International money transfers are a multi-billion dollar global industry. It is often used by migrants to send money to their country of origin. Or companies use it to send funds to their global workforce.
Some companies also use these services to transfers of large sums for B2B transactions. However, companies that facilitate international money transfers often charge exorbitant fees, which becomes a challenge.
Cryptocurrency claims to offer a solution to this problem. People have to pay much lower fees while transferring money using cryptocurrency. This is why the use of cryptocurrency is increasing beyond trading assets for investors to international payments. The main reason is that cryptocurrencies don’t follow conventional currency conversion rules, which makes the process faster and cheaper.
The use of cryptocurrency is also shifting to other aspects of conventional currencies, such as earning, spending, saving, borrowing, or lending. At first, established payment companies were skeptical about using digital currency for their transactions.
But in recent years, a growing number of companies have started to focus on using cryptocurrency to facilitate payments, including transfers of large sums across borders.
Some big names like Microsoft, Tesla, PayPal, and Expedia have started accepting cryptocurrency payments. Even major card networks like Visa and MasterCard have announced plans to enter the encrypted payment space.
El Salvador’s decision to legalize Bitcoin
The use of cryptocurrency for international money transfers has gained momentum since El Salvador became the first country to start accepting bitcoin as legal tender. The decision to adopt bitcoin as legal tender was proposed by President Nayib Bukele and approved by the National Congress on June 9, with 62 out of 84 votes in favor.
Bukele wants to use cryptocurrency transfers to help Salvadorians living abroad. He wants them to be able to send money home without paying exorbitant fees. The small country does not have its own currency and has used the US dollar as legal tender. Bukele says adopting bitcoin as legal tender alongside the US dollar will bring the country’s financial independence.
The country’s economy relies heavily on money sent by its citizens living and working abroad. World Bank data shows that international remittances to El Salvador were worth nearly $ 6 billion in 2019. This represented nearly a fifth of the country’s GDP. This ratio is probably one of the highest in the world.
Adopting bitcoin as legal tender will provide citizens with a faster and cheaper way to send money across international borders, without needing to rely on typical remittance forms. President Bukele assured that the adoption of bitcoin would not affect the macroeconomics of the country.
Potential of cryptocurrency in remittances
Several start-ups around the world provide cryptocurrency-based remittances. BitPesa is a company that offers crypto-based remittances for five currencies in Africa. The company has completed nearly $ 235 million in bitcoin transactions to date and has a database of more than 26,000 customers.
Coinbase, which is one of the largest cryptocurrency exchanges in the United States, recently entered the market with a valuation of $ 76 billion. It offers international money transfer services using a variety of cryptocurrencies and promises instant free transfers between Coinbase accounts.
They only charge a nominal fee to transfer money to other platforms. PayPal has also allowed its users to buy and hold cryptocurrencies. It also allowed US customers to pay international traders with a selection of cryptocurrencies. The payment would be converted to the local currency during the transaction.
Crypto purists claim that it cannot be taken as a real-life example of payments made with cryptocurrencies, as the amount is ultimately converted. However, this type of transaction protects traders from the volatility of multiple cryptocurrencies.
Western Union only started testing the waters with cryptocurrencies through its partnership with Coins in the Philippines. The mobile wallet allows account holders to spend both local currency and cryptocurrency.
The goal is also to make it easier for Filipinos to receive remittances across the border. MoneyGram International has announced a partnership with Coinme, another of the largest cryptocurrency exchanges in the United States. It will allow people to buy and sell bitcoin for cash at 12,000 outlets across the United States.
However, cryptocurrency is still a marginal element for several established players in the remittance market. Despite El Salvador’s decision, some of the biggest money transfer companies are still reluctant to offer cryptocurrency services.
On the flip side, spokespersons for crypto platforms say conventional money transfer companies will soon find it difficult to compete with them unless they lower their prices. It is true that most of the big money transfer companies are already under great pressure to reduce their fees. Currently, money transfer companies charge an average 6.5% fee, while cryptocurrency transfer fees range from free to 2.5%.
There is an undeniable growth in interest and support for cryptocurrencies from consumers as well as payment companies. It seems inevitable that we will see an increase in the use of cryptocurrencies for international payments in the near future.
However, it remains to be seen whether it can compete with the flow of conventional remittances and card transactions. There is no doubt that the use of cryptocurrencies for international money transfers has a long way to go.