Ghanan Remittance Startup Beam Drops Bitcoin For Debit And Credit Cards

Beam relaunched their service as payment gateway for Ghanaians living abroad to buy services and products for family or friends living in their home country earlier this month. The firm will now only be accepting international debit and credit cards for payment, dropping the digital currency bitcoin as a payment option.

Bitcoin played a central role in the startup’s earlier business plans, which targeted undercutting remittance companies servicing the country by using the digital currency’s payment network. Beam cited bitcoin’s ability to be borderless and stored without a bank account as reasons the currency had potential in Ghana’s developing economy.

“Using an international debit or credit card, you can pay for utility bills, top up airtime, send gifts or even get errands done back home in Ghana,” Beam CEO and cofounder Falk Benke told Disrupt Africa. “So no direct cash payouts anymore and we no longer accept bitcoin as means of payment.”

Beam is also offering valet services, tuition payments, cable bills payments, and more. This type of money transfer is called value remittances, and involves the recipient receiving a product or service rather than actual money. It is a business model used by several African remittance companies as well as the Latin American remittance company Regalii, a graduate of the Y Combinator startup incubation program.

Beam launched its original service in October 2014, suggesting that the local remittance market was ripe for an alternative. The company stated that local remittance fees were nearly three times than that of Asia and often suffered from delays. The firm partnered with several mobile money operators in the country so recipients could receive money directly to their phones, a form of payment that many Ghanaians are familiar with. It also gave them the ability to easily turn it into cash through mobile money tellers.

"By using bitcoin to accept payments from remittance senders, we are able to receive payments instantly and with almost no fees.”  said Beam cofounder and former CEO Nikunj Handa, in October of 2014.

However, as the year progressed the firm discovered that while having several benefits there were also numerous drawbacks to bitcoin. Benke told Disrupt Africa that the cost of exchanging the digital currency to Ghanaian cedi, the country’s national currency, alongside bitcoin’s volatility and lack of merchant adoption contributed to the lack of adoption among consumers that led to company’s pivot.

Digital Currency and Africa

Many proponents of Bitcoin believe that it could have the most dramatic impact in emerging markets, including some countries in Africa. Many cite the currency’s adoption in Argentina, where the Argentine peso has experienced high inflation, bitcoin being one way for Argentines to escape its effects. Africa’s high inflationary currencies, and lack of financial infrastructure, are reasons many believe the digital currency will help the continent.

Bitcoin remittance startup BitPesa was one of the first digital currency startups to open for business in Africa, when it launched its beta service in May 2014. The firm, which services Kenya, Tanzania, and Uganda, has reported that its service has been growing steadily and the company raised $1.1 million in funding earlier this year. BitPesa has found that businesses paying suppliers and talent in Kenya to be its greatest source of customers, and is now focused on serving them. The company also operates a bitcoin exchange in all of the countries its remittance service is offered.

BitPesa, however, remains the only real success story for bitcoin in Africa. Other African bitcoin companies, including Bitfinance in Zimbabwe, IceCUBED in South Africa and Nigeria, ZapGo in South Africa, or Bankymoon in South Africa have yet to raise a sizeable seed round or impressive customer metrics.

Bitsoko, a bitcoin and blockchain wallet in Kenya, did breathe some fresh life back into the space when it announced it received a grant from the Bill and Melinda Gates Foundation through the Grand Challenges Explorations Competition, a program to find new companies that solve important issues in emerging markets, in June.

“Daniel Bloch of Bitsoko in Kenya will develop their mobile money platform known as Bitsoko, which integrates Blockchain technology for low-cost transactions mediated by bitcoins. They have built a mobile wallet and a point-of-sale service for merchants that allows money to be easily and securely transferred around the world using only a Bitsoko username, phone number or bitcoin wallet address,” read the program’s website.

Bitcoin Remittance

Remittance powered by bitcoin is commonly regarded as a use case that could propel the nascent digital currency into everyday use while saving unbanked immigrants billions of dollars in remittance fees at the same time.

By using Bitcoin’s cheap payment network, proponents claim that startups will be able to cut down the cost of remittances. Using the digital currency costs a fraction of the fees charged by large incumbents, including Western Union and MoneyGram.

The resulting massive savings would put more money in the pockets of people who rely on remittances for their basic needs, the poor and unbanked. Without a clear winner in the space, remittance analysts are still unsure whether bitcoin has a future in the remittance industry, or if blockchain technology will have a bigger impact.

Remittance industry analyst, and SaveOnSend founder, Yakov Kofner thinks the case for bitcoin money transfer is weak. One example he gives to illustrate his point in a blog post is that nearly half of all expenses for the remittance incumbent Western Union were agent commissions, payments given to the people who manage the remittance company’s physical points of presence. This cost, Kofner points out, is one that bitcoin would have very little effect over.

“It becomes apparent that most of [remittance companies’] costs are related to payments for receiving from and discharging funds to customers, customer acquisition, channel infrastructure, customer service, and risk-management-compliance, not in recording transactions or moving money cross-borders. Hence, providers are eagerly looking for more cost-effective ways to collect and distribute funds vis-a-vis customers, acquire customers, deploy offline and online channels, service customers, manage risks of releasing funds before getting paid… not functions where bitcoin seems to be offering a distinctive cost advantage,” wrote Kofner in a blog post.

The notion that bitcoin could help the unbanked, a reason often given why it will have potential in emerging markets, is also flawed according to Kofner. He puts forward that people sending $200 per month to their families in India, China, Philippines, Mexico, or elsewhere have money, and likely a bank account and a smart phone as well. An analysis of 2011-2012 World Bank and FDIC data by remittance startup Xoom (recently acquired by Paypal), showed that 78% of US resident non-citizens have a bank account. Western Union has also reported that the majority of the company’s customers are banked.

“On the receiving end of remittances,” Kofner continues his post, “being unbanked is not a significant inconvenience or cost issue. With around 500,000 Western Union locations, money could be easily picked up by the great majority of such unbanked recipients. There will always be pockets of consumers who live in extremely remote areas, but reaching them with an advanced technology in a cost effective way is simply unrealistic at this point.”

While many remittance experts and analysts debate the merits of bitcoin-based remittances, international transfers leveraging blockchain technology, the type of ledger that bitcoin is built on top of is becoming more and more popular among payment thought leaders. Though much of the conversation around blockchain technology has been focused on institutional applications the managing director and founder of payments research and consulting company Q Insights, Nasreen Quibria wrote in an American Bank Op-Ed that she could also see it being used in consumer to consumer transfers.

“The blockchain could be particularly effective in improving cross-border payments, more specifically correspondent banking, business-to-business payments and peer-to-peer remittances. Each of these areas involve numerous inefficiencies. That could soon change,” wrote Quibria. “The blockchain faces no geographical borders and can reach any area with Internet access. Without middlemen, the fees, transactions times and opacity that have plagued legacy cross-border payments can become a thing of the past.”

Ripple Labs, the firm behind the Ripple protocol, tried to lessen the costs of consumer remittances when it first launched the Ripple distributed ledger, in 2012, which is technologically similar to Bitcoin. But the firm found that due to difficulties, including volume and regulation, that is was better suited for institutional uses, like bank-to-bank payments. Ripple Labs CEO Chris Larsen still describes the opportunity as one very much in the mind of the firm, and something they are interested in revisiting in the future.

Align Commerce, on the other hand, is taking a very different approach and targeting business-to-business (B2B) remittances powered by bitcoin in the background. And unlike previous startups, the firm does not require users to purchase bitcoin in order to use the service, avoiding the hassle and cost of obtaining the digital currency, while at the same time benefiting from the digital currency’s advantages. The startup thinks that businesses will be more eager to change to a new remittance service for a cheaper rate than consumers, and that since they don’t have to touch bitcoin there is no barrier for those who don’t have any digital currency.