If you’ve ever used money transfer services to send cash to a friend or loved one overseas, you’ll know that you have to pay expensive fees for the privilege of doing so. The amount of which depends on how much you’re actually sending, but in almost every scenario it’s far from cheap. A factoid I recently posted to Facebook (which was sourced from the World Bank) says migrant workers are paying $14 billion a year in remittance fees, money not going to their families.
Emerging markets are one of the where cryptocurrencies can see their strongest growth in the near future.
Bitcoin remittances in Africa
Africa is largely perceived as the world’s most poverty-stricken region, but despite this, it may be one of the first places in the world to see widespread adoption of Bitcoin for financial transactions like remittances.
An article in USA Today says there’s approximately 326 million Africans who do not have access to basic banking services and that’s the main reason why M-Pesa, a mobile phone-based money transfer and microfinancing service has done so well received in the region. M-Pesa allows users to deposit and withdraw money, transfer funds to other users and non-users, pay bills, purchase airtime, transfer money between the service and a bank account in some markets, all with the use of a mobile phone.
About 16 percent of Africans use mobile phone-based services such as M-Pesa. Though the service allows more people to access bank-like features, the transactions fees may deter some people from doing so. Transaction fees can be as low as 0.47 percent to up to 66 percent depending on how much money is involved and who you’re sending the money to. Sending money to non-M-Pesa users however, carries a whopping transaction fee of 66 percent.
Africans’ reception of mobile-based financial transactions is seen as a positive sign for the growth of Bitcoin in the region. The aptitude for a virtual and digital currency is there, which means an easier transition to Bitcoin is possible, and because sending and receiving Bitcoin does not require the use of high-end smartphones, it would be like using M-Pesa or other similar services, only easier and cheaper.
Who is capitalizing on the cryptocurrency opportunities in Africa?
Currently, there are already some companies who are pushing Bitcoin as an alternative way to send money in Africa. One of the biggest of these is Kipochi, which means “purse” in Swahili. Kipochi is a Bitcoin wallet that can be accessed using any mobile device so long as it has Internet access. You can use it to send and receive money without having to remember long Bitcoin account addresses as it uses your mobile number as the Bitcoin address. Kipochi doesn’t charge transaction fees when using the service, which is great for people sending money. Bitcoin transactions are mostly free, but when users want to withdraw Bitcoins from multiple addresses, there’s usually a minimal and optional transaction fee which goes to the Bitcoin miners as a form of incentive to keep on mining.
Another service, BitPesa, aims to leverage Bitcoin as a means to easily transfer money in Africa. BitPesa is a Bitcoin platform with its first product directed at Bitcoin remittances in Kenya. The service aims to solve money transferring issues such as hidden fees, unfair exchange rates, and unreliable delivery. It aims to seamlessly integrate with banks and mobile money services but promises to do transactions at a third of usual transaction fees.
Pelle Braendgaard, the CEO of Kipochi, stated that at present, young tech-savvy men from urban centers such as Nairobi are the ones interested in Bitcoin as a form of investment. These people are treating Bitcoin as a commodity, in the hopes of its value going up and selling them at the right time. Braendgaard wants to change this notion by making people see Bitcoin as a currency that can improve their lives. Braendgaard wants Bitcoin to appeal to women managing household expenses.
“My goal is to make bitcoin usable by ordinary people all over the world, so that even my grandma can use it,” Braendgaard stated.
Headwinds to change
Though there’s a huge opportunity for Bitcoin in Africa, the fact remains that it’s still a digital currency, unlike euros or dollars which can be held or kept in physical wallets. It’s hard to convince people to use something that they can’t actually hold on to.
Most African banks refuse to entertain the idea. In February, it was reported that South Africa’s Standard Bank was testing a Bitcoin platform which aims to seamlessly integrate the digital currency to a multinational bank. It was hoped that this would pave the way to make Bitcoin be viewed as legitimate currency, but Standard Bank later announced that although it has finished testing the platform, it would not make it available for its clients to use. Simply put, the bank decided not to support Bitcoin after all.
Though one of the positive points of Bitcoin is its lack of a central authority, it wouldn’t hurt if it gets the support of financial institutions as it would look more legitimate to consumers.
The biggest challenge Bitcoin faces is from banks and money services themselves. According to Andrew Brown, head of compliance at cross-border payments specialist Earthport, Bitcoin is often seen as a means to facilitate money laundering, something banks and money services have worked hard to keep at bay.
“There is so much invested by governments, international bodies and law enforcement agencies in the regulatory framework around trying to prevent organized crime […] No government is going to suddenly leave open a back door to let some murky waters in,” Brown stated in an interview with CoinDesk.
The brighter side of Bitcoin
Speaking us at SiliconANGLE earlier today, Braendgaard said that he believes Bitcoin can replace money transfer services like Western Union. However, he said it’s not reached that stage yet, though services such as Kipochi can help it get there.
He compared Bitcoin to the Internet, remembering how it replaced most forms of communication. Bitcon, like the Internet, is an open network and it needs services the same way Internet service providers made the Internet available to more people.
When asked about certain governments and financial institutions’ aversion to Bitcoin, Braendgaard explained that it’s mainly because of their fear of the unknown. He also said that some governments may be scared of landing on the Organisation for Economic Co-operation and Development’s Financial Action Task Force blacklist for money laundering, even though he believes Bitcoin could actually help governments make sense of their financial status.
“In Africa it’s estimated that only 3% of all transactions are electronic. This means that 97 percent are not under any form of AML rules or transparency. Bitcoin could be a big step up in helping central governments get an idea of what is going on in their economy,” Braendgaard stated.
Finally, he noted that Bitcoin is not completely anonymous as it’s possible to check all Bitcoin transactions or investigate Bitcoin accounts using the http://blockchain.info website. In other words, money laundering should not be a big issue once policy makers realize the benefits and potential of Bitcoin.