Here is how HelloBit’s co-founder and CEO Ali Goss summarizes this conundrum in the insightful

15 Jan by Ila Gupta

Here is how HelloBit’s co-founder and CEO Ali Goss summarizes this conundrum in the insightful

“With bitcoin, you’re adding a third currency,” Goss said. “You go from U.S. dollar to bitcoin, and then from bitcoin to whatever the local currency is. You’re adding an extra FX move right there alone. That increases friction. On top of that, small startups don’t have a big FX department, and they don’t have the big abilities that come with such a department … they’re generating more costs for themselves, not less.”
Bitcoin’s key FX challenge remains an insufficient liquidity in many corridors. The spreads are so high that even die-hard Bitcoin players are using non-blockchain rails to complete transfers for those destinations. Yeap, you heard this right, EVERY so-called Bitcoin/blockchain money transfer startup pays banks to process a large portion, sometime a majority, of its cross-border transfers. Here is ZipZap in this interview to CoinDesk:
“ZipZap uses a combination of traditional (Swift) bank payment rails and blockchain technologies to find the least expensive and most efficient transfer option…”
Bitcoin can dramatically reduce remittance prices
Most of the potential savings for international money transfers could be realized today, immediately, IF ONLY senders stop going to cash agents and spend 3 minutes linking their bank accounts on their smart phones using their existing providers like Western Union or Ria Money Transfer. Not understanding why so many senders continue spending 3-5-10 times more while having a bank account and a smartphone will likely lead to many disappointments for Bitcoin money transfer startups and their investors down the road (read our analysis of fundamental difference in behavior of senders from USA to India vs. Mexico).
Examples of such disappointments are frequent – see the “Graveyard” section toward the end of this article or read these insights from Bitcoin entrepreneurs. But still too many Bitcoin remittance stakeholders keep repeating an outdated adage of a 10% average margin by “traditional” providers and that Bitcoin solution is 250x cheaper:
Pantera Capital Investor Newsletter – September 2015
Pantera Capital Investor Newsletter – September 2015

Same notion is prevalent among Fintech experts. Here is Chris Skinner on a Breaking Banks podcast (starts at 32:45):
“Now using companies like Abra a US citizen could send someone in Philippines a hundred dollars with hardly any commission taken off, compared to 25% or more being taken by traditional players.”
Instead, spend 30 seconds on SaveOnSend app to find the actual commission for sending different amounts…
Comparison of Providers – USA-to-Philippines, $100, bank-to-bank, July 15, 2017
Comparison of Providers: money transfer USA-to-Philippines, sending $100, bank-to-bank, July 15, 2017

… or read the latest brief from WorldBank. You would quickly discover that the weighted average global margins have been falling to less than 6% (Western Union‘s global margin is ~5.5%, Ria Money Transfer’s – ~4%). So why are we seeing so many articles about high costs of sending money internationally? Because it was the case in the past, and it is hard to change our mindset to a fundamentally different input. As usually happens, high margins attracted more competition and prices have dropped 20-30% in the last 8 years alone:
WorldBank Cost of Sending $200 till Q3 2017
Source: https://remittanceprices.worldbank.org/sites/default/files/rpw_report_september_2017.pdf

Moreover, there is a huge difference in prices of remittances across top outbound countries:
WorldBank Average Send Cost by top Outbound Country Q3 2017
Source: https://remittanceprices.worldbank.org/sites/default/files/rpw_report_september_2017.pdf

Such data is hard to gather and maintain, so the real prices might be even lower as was discovered in this study:
South Africa to Zimbabwe $200 WB data vs. Independent
Source: http://www.finmark.org.za/wp-content/uploads/2016/11/cross-border-remittances-2016.pdf

What is causing South Africa to be 5+ times more expensive than Russia? Most experts claim that it is due to two issues, de-risking by banks and exclusive partnership with retailers by Western Union and MoneyGram:
“A major barrier to reducing remittance costs is de-risking by international banks, when they close the bank accounts of money transfer operators, in order to cope with the high regulatory burden aimed at reducing money laundering and financial crime. This has posed a major challenge to the provision and cost of remittance services to certain regions.”
“… the core issue with WU is their exclusivity clauses that have been used for decades to successfully lock markets to one provider, who can then increase their mark-up fees as there is no alternative.”
Neither of these reasons is the case when comparing South Africa and Russia. It is easy to blame “banks” or “Western Union,” but the real root cause is usually with opaque or corrupt governments that favor banks over MTOs and Fintech.
More relevant for Bitcoin-based remittance providers whose customers tend to be tech-savvy early adopters, margins for online remittance in top corridors are in the 1-3% range. For example, in the world’s most advanced corridor, USA-to-India (see reasons in this SaveOnSend article), many providers don’t charge any fees for digital transfers and their FX markups are typically around 0.5-1%:
FX margins comparison across providers – remittances from USA to India till Jan 13 2018

Or review the FX markups for another world’s top-10 corridor, USA-to-China – for 6 months in 2016, Western Union was charging ZERO, no fees or FX markup, for sending money online, from-to linked bank accounts:
FX margins comparison across providers – remittances from USA to China till Jan 13 2018

It is true that Western Union and TransferWise transfers could take few days, so if Blockchain-based providers could offer their services for free AND in real-time they would have an advantage… as long as their investors don’t mind a business model with a negative variable margin. Some Bitcoin/blockchain remittances startups claim that they already offer such service:

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