One frequently mentioned use case for cryptocurrency is as a conduit for international remittances. Currently, more than 200 million people live outside of their birth countries and these people send home over half a trillion dollars per year to relatives and friends. Money takes circuitous routes between wallets in Atlanta and hands in Accra (or the other way around). These routes are shaped by densely interlinked networks of national and international governments, laws, organizations, corporations, technologies, currencies and human relationships. This nexus of interrelated forces and actors constantly reshapes the channels through which people working abroad send money home. This column will draw attention to interesting developments in this space that have a bearing on cryptocurrency and other decentralized technologies.
One company that is currently basking in the Bitcoin buzz is BitPesa, a startup seeking to enable Bitcoin remittances to Kenya. BitPesa, which opened for service this month, charges a 3% fee to exchange Bitcoin into Kenyan Shillings and deposit this money into a specified mobile money account.
BitPesa works seamlessly with its namesake M-Pesa, the viral electronic cash network owned by Safaricom, Kenya’s leading cellular provider. M-Pesa is like a privatized currency—users deposit money with Safaricom, and this balance is linked to their phone number. Users can then beam these funds to other people’s phones or spend them at an ever-expanding network of M-Pesa merchants. Currently M-Pesa can be used to buy groceries, pay bills, hire cabs, and much more. In fact, some reports argue that 31% of Kenya’s GDP passes through the M-Pesa network. SafariCom is now East Africa’s most profitable company and has expanded into markets around the world, spawning competitors like Econet’s EcoCash based in Zimbabwe.
BitPesa claims that users around the world will be able to deposit Bitcoin onto their platform and designate M-Pesa accounts in Kenya to receive Shillings. The conversion is done automatically so recipients in Kenya receive the money on their cellphones within minutes. Recipients do not require a Bitcoin address or need to worry about market volatility. Senders, on the other hand, must find their own ways to buy Bitcoin, although BitPesa has online tutorials about how to do this. Importantly, it should be noted that the fees associated with acquiring Bitcoin are not included in BitPesa’s 3% calculation.
BitPesa is not currently available in the United States, likely due to stringent American restrictions on international money transfer. It is, however, available in the United Kingdom where I am currently traveling. Is there a reader from Kenya who would be willing to help me test the BitPesa system? Please let me know ASAP in the comments section or in the forums and I will use the service to send you a small amount of Bitcoin.
BitPesa is a good example of a company using Bitcoin to cash in on the business of sending money from “rich” countries to “poor” countries. Kitiwa, on the other hand, is a notable Bitcoin startup based in Ghana that works the other way around. Kitiwa allows people in Accra to buy Bitcoin with local currency in order to make online payments and send money abroad. This service is needed in Ghana because payment networks like Visa and PayPal routinely block people living there (and in other African countries) from using their systems.
Kitiwa users begin by opening a Bitcoin address, and the Kitiwa website contains a tutorial on using Blockchain.info to do this. Users then then pay for Bitcoin with MPower Payments, a Ghanian mobile payments startup that allows people to fund purchase with their bank accounts, credit cards or mobile money accounts. Users can then use their Bitcoin to pay for internet services like web hosting, send money to relatives living abroad or hire overseas consultants. The Kitiwa website even has a tutorial on how to use Bitcoin to shop on Amazon.com through Gyft.
These developments in Africa’s Bitcoin ecosystem occur just as banks in the United States are pulling out of the remittance business. Laws aimed at money laundering and the financing of terrorism have increased costs for banks, which are responding by axing services. As Michael Corkery recently reported:
“JPMorgan Chase and Bank of America have scrapped low-cost services that allowed Mexican immigrants to send money to their families across the border. The Spanish bank BBVA is reportedly exploring the sale of its unit that wires money to Mexico and across Latin America. And in perhaps the deepest retrenchment by a bank, Citigroup’s Banamex USA unit has now closed many of its branches in Texas, California and Arizona that catered to Mexicans living in the United States and stopped most remittances to Mexico as it faces a federal investigation related to money laundering controls.”
In a recent op-ed the New York Times argued that banks’ move away from the remittance business will result in migrants paying higher fees to send money home, and that a possible solution would be for the World Bank to act as a centralized remittance clearinghouse. Many Bitcoin enthusiasts are probably hoping that the opposite happens—that the banks' withdrawal will create openings that can be filled by Bitcoin startups like BitPesa and Kitiwa. We will see what happens.