Bitcoin companies do not keep a supply all the time. They find sources of the crypto currency mostly when there is demand. Once they get a hold of a batch, they will try to sell enough to make payouts to the beneficiaries of their customers. A trader who knows their way around can manage to sell a decent amount of bitcoins for cash and make a decent profit. Though in harsher times, breaking even is always appreciated.

Whether the operation is on or off ramp, there will always be a need to integrate technologies that make transacting in bitcoins easier.  The problem however, is that only the countries with the best banking infrastructures will benefit from a setup like this. Sample this: in the Philippines, there is a markedly higher number of pawnshops than there are ATM machines while in India, money transfer services are very informal in approach. Dealers will have to integrate within these existing systems.

Legal aspects of the transfer of BTC’s

Some countries around the world will require that any business wishing to trade in bitcoins to obtain a license, and even then, the procedures are not exactly straightforward. In the United States, very few companies have managed to obtain licensing in every state because the costs are simply outrageous. In the ASEAN region, the costs will be in the tens of thousands of dollars while authorities in the Middle East will ask for between one and two billion dollars. Apart from financial implications, these start ups have to comply with anti-laundering rules that complicate everything all over again.

At this point, we are about to start a race, with $42 billion worth of global savings at stake. The good thing is that after all, we do not need a central authority to trade in bitcoins. The nature of the currency will make it easier for decentralized brokerages to exist in each country. This strategy may not topple giants like Western union, but it will make such transfer entities stand up and take notice.

Are Swiss Banks Private like in the Movies?

Swiss bank have for a long time been iconic for big wealth and pseudonymous for privacy. Popular movies have long depicted Swiss numbered bank accounts as being no questions asked lock boxes to store your ill gotten gains but Swiss banking has changed.

Remember the days of those James Bond villains carrying the steel briefcase with a telephone in it ready to receive the wire for that big extortion? At one point in history, Switzerland had one the most developed and secretive banking sectors of the world. It’s wasn’t by any means unsupervised but was infamously secretive. During World War 2 Swiss banks were known to carry accounts for both sides of the conflict, to everyone from victims of war to high ranking official and pillagers alike. Parts of high French society were exposed to have made large deposits to evade French taxes when Swiss banks were actively financing the Germans. In 1934 the Swiss government restructured regulation on banking through the Federal Act on Banks and Savings Banks granting account holders privacy from all non-Swiss third parties. Individual accounts were, and still are identified by number and every number corresponds with another number to identify the client. It’s a form of natural encryption which is the basis of many important digital currencies today (encrypted digitally of course). This form of encryption, is only as private as its intermediary settling the transaction which until the 1990s was the bank itself.

Banking in Switzerland today is supervised by the Swiss Financial Market Supervisory Authority (FINMA). Over the last decade due to overwhelming political pressure from many G20 nations, repeals to an important law that was granting much of the privacy were discussed. In 2009, Swiss authorities indicated that changes were to be made to a certain portion of the act, where banks would only reveal private information in cases of serious crimes, tax evasion not being one of them. In 2013, authorities further indicated that they were going to align with standard G20 banking practices but no material change has been made since.

The loophole mentioned by many G20 economic pundits relies on the fact that in Switzerland the act of not reporting earned income is considered tax evasion and not tax fraud. Authorities simply don’t view tax evasion as a serious enough offence to breech privacy. From a Swiss stand point, its makes economic sense because they are earning domestic deposits while reducing a foreign countries tax base. Switzerland is definitely the rich guy on the block.

Since 2009, there have been many lawsuits directed toward Swiss banks (such as UBS for $780M) but an increase of political pressure has been applied on Swiss banking authorities and privacy has been breached. Foreign governments have been successful in lobbying Swiss banking authorities to reveal information making other banking jurisdictions more attractive. With the current global climate, these havens will move around. Switzerland has comparatively vast political clout.

You’re better off going to Switzerland to ski because now a days, if you are looking to hide ill gotten gain, Switzerland is not at the top of your list.

This nostalgic subject brings up an interesting topic in economics and it’s the role of privacy within our transaction system and our world. What amount of privacy is acceptable and in what circumstances? What is money laundering if not hiding wealth accumulated from what would be considered shady activities. I think that with evolution of our financial system and communication, these subjects are going to become increasingly important as mining your data is progressing in use and effectiveness. How private should your money be?