Does Bitcoin/Blockchain make sense for international money transfers?

15 Apr by Ila Gupta

Does Bitcoin/Blockchain make sense for international money transfers?

March 25, 2018 — Posted by SaveOnSend to Bitcoin for sending money, Money transfer destinations: India, Philippines, Mexico, China, Western Union, Who can beat Western Union? | 81 Comments
Bitcoin money transfer: competing with fast elephant
“I think we will know when bitcoin has reached prime time when it is transferring more value each day than Western Union or Money Gram…”

– Roger Ver, November 2013

Bitcoin money transfer is usually discussed in either sensational or downright misleading way. There is a significant category of Bitcoin or, currently more popular, blockchain stakeholders and observers who seem to be completely vested in this innovative product’s awesome potential and are unable to entertain a deviating opinion. This very smart and capable, but, unfortunately, close-minded group believes that Bitcoin cancels a need for regulation and would soon destroy Visa, Western Union and “banks.” Articles written for and by such audience are easy to find, and we will not link to them to avoid enabling such either outrageously ignorant or deceptive opinions.
Rational view of Bitcoin/Blockchain for sending money
In this context, we are always grateful to find discussion about Bitcoin/Blockchain for remittances which attempts to be more objective. Here are some examples: Bootstrappers guide to bitcoin remittances, Tackling bitcoin price swings OR

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or
SalDellePalmaResponse
However, even more reasonable experts seem to be de-emphasizing a fundamental diversion in understanding of Bitcoin/Blockchain value that shall be considered for its potential in international money transfers. Here are the key points made by proponents, usually taken at face value.
Large segment of consumers is suffering without Bitcoin/Blockchain money transfer
“The unexpected tragedy of the financial system” is quite representative in this regard. What is common about these articles is seemingly absolute lack of a field research or basic customer surveys. For example, there are monthly government reports that analyze consumer complaints about providers of financial services. Reading such report for the US market, there are relatively few complaints about money transfers and most of those are centered around fraud, not exactly a strong suit of Bitcoin with its embedded anonymity:
complaints-by-service-cfpb-august-2016
Source: http://www.consumerfinance.gov/data-research/research-reports/monthly-complaint-report-vol-14/

Speaking with enough low-income consumers who transfer money internationally, one could quickly discover that there is no “tragedy,” and, what is most puzzling, this segment is not even that eager to save on sending money:
Inter-American Dialogue Survey – Feedback 2016Why? It is not because low-income senders are lacking infrastructure. A large portion of SaveOnSend’ “cash” users have a smartphone and a bank account which could be easily linked for an online money transfer. BUT they are sticking with a cash agent, and, as the result, are paying 3-5-10 times more for sending money home. Counterintuitive? Yes. Tragedy? No.
And that is why, offline-to-online shift in remittances is happening at a crawling, 1-2% annually, pace and will be taking decades, not years. This is not unique to remittances. Such slow adoption is actually quite typical for other types of financial transactions: from cash to plastic cards, from checks to online billing, or from a “swipe-insert” plastic card to a “touch” payment with a phone or a watch.
Noncash Payments in US 2000-20015 Fed Reserve 2016 study
Source: https://www.federalreserve.gov/newsevents/press/other/2016-payments-study-20161222.pdf

Bitcoin/Blockchain money transfer can help the needy
Articles about FinTech-Bitcoin-blockchain are often trying to invoke “unbanked” “poor” or “women” as the reason and special focus for money transfer startups. Instead of simply acknowledging that these startups are primarily founded to make money and accumulate market power, we are asked to believe in their higher calling. Not surprisingly, such articles are always missing two critical components which would make those claims believable: 1) specifics on targeting such segments, 2) explanation on how to make money with such targeting:
Bitcoin money transfer for unbanked

This argument is misinformed on both the sending and receiving ends of a money transfer transaction. By definition, most of the senders who transfer $200 per month to their families in India, China, Philippines, Mexico have money. Which means that majority of them have both a bank account (70+% for Western Union and same for MoneyGram) and a smart phone. For example, there were only 7% of Americans without access to banking services in 2015. 69% of migrants in US had access to banking in 2016, more than doubling from 30% in 2005:
Inter-American Dialogue Survey – US Bank Ownership 2016On the receiving end of remittances, being unbanked is not a significant inconvenience or cost issue. With around 550,000 Western Union’s agent locations, money could be easily picked up by the great majority of such unbanked recipients (30% of those locations see NO remittance activity). 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 (more on that later).
can bitcoin money transfer be available in remote places?

There is virtually no advantage between receiving money into a bank account vs. picking them up from a cash agent – in most cases, a provider’s margins are the same for either method (check for yourself with SaveOnSend app). Moreover, one of the top reasons for migrants’ use of informal channels is tax avoidance (read this research). Bitcoin provider could address such concern by promoting Blockchain’s anonymity, but no established startup might be willing to take on such risk (more on that later).
Many of the original Bitcoin remittances startups were founded before 2015 by people without a cross-border expertise who did not know these facts and had a sincere hope to help unbanked with remittances. Founders of recently launched Blockchain-based startups came from the industry, and such information became a common knowledge… but new Blockchain startups keep repeating the same message of helping “2 billion unbanked” while targeting digitally savvy and better-off consumers:
Everex Blockchain Startup Aug 12 2017
Source: https://www.everex.io/, August 12, 2017

And what about those poor-unbanked-women that Fintech stakeholders talk about so much? They will be just fine. Even if Fintech, Bitcoin, Blockchain, Mobile Money, Big Data or all digital innovations combined disappear tomorrow, the old technology has been sufficient in eliminating poverty:
Poverty rates 1820 2016

Bitcoin/Blockchain money transfer is instant and, thus, doesn’t carry the FX volatility
The “nearly-instant-free” transfer via Bitcoin was true to some extent up until the middle of 2015, but the Bitcoin community has been unable to solve a technical problem which led to systematic transfer delays and higher fees (see details here). Regular cross-border money transfer is already evolving to a real-time payment. For example, in the world’s largest corridor, USA-to-Mexico, many providers already deliver funds in a day or less and more will join (check for yourself with SaveOnSend app):
Comparison of Providers – USA to Mexico, $500 transfer, bank-to-bank linked accounts, March 22, 2018
Comparison of Providers – USA to Mexico, $500 transfer, bank-to-bank linked accounts, March 22, 2018

Money transmitters like Xoom or TransFast could already send money virtually instantly for 70-90% of bank-funded transfers. They have developed a better risk management and bank connectivity, and other providers will eventually catch up. With other providers, consumers could get an instant transfers if they are is willing to pay a bit more for using a debit card. Why does a bank transfer takes days while a debit card is instant? Because instead of using a private rail of Visa and MasterCard, banks had to rely on outdated government networks which could take few days to confirm a transfer. But not for long. Australia, UK and few other countries already implemented near-real-time payments capability. Similar implementations in other countries, such as USA and Canada, are already under way, with most developed countries expecting to launch near-real-time rails by 2020.
So any speed advantage of Bitcoin-blockchain is being eliminated, plus a transfer via Bitcoin-blockchain carries an FX conversion disadvantage, a double-whammy:

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