Bitcoin adoption within the international remittance market is starting to show its first real signs of life. According to the founder and CTO of BloomSolutions, Luis Buenaventura, bitcoin powered remittances now account for 20% of the Asian remittance corridor between South Korea and the Philippines. “$35-40M a year is bitcoin, probably more than that,” he told BNC during an interview. According to the world bank, US$215 million passed through the corridor last year.
“We know that it's 20% because we're closely involved with all of the players.”
- Luis Buenaventura, Founder and CTO, BloomSolutions, Inc.
BloomSolutions’ flagship product is a retail platform leveraging bitcoin for cheaper international remittance. The business model has quickly become a nascent niche payment sector, and there are several companies vying for a chunk of the new market in the Philippines. Payphil, Sentbe, and SCI’s Rebit all compete directly with BloomSolution, while established bitcoin exchange businesses in the area, like Korbit and Coinplug, are also active in the market.
Korbits CEO and Founder, Tony Lyu, has seen strong demand for cross-border remittances settled on the blockchain, ”that's why we created Hyphen,” Lyu told BNC. Hyphen makes it easy for fintech companies and remittance businesses to make cross-border payments using the bitcoin rails.
“We act as a bridge between the various bitcoin exchanges and remittance services around the world and the local banking networks,” Lyu explained. “I wouldn't be surprised if bitcoin-based Korea-to-Philippines remittances were in the ballpark of 20% of the officially reported remittance figures.”
“I believe it's less about bitcoin replacing 20% of existing bank-based remittances, but rather some of the volume sent through the informal value transfer systems coming over to the better-regulated and more trustworthy blockchain-based institutions.”
- Tony Lyu, Korbit CEO & Founder
The World Bank states that remittance flows are estimated to have exceeded $601 billion in 2015. However, “the true size of remittances, including unrecorded flows through formal and informal channels, is believed to be significantly larger.” The formal channels are dominated by firms like Western Union and Moneygram.
Remittances costs tracked by the world bank cost an average of 7.60 percent of the amount sent, cutting prices by 5 percent can save up to $16 billion a year. “These funds would simply remain with migrants and their families and could contribute significantly to improving the living conditions of the migrants themselves,” states the World Bank, “as well as reducing poverty in their countries of origin.”
Western union moved more than $150 Billion in 2015, generating $5.48 billion in revenue. MoneyGram is the second-largest money transfer company in the world, with $1.45 billion in annual revenues. MoneyGram offers services at approximately 350,000 agent locations in more than 200 countries, and has “an aggressive expansion plan” that includes 15 to 20 percent of money transfer revenue from self-service channels “including online, mobile, account deposit, ATMs, and kiosks.”
These channels are the same as those used by the majority of bitcoin leveraging remittance companies. As smartphones become increasingly pervasive, chat applications are playing an increasingly prevalent role in the market. Western Union recently enlisted the help of China’s well-established WeChat app, as well as partnering with Viber, a chat app with over 711 million users in over 190 countries.
“Chat apps are already used by 75% of all smartphone users and continue to be one of the fastest growing digital services in the world [...] With the help of Western Union, Viber is making sending money as easy as saying ‘hello!’.”
- Western Union
However, costs remain high. A Western Union transfer up to $100 using Viber, for pickup in cash, costs $3.99. To send up to $750 directly to a bank account it costs $2.99. The company also makes money from currency exchange, generating $1.4b in 2015. Fees generated $3.9b.
KaKaoTalk is the premier chat app in South Korea ,with over 170 million registered users, and claims nearly 93% market penetration. The company made its first-ever overseas investment this year, buying 40% of Satoshi Citadel Industries (SCI). KaKao is now integrating the SCI bitcoin-using remittance platform, Rebit.
“Kakao is joining the bandwagon because of the rising Interest,” BloomSolutions’ Buenaventura stated. He should know, he was a Vice President at SCI until he set out to start BloomSolutions last December. Buenaventura claims remittance-over-chat is responsible for the majority of his 20% figure, and facebook is at the forefront of the change.
“The reason why facebook chat is the preferred messenger is because you can use it without a data plan here in the Philippines.”
The picture here shows an example of the BloomSolutions remittance process, held through a facebook messenger chat session. “This is an overly formal conversation between me and a bot that i programmed,” the CTO said, “but essentially this is how it works with the human support agents too.”
Buenaventura pointed out that there is no need for rebittance startups to set up an office in any of the destination countries, although they might do well to find several different partners in each one. “You just find an on the ground partner,” he said. “I could have more than one overseas partner in the same way that they could have more than one Philippine partner.”
PayPhil uses a similar business model. The company is based in Korea and partner companies in the Philippines sell the bitcoin for Philippine Pesos. The Pesos are then paid out to customers through bank deposit or cash pickup at Kiosks. “We're literally stitching together small bitcoin businesses using the blockchain as the settlement mechanism,” Buenaventura explained,“eastern union-style.”
However, a growing number of payment providers, including BloomSolutions, find it important to obscure the fact that they are using bitcoin. “We keep it vague because it makes people nervous when they see the word bitcoin,” Buenaventura states. His concern is echoed at very well-funded competitors Abra and Circle too; both are bitcoin-based money-sending businesses in the western market that do a very slick job of hiding how bitcoin powers their platforms.