Category Archives: Remittance

How to Save Money on your Foreign Remittance

Sending money overseas is getting cheaper. There’s no question that for many migrant workers that there are new ways to send money back home, but in order to save people will need to start changing their financial habits. Part of what has traditionally restricted people to send money around the world with ease is that the traditional banking system is not standardised across the world. Yes, it is pretty standard across many western and developed economies but many less developed and rural regions of the world do not have the same rules to transacting. To understand this, it’s firstly important to understand what the role of banking is.

A bank is an agent who settles a transaction. Accounting for your balances is simply a by-product of settling your transactions but has become standard in the industrialized world. The primary role of a bank is to authenticate the monetary trade between to parties and exists in more primitive forms throughout the world. Within traditional western banking, the settlement of transactions and account registration go hand in hand but in many less developed regions, account registration is not so formalized. Take an individual money changer in a less economically developed or rural of the world.

Informal money exchanges are the norm across many countries and account access is achieved through a third party exchanges or money brokers. These are people who less formally exchange money but operate in the field. They will send money abroad converting cash to credit under their won accounts.  This inherently conflicts with western KYC and anti-money laundering/terrorist financing regulation because of its less formal nature. It also ends up increasing overall rates for the end user. Money brokers in less developed regions have have professional networks across the world but the way that their western counter-parties interact with traditional institutions is problematic. Their entire business model can’t comply with traditional regulation by its inherent nature of informal dealings. This is only one of several opportunities that lie for operators within the field. Political relations have also been an obstacle for agents remitting internationally but is less of a controllable factor for money exchange businesses.

The way that foreign remittance is currently getting cheaper is through the improved access to global financial markets whether formal or informal by end users. People only need access to the internet to have access to a financial markets to trade Dollars for Euro or even M-Pesa for Bitcoin. SMS technologies are even now evolving to include payment services which is granting access to using sophisticated devices. This is huge for two thirds of the world because they can now access global financial markets cheaply.

What this means for much of the world is they will now have access to financial services because the new types of institutions are setting up using digital currencies. These are for the most part, currencies that are designed to be crowd sourced meaning anyone can transact in them without needing any outside authority. This is  a less formalized process which is better suitable for less formal economies, countries or regions. A the moment, the bulk or the infrastructure is needed for intermediaries (agents or brokers) between the digital economy and the formal financial system, but it is coming.

For people who do currently do have access to banking in first world nations, sending money abroad has also changed. We now have companies like Payonner and CurrencyFair who are specializing in foreign remittance and have cut cost significantly for end users by not having physical branches. CurerncyFair is an internet company designed for the new online world. They focus on providing excellent rates for remittance within more developed countries. This has lowered cost significantly by focusing large efforts in developed economies with online payments. Payonner on the other hand is a little different than traditional money exchange. With them, you basically send money anywhere that has postal service and ATMs. They will send pre-paid MasterCars anywhere in the world and it can be refilled. It’s like sending a cheque to your family back home and they can actually cash it then use it whenever you refill it. For sending money to less developed areas, Payonner can be a good option because the intermediary can literally be a bank machine or point of sale (POS).

What I’m suggesting, is that to save money when remitting payments back home, understand that the entire industry is blossoming and becoming more competitive. New type of financial institutions are starting up worldwide to meet your need, regardless what they are. No longer does your remittance have to be a side operation of your bank because you can deal with a wider variety specialist that can connect to world markets.  Understand your needs and the most suitable company will save you the most money sending foreign remittance.

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.