For African migrants, sending money back home comes at a high cost: they spend an average of 12.4 percent on transfer fees. Bitcoin entrepreneurs are now coming up with clever ways of bringing the cost of remittance down, all the way to zero. A risky endeavor or a smart fix?
Shaun Matsheza has gone through the process every month for over five years, ever since he came to the Netherlands. Armed with cash and a customer card, he shows up at Western Union’s bright yellow desk to send money back home to Zimbabwe. The cost to do so is high: on average, about 15 percent of the total money transaction. “And if something suddenly arises, and my family needs 40 euros or so, I have to pay the minimum fee of 17 euros,” says Matsheza, who is a journalist for Radio Netherlands Worldwide. “It can be ridiculous.”
At the other end of the transaction, the process is not very convenient either. After Matsheza sends his mother a secret code, she or a sibling travels about half an hour into town to collect the money at the nearest Western Union agency.
Matsheza and his family are far from alone in acting out this monthly ritual. In fact, millions of people across the world do the same. Their mundane motions fuel the global economy; according to the World Bank, countries in Sub-Saharan Africa will receive 44 billion euros in remittance this year alone, which makes it one of the largest sources of income, far exceeding foreign aid.
Popular money transfer agents like Western Union or MoneyGram, whose services are cheaper than banks, handle a large part of these transactions to African countries. Yet their fees for sending money are outrageously high: an average of 12.4 percent. Like Shaun Matsheza, many migrants are reluctantly loyal customers. “I am always interested in alternatives,” Matsheza says, “but it’s not an easy problem to solve.”
High-tech fix for low-tech communities
Techies believe that Bitcoin might be just what these migrants are looking for. Sending Bitcoin across borders and exchanging to and from the cryptocurrency is practically free of charge, and it doesn’t require the interference of any bank or government.
Now if asking your cousin in the UK to start sending Bitcoins to your smartphone-less aunt in Uganda sounds less than genius, hold on— there’s a few smart entrepreneurs who believe they've found ways to make this high-tech fix work in low-tech communities too.
Pelle Braendgaard is one of them. He is the Danish founder of Kipochi, a free mobile web app for both smart and dumb phones. Kipochi is a Bitcoin wallet that allows users to send and receive Bitcoins via their phone. “Our goal is to make Bitcoin accessible,” Braendgaard explains from his Nairobi office. “With Bitcoin, you normally have to transfer money via these complex addresses, but with Kipochi all you need is a phone number.”
Braendgaard argues that cash-based economies cause bureaucracy and red tape that stifle economic development: “If the only payment available is physical cash, you run into all sorts of issues. You can’t prove your income if it’s all in cash for example. So if you want to get a loan, that’s just very hard.”
With Bitcoin, many people who live too far away from traditional banks can open accounts on their cell phones. And because Bitcoin is a decentralized currency, Braendgaard believes “it literally can’t be stopped by governments or strong banking industry,” and won’t be subject to the same bothersome regulations.
Via Rutger van Zuidam