One of the key advantages of Bitcoin as a payments mechanism is that it is free. This is one of the reasons that international remittance is often brought up as a potential key early adopter use case for Bitcoin. According to the World Bank’s research, the worldwide average cost of remittance is about 8.85 percent of the $ 514 billion sent each year. Taking that price to zero, or close to zero, is a big savings for immigrants sending money home, and one of the opportunities that many have identified as an opportunity for Bitcoin startups.
Bitcoin works great for moving money across borders because it is fast and free. Since most remittance starts in the U.S., Europe or other developed countries, it is reasonably easy to initiate a Bitcoin remittance. Although there is some initial friction in setting up an account with an exchange, it is relatively easy to buy bitcoins with U.S. Dollars or Euros or Yen. The friction is mostly for Know Your Customer (KYC) and other anti money laundering procedures, but is a one-time process. Since most remittance is done on a repetitive basis, that friction shouldn’t be a major impediment to adoption.
The problems arise in turning the Bitcoins back into money on the recipient’s end. The biggest recipient countries for remittance flows are Mexico, India and China. Two of these, Mexico and India, have barely any activity in their local Bitcoin ecosystems. Bitcoincharts.com lists no market volume data for either BTC:MXN or BTC:INR marketplaces. But without demand for Bitcoin in pesos or rupees, there is no way for Bitcoin holders in these countries to change into the local fiat currency. This effectively makes any sort of scale remittance business impossible.
China is a different story. China has become one of the geographic hotspots for Bitcoin in the last few months, and BTC China is now the third largest Bitcoin exchange in the world. The opportunity for remittance to China is quite real. It is a single market with the combination of large remittance inflow ($ 12 billion from the U.S. to China alone) and significant domestic demand for Bitcoin. New remittance startups using Bitcoin would be well advised to focus their efforts on the US- China corridor first.
Argentina’s love affair with Bitcoin is also well documented, and would be another prime recipient for remittance, but the U.S.-Argentina corridor isn’t a very big one.
China and Argentina are ready. But on a worldwide basis, despite the technical suitability for Bitcoin to disrupt remittance, most recipient countries don’t have enough local demand for Bitcoin to sustain a meaningful remittance business. For that we’ll have to wait until the local demand for Bitcoin grows as it has in early adopter countries.
Jeremy Liew is a partner at Lightspeed Venture Partners. Follow him on Twitter at @jeremysliew
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