The remittance industry is a vast ecosystem that consists of nearly 250 million international migrants worldwide, according to the 2017 Migration and Development Brief 27 by the World Bank. The millions of migrants send money back home to their families who often live in the developing parts of the world. In the same Brief, the World Bank projected remittances sent back home would total $444bn in 2017. For the receiving families, that money is a critical source of funding that supports basic living expenses such as rent, clothing, food, education and healthcare. But despite the vast scale of this industry, there are currently only a few players that dominate the market and control the infrastructure that enables money transfers across borders.
In the retail remittance market, the consumer-facing side, Western Union is by far the biggest player. The disproportionate control they have allows them to set the price of transaction fees as they see fit. As you might expect, the prices they set are unnecessarily high and they are effectively ripping off millions of people and choking billions out of the developing world. Devex reported that in 2016 at least $32bn was lost in transaction fees due to expensive legacy processes and the dominant players that have an interest in maintaining the status quo. That’s all about to change with our transformational remittance network designed to empower the individuals that need it the most via the BitShares Blockchain.
Western Union is Exploiting Millions of Migrants
The remittance industry is mostly controlled by a few companies, but Western Union tops the list as Bloomberg reported the company had a 13% market share and $8.95 billion market cap in 2017. The monopoly held by Western Union allows them to dictate terms in many markets, and they’re not afraid to charge punitively high fees in some remittance corridors.
Overall, Western Union commands an average 15% pricing premium for its brand and applies substantially different margins across different remittance corridors with hidden fees included in the exchange rate. In a bid to further maximise profits, Western Union frequently adjusts fees across transfer amounts and transaction methods in a completely opaque way – consumer unfriendliness at its best.
For example, sending $200 from the US to El Salvador costs $8, but it’s $42 to send $500 to Burkina Faso through the Western Union website. Just like other money transfer providers, they make money off the foreign exchange market buying several different currencies at interbank rates and then offering its customers less favorable terms.
In response to Africa Progress Panel Chairman Kofi Annan’s remark in 2014 where he called the high fees “unethically expensive”, a Western Union spokeswoman said: “Our pricing varies between countries depending on a number of factors, such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility and other market efficiencies. These factors can impact the fees and foreign exchange rates offered by corridor and service type.”
But even if half of that statement is true, the extortionate fees can’t be fully attributed to logistical and regulatory costs alone. There are far more efficient and cost-effective technology solutions available that could lower their costs. Provided they’re willing to let go of current legacy systems. But so far, they haven’t made a genuine attempt at achieving that. It looks a lot more like the dominant players are using their market power to secure unreasonable margins and in the process exploit senders and receivers of money.
If you’re wondering why there aren’t many newcomers to the industry that could unseat Western Union and the others, that’s because of the restrictive business practices the incumbents have set in place. For example, banks and agents have exclusive agreements which stipulate that once they work with, say, Western Union, they are not allowed to work with other providers. It’s a severe barrier that restricts newcomers from entering the market as they traditionally need banks to enable cross border payments.
This gives our solution all the more validity as we have designed a money transfer system that completely removes the reliance on banks by using cryptocurrencies to increase financial inclusion worldwide.
Using Cryptocurrencies to Give MTOs the Competitive Advantage
In what is truly a game changer, our remittance network uses cryptocurrencies to facilitate the transfer of fiat cash across borders. Money Transfer Operators (MTOs), that have signed up to the Spark network, and mobile app Sendy users interact by selling and buying fiat cash which decreases or increases their digital crypto balance. The crypto balance in their accounts are fiat-pegged cryptos relevant to the specific remittance corridor. In a global transaction, it’s the cryptocurrency that is being transferred between digital accounts. Cash goes into the system as fiat-pegged crypto, travels across borders, and is cashed out at the destination point in local fiat currency.
Because of this design, our system completely removes the needs for bank accounts. This makes it a lot easier for local MTOs to enter the remittance market and compete with the established players. Additionally, it even gives MTOs a competitive advantage over players like Western Union because the inherent benefits of cryptocurrencies allow money transfers to be processed a lot faster at a much lower rate.
To further strengthen the position of MTOs, they can set their own fees, split 50/50 with Spark, to keep appropriate pricing in their local markets and balance fee reductions with profits in a sensible way. We also take away much of the burden when it comes to meeting regulatory requirements by providing the ability for all customer due diligence information to be stored on our database at the time of account creation. This reduces the labour-intensive paperwork that is often coupled with AML/KYC requirements when customers deposit or withdraw funds.
An Ecosystem Designed to Accelerate Financial Inclusion Worldwide
Besides strengthening the position of MTOs in the industry, using fiat-pegged cryptos as an integral part of our system also enables us to substantially increase accessibility worldwide. Across the world, there are an estimated 2 billion ‘unbanked’ people. Mostly residing in the developing parts of the world, they do not have access to bank accounts or other banking services and only deal in cash. The Spark ecosystem is designed to empower both MTOs and the individuals who are currently ‘unbanked’.
MTOs access the full range of our services by logging in to our online platform, and all the individuals need to transact with MTOs is a phone with the Sendy app installed. That gives them instant access to one of the world’s fastest and cost-effective remittance services. They wouldn’t even need to understand how we create fiat-pegged cryptos on the Bitshares Blockchain, or how cryptos work at all for that matter. All they need to know, and they will as soon as the first transaction, is that our system delivers cash in hand in a matter of minutes at a fee that would be inconceivable in a Western Union dominated world.
Currently, our network covers 7 countries in the Asia Pacific and African regions including Hong Kong, Malaysia, Philippines, Indonesia, Vietnam, Ghana and Nigeria. In collaboration with the United Nations Development Programme, the next country to be added is Tajikistan. We have over 100,000 cash out locations and are adding new ones every day. In the long term, the goal is to lower the average transaction fee for remittances worldwide and have a lasting positive impact in parts of the world where it’s needed the most.
The World Bank recently said that lower transaction fees could spur an increase in remittances and lift another 30 million people out of poverty. We hope you will join us in making that happen.
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