As the cryptocurrency market moves sideways and amid a
deepening stablecoin exodus, the sector remains a vital lifeline for many sending
money to loved ones while dodging extremely high fees that
can be life-changing over time.
Cryptocurrency remittances have been seeing their adoption
grow, and the low volatility seen in the space over the
last few months might just be the silver lining that
encourages more people to transition from mere spectators
to active users, harnessing the true potential of this
financial avenue.
Compared to traditional methods, crypto remittances sport
numerous advantages, which include faster processing time,
lower transaction costs and more transparency. Speaking to
Cointelegraph, Brendan Berry, Ripple’s head of payments
products, noted that for both fiat and crypto, the basic
tenets of payment success are “speed, low-cost settlement,
security and reliability.”
Berry noted that from a macro perspective, existing
domestic payment rails work “relatively well” but face
difficulties when cross-border payments are made. Berry
added:
“There is no third party or global central bank, so the world has created this complex system of correspondent banking that is costly, error-prone, slow and leaves trillions of dollars in locked-up capital.”
He said that remittances have become a lifeline for
millions worldwide and can be greatly improved through new
technologies like crypto and blockchain.
According
to World Bank data, remittances grew 5% in 2022 to reach
$682 billion.
Berry added that the high cost of remittances — ranging
from 5% to 7% worldwide — and their slow speeds burden
millions of families. He stated that the global economy
“may seem like an always-online global marketplace, but
traditional finance still operates on a 9 to 5, Monday to
Friday, schedule.”
Cutting through high costs
The World Bank estimates the global average cost of sending $200 is 6.5% — a massive amount of money for families living on $200 or less a month.
Speaking to Cointelegraph, a Coinbase spokesperson said
that whether consumers use banks, money transfer operators
or post offices, the impact of fees on their remittance
payments is enormous,
ranging from 10.8%
with banks to 5.5% with post offices.
The spokesperson added that the U.S. average fee rate is
6.18%, which means that every year, Americans, on average,
spend “close to $12 billion on remittance fees.” They
added:
“Cryptocurrencies like Bitcoin or Ether can greatly cut the cost of sending money internationally by about 96.7% vs. the current system. Sending Bitcoin to another wallet costs an average of $1.50 per transaction, and Ether costs an average of $0.75 per transaction.”
It’s worth pointing out, however, that security concerns
associated with custodying cryptocurrencies remain a
deterrent for many to enter the space, as managing the
private keys to a cryptocurrency wallet can be a
challenge, especially to those less tech-savvy. On top of
that, the consumer protections offered by the traditional
financial system may leave some at ease despite the high
fees.
Coinbase added that the time cost is also significant,
with the average remittance taking between one and 10 days
to settle, while cryptocurrency transactions take on
average just 10 minutes.
Adding to this, a spokesperson for Circle — the firm
behind the USD Coin USDC tickers down $1.00 stablecoin —
told Cointelegraph that a key feature of
blockchain-powered remittances is “accessibility and
inclusivity, requiring only a phone and internet
connection to transfer funds across borders and at
low-cost.”
Moreover, Lesley Chavkin, head of policy at the Stellar
Development Foundation, a nonprofit organization
supporting the Stellar network, told Cointelegraph that
for remittances sent on a blockchain, preliminary data
from “a small, limited-scope pilot focused on the United
States to Colombia payment corridor” showed fees were half
of those paid for traditional remittances.
As transactions on the network scale up, Chavkin said,
remittance fees could drop even more, furthering their
advantages. Pavel Matveev, the co-founder and CEO of
Wirex, told Cointelegraph that these don’t have to
navigate through numerous intermediaries.
Despite their advantages, cryptocurrency remittances
aren’t as widespread as one may think. For one, ease of
use isn’t at the point of mass adoption, while the
cryptocurrency market’s volatility keeps many on the
sidelines.
Overcoming fundamental inefficiencies
Ripple’s Berry said that accessibility and
user-friendliness are “critical components for the
mainstream adoption of crypto remittances.”
User experience, he said, has been a problem for the
industry but is arguably the easiest one to solve. He
added that legacy payment solutions may appear to be more
user-friendly with the use of modern interfaces “that
marginally improve the customer experience, which creates
the illusion of advancement,” while in reality, there has
“been little improvement to the foundational
infrastructure that underpins our global financial system
which would ultimately unlock true progress and by
extension the user experience.”
Nevertheless, Brendan conceded that while cryptocurrencies
can be faster and cheaper for sending funds, a “successful
remittance solution must also help the customer off-ramp
funds in the currency of their choice.” He added:
“The ability for users to transfer value from fiat to crypto or vice versa has historically been a challenge at both the individual and enterprise levels. While individual users have more options than ever before through more than 600 crypto exchanges globally, enterprise-grade off-ramp solutions are sparse.”
Indeed, one has to consider the costs associated with
existing cryptocurrency infrastructure and how it
interacts with the traditional financial system. While
receiving a cryptocurrency transaction may be fast and
cheap, paying with crypto isn’t as easy.
Commenting on the situation for Cointelegraph, Gero
Piskov, card and payments manager at digital wealth
platform Yield App, said that in “regions where crypto
remittances thrive, accessibility and UX [user experience]
have indeed been hurdles, which have hindered broader
adoption.”
Often, the solution involves converting cryptocurrencies
into fiat currency, which may incur additional
transactions, trading fees and potential withdrawal fees.
Converting to fiat currency, however, may be a bigger
challenge than it should be, especially in regions where
crypto-to-fiat liquidity isn’t significant enough to not
add more complexity to the process.
Speaking to Cointelegraph, a Binance spokesperson said
that the World Bank’s Global Findex 2021 shows 42% of
adults in Latin America and the Caribbean still lack
access to a bank account, with the segment representing
24% of the total adult population.
Cryptocurrency solutions, the spokesperson said, have the
“potential to fill this gap while also reducing the
financial transaction’s time and costs for people who
already participate in the traditional system.”
In countries where paying with crypto with one solution or
another is possible, users may be exposed to heightened
spread they may not be aware of, as well as crypto market
volatility. This volatility can completely nullify the
advantages of paying less for the transaction itself.
Binance’s spokesperson added that the main goal of
blockchain and cryptocurrencies is to simplify the entire
process for users; hence, industry players are “dedicating
significant efforts and resources into innovating and
enhancing its platform with the users’ experience in
mind.”
However, they noted that given the nascency of blockchain
technology, there are still people without the technical
know-how to process crypto transactions efficiently. The
spokesperson said:
“One solution that has emerged would be liquidity services on particular blockchains. These international crypto liquidity service providers facilitate the transfer of money from one country to another, with cryptocurrencies acting as a bridge.”
In these blockchain-based liquidity services, Binance’s
spokesperson clarified, a sender would transfer money in
their own local currency, while the recipient would
receive it in their local currency. Such a service would
make the process friction and almost instantaneous for
users across all backgrounds, they said.
Simplifying remittances and greatly reducing their cost is
extremely important, especially for people losing between
5% and 10% of the money they need to survive on fees. This
means that remittances have actually become a use case for
digital assets, as noted by a Circle representative who
spoke to Cointelegraph and added that crypto is expanding
access to financial services across the globe.
Crypto as a tool to reduce poverty
Binance’s spokesperson seemingly corroborated the words from Circle, saying that remittances are “the primary economic lifeline for millions of families worldwide, and a major driver of economic growth for developing countries, totaling $589 billion in 2021,” according to World Bank data.
Cryptocurrencies are improving the lives of people relying
on remittances, according to experts Cointelegraph spoke
to, thanks to the numerous advantages being offered. One
example the Stellar Development Foundation’s Chavkin
pointed to us is Félix.
Félix is a Whatsapp-based payments platform in Latin
America that allows users to send money through an AI
chatbot on Meta’s popular messaging platform. According to
the platform’s co-founder and CEO Manuel Godoy, Félix uses
USDC on the Stellar network to boil the process of
remittances down to “seconds.”
Chavkin noted that the figure showing remittance payments
grew by about 5% in 2022 “represents only recorded
transactions; the true number is most likely significantly
higher.” She concluded:
“Providing solutions that are faster, cheaper and more accessible is one tool to help reduce poverty and improve outcomes. Focusing on crypto remittances as a solution is critical to serving these populations.”