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LONDON (Reuters) – El Salvador can tout the use of bitcoin to help its citizens living abroad send money home, but the biggest money transfer companies are cautious about offering crypto services -change.
FILE PHOTO: Bitcoin banners are seen outside a small restaurant on El Zonte beach in Chiltiupan, El Salvador, June 8, 2021. REUTERS / Jose Cabezas
In a move that could be a harbinger of crypto becoming a more popular way to send money across borders, El Salvador on Wednesday became the first country to adopt bitcoin as a parallel legal tender.
President Nayib Bukele has harnessed the potential of bitcoin as a remittance currency for Salvadorians abroad.
But despite the possible long-term risk to their business if such moves escalate, only a few of the traditional money transfer companies that send the bulk of cross-border transfers are trying.
Any effort to enter crypto could be a double-edged sword, driving down the fees that are the bedrock of their business.
For Western Union and some of the other remittance providers, keep in mind that most of the volume in the remittance industry goes from developed to emerging markets, mostly to people – families and friends – who operate in cash, said Kenneth Suchoski, US Payments and FinTech Analyst at Autonomous Research.
As bitcoin is not embraced and widely accepted, these remittance providers will still be relevant for years to come, he added.
Less than 1% of global cross-border remittance volume is currently in crypto, Suchoski estimated. But going forward, crypto is expected to account for a larger share of the more than $ 500 billion in annual global remittances.
Yet bitcoin offers, in theory, a fast and inexpensive way to send money across borders without relying on traditional transfer channels.
A forerunner among money transfer companies, MoneyGram International said last month that it will allow customers to buy and sell bitcoin for cash at 12,000 outlets across the United States as part of the ‘a partnership with Coinme, the largest licensed cryptocurrency exchange in the United States.
We have built a bridge to connect bitcoin and other digital currencies to local fiat currency, MoneyGram said in an emailed statement to Reuters. As cryptocurrencies and digital currencies gain in importance, one of the main obstacles to further growth is the ramps of access to local fiat currencies.
Western Union, the largest money transfer company, had tested the use of bitcoin and crypto in the past and failed to come up with a good use case that involved significant cost savings, Suchoski said.
Western Union and other big players, including Wise, WorldRemit, Remitly, Xoom, and Ria Money Transfer did not respond to requests for comment.
CRYPTO CRIME
The remittance industry has successfully shifted from physical point-of-sale transfers to online transfers in recent years, a trend accelerated by the COVID-19 pandemic.
Cross-border remittances via mobile money increased 65% in 2020 to reach $ 12 billion.
But any transition from digital to crypto can be more difficult.
I really have a hard time seeing how they’re going to compete, unless they really lower their price – you can’t compete for free, Ray Youssef, CEO of the Paxful crypto platform, which is popular in Africa and is looking to compete with traditional money transfer companies.
Money transfer companies are already under pressure to reduce fees, which were on average 6.5% in the fourth quarter of 2020, according to a World Bank report, more than double the United Nations development target sustainable 2030 for transfer fees.
In contrast, the fee for transferring bitcoin in Nigeria, for example, would typically be around 2% to 2.5%.
Rising regulatory costs associated with anti-money laundering and anti-terrorist financing efforts are another burden for traditional money transfer businesses.
Western Unions’ annual compliance costs have risen to nearly $ 200 million, up from about $ 100 million a decade ago, Suchoski said.
Bitcoin would likely add to this burden.
The potential of bitcoin for anonymous transactions has long worried regulators, who fear it could facilitate money laundering and terrorist financing. Many crypto companies have stepped up compliance steps, such as requesting a user ID, but this is an expensive process.
Bitcoin has been used in many underground transactions, Suchoski said.
Reporting by Tom Aronold and Tom Wilson; Editing by Aurora Ellis
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