Bitspark vs. Hong Kong

Hong Kong’s bustling population of 7 million only has about 350,000 migrant workers, but on Sundays, it feels like every single one of them has managed to cram into the same 12 square kilometers of the Central district. Their mission is always the same, send money back home to the Philippines or Indonesia in the most affordable and secure way possible.

In the midst of this joyful chaos is Bitspark, a three-year old remittance startup founded by Australians George Harrap and Maxine Ryan.

Bitspark began its life as a Bitcoin exchange in early 2014, but quickly refocused on the money transfer problem after studying how big the market is in their own backyard. Each year, Filipino and Indonesian migrants working in Hong Kong send a combined US$800 million back to their respective home countries.

With their market composed almost entirely of low-income domestic helpers, Bitspark was forced to keep the high-tech aspects of their service as far away from their customers as possible.

Their cash-in/cash-out model was one of the first in the world, and it correctly anticipated a model that other Bitcoin remittance startups would also later employ, i.e., using Bitcoin purely as a back-end settlement mechanism, instead of a marketing gimmick.

Most other Bitcoin remittance startups at the time were trumpeting the “Bitcoin advantage” prominently in their marketing, but the realization that customers were simply confused by the jargon, and often had little interest in world-changing cryptocurrencies, was a key insight that would sway much of Bitspark’s current and future strategy.

Field Experience

In its early days, Bitspark would set up a temporary kiosk in the middle of Worldwide House, the busiest Filipino mall in the city of Hong Kong, during the height of the Sunday chaos. From here, Harrap and Ryan would take down customers’ names and transaction details, and then trigger a Bitcoin transaction on their laptops to their last-mile partner in the Philippines.

Co-founder Maxine Ryan talks about their early experiences and her unexpected journey with Bitcoin. “I never thought that I would be interested in making it my mission to ensure cheaper remittances worldwide, but it just makes me excited.”

Having tested the waters with a physical remittance shop and learning how money is currently sent by the existing services, Bitspark set out to create an online platform for the remittance shops in early 2015. With each new business they signed up, they gained access to thousands of customers who were already using these shops regularly, instead of trying to develop a market from scratch.

The startup was initially buoyed by the Cyberport incubation program, a government-sponsored support system that included funding and office space, as well as the Accenture Innovation Lab. The Bitspark remittance platform now services 5 countries.

In August 2016, the startup announced a major partnership with Vitaxel Group, a publicly-traded multi-level marketing company out of Malaysia. The deal may prompt Bitspark to shift their headquarters from Hong Kong to Kuala Lumpur in 2017, a significant move for the two founders.

Fintech Paradise Lost?

But Hong Kong is not the fintech paradise many entrepreneurs used to crow about, at least not in Harrap’s opinion. With Malaysia quickly becoming their main focus, he talked about how Hong Kong was becoming “increasingly less relevant with the government’s newly restrictive regulatory barriers to doing anything payments-related.”

Additionally, opening a bank account is a particularly challenging thing to do in Hong Kong. Bitspark was rejected by 12 banks before finding an account, and even then operates much of its banking outside of the autonomous territory.

It’s an opinion shared by other Bitcoin entrepreneurs and community members in the territory, among them Leonhard Weese, president of the Bitcoin Association of Hong Kong.

“The Hong Kong government has classified Bitcion as a virtual commodity, and thanks to a [simple] regulatory and tax framework, Bitcoin can easily be used and accounted for by Hong Kong businesses,” Weese explains. However, the banks are considerably behind in terms of competition, innovation, and risk appetite. “Hong Kong is a great place for your Bitcoin startup, unless you need a bank account,” Weese concurs.

Harrap believes that Hong Kong sees itself as a financial hub, but “the truth of the matter is a digital business doesn’t need to ‘exist’ anywhere. The jurisdiction of choice will therefore be that which can offer the most incentives for new companies.”

Luis started working in the Bitcoin remittance space in early 2014 and, with his young startup Bloom, focuses on bringing blockchain technology to small and medium businesses around the world. This series of essays is based on “Reinventing Remittances with Bitcoin,” his free ebook available for download.