Remittance revolution

Remittance revolution

They might know nothing about Bitcoin, but the virtual currency is making remittances faster and cheaper for overseas Filipinos.

When Jesehl Basco pitches the idea of using the digital currency Bitcoin to make payments, he is usually greeted with resistance. "Clients are sceptical about this new technology," he says. "It takes a lot of time and effort to explain to them what it is and its benefits, especially during the early years of Bitcoin.

"But it's worth it."

That worth is easy to calculate. Basco's company iContent Media, which provides content writing services to mostly foreign clients, gets charged high rates when using PayPal's online money transfer system, plus the exchange rate used is "way too far off" from market rates, he laments. But with Bitcoin, iContent Media has been able to collapse costs completely.

"There is almost a nil remittance fee and the exchange rate is based on the international rate," says Basco. "And what's more, transactions are completed in a few minutes."

Bitcoin is best known in its incarnation as a crypto-currency, with inherent high levels of risk due to its virtual nature of possession. Indeed, if you have bought any Bitcoins in the past 18 months, this risky nature is very real -- the digital currency has seen considerable losses.

However, when utilised as a remittance, the risk becomes manageable.

Six years after its creation, this world of blockchain exchanges remains arcane to most except for select circles of financiers, techno-geeks and early adopters. And that's okay. Because, as it turns out, the ideal usage of Bitcoin may not be in the form of an asset, but rather as a remittance tool used to transfer value, like a commodity trader, which carries no risk for the sender.

Satochi Citadel Industries (SCI), a Bitcoin company in the Philippines, has capitalised on such alternative uses. "There is a greater emphasis now on Bitcoin as a remittance tool," says John Bailon, co-founder and CEO of SCI. And, in these transactions, "both the sender and the receiver don't even have to know that they're using Bitcoin".

In the Philippines, where 10% of the country's gross domestic product comes from remittances sent by overseas Filipino workers (OFW), this US$28-billion industry could be rocked by the disruptive power of such a technology.

Seeing the revolution at hand, the central bank, Bangko Sentral ng Philipinas (BSP) has invited SCI to advise it on how to manage the crypto-currency. "They're approaching it carefully but very positively," says Bailon. "Our government is open and friendly to disruptive technology."

This is a good attitude for the government to have, because the success of SCI's remittance services will prove earth-shattering for money transfer providers such as Western Union. SCI even has a similar inception story.

"Western Union actually started out as a group of companies in different territories that decided to create a union to allow remittances to flow through them, hence the name Western Union," Bailon told Asia Focus in an e-mail interview.

"What we're building now is similar in a sense: We're leading a new business model that allows any company to connect to similar companies and allow money transfers to flow freely via the Bitcoin network. We jokingly call this movement the Eastern Union."

Because the Bitcoin network is decentralised -- an open technology allowing anyone to connect into it -- it creates even further alterative-use cases, such as land title registration, marriage contracts, and even personal identification. But the remittance market offers a tide capable of floating the technology into global relevance -- and it's no small slice of pie.

Global remittances were worth a total of $582 billion in 2014, according to the World Bank, and most of these money transfers occur from developed countries, where overseas workers earn a living and send money home, usually to a developing country.

In order to truly compete with a global giant such as Western Union, physical spaces are needed to create the points of transfer, either by building them from scratch or acquiring partners that will tap a network of agents.

In this ambition, SCI found Bitspark, a Hong Kong-based Bitcoin company that acts as a partner on one side of their Hong Kong-Philippine remittance corridor. To the layman, the entire process is marketed just like any other transaction, except, behind the scenes, the complex mechanics of digital currency trading are taking place.

Bitspark generally hires agents from a large network shared by Western Union, but entices them onto their software by offering a significant discount in fees.

"They [agents] pay Western Union an 80% commission on every transaction; that's huge," says George Harrap, the co-founder and CEO of Bitspark. "With Bitspark, we split it 50:50 so the money transfer shops make more than double what they do currently -- they now can actually reduce their prices and still earn more money than usual and have access to more pickup providers at the other end, handled by our partners, such as Rebit."

Rebit, a Bitcoin liquidity provider, is one of the three companies that Bitspark uses at this stage of the transaction. Customers are never told that a digital currency is being used to make their transaction faster and cheaper.

"Our users don't need to know anything about Bitcoin and we don't mention it at all. There is no need," says Harrap. "People who want to send money, want to send money; they don't care about Bitcoin or how it gets there. We handle all the Bitcoin stuff at the back end and all the user handles is cash, as they normally do anyway."

Users may not know they are transacting in Bitcoins, but they'll certainly know the prices have dropped dramatically. "We generally charge a 1% commission. This is in contrast to fees ranging from 2.5% to 10% depending on what day it is, and where in Hong Kong you are," says Harrap.

From this stage, a company on the receiving end of the corridor picks up the baton, in this case, SCI. "They [a partner such as Bitspark] would then send the corresponding Bitcoin amount to us," says Bailon, "and we would pay out in pesos to the recipient and via whatever payout option the sender chooses." This can include bank deposits or cash pickups at partner providers, such as Cebuana Lhuillier, a popular Philippine remittance service and pawnshop.

SCI, which gets its name from Satoshi Nakamoto, the mysterious creator of Bitcoin, was recently funded with $100,000 in seed capital; the company is proving a potent bellwether for the industry. Yet, while the remitter under this system absorbs no risk using Bitcoin, the remittance service providers still have to prepare for market shocks, such as those that the global bourses have experienced in recent weeks.

"Just like a forex business or commodity trading business, [SCI] faces risks when markets crash and move rapidly," says Miguel Cuneta, co-founder and CCO at SCI.

"We have learned to manage our risk well enough to earn revenue amid the volatility of the price of Bitcoin. Running a Bitcoin business is not for the faint of heart."

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