Analysis: Remittance firms slow to add bitcoin, despite El Salvador move

MoneyGram International

14/06/2021 09:00

(Repeats story from June 11 with no changes to text)
    By Tom Arnold and Tom Wilson
    LONDON, June 11 (Reuters) - El Salvador may be touting
bitcoin's use to help its citizens living abroad send funds back
home, but the biggest remittance firms are cautious about
offering cryptocurrency services.
    In a move that could be a harbinger of crypto becoming a
more popular way to send money across borders, El Salvador on
Wednesday became the first country to adopt bitcoin as a
parallel legal tender.  urn:newsml:reuters.com:*:nL2N2NR0CY
    President Nayib Bukele played up bitcoin's potential as a
remittance currency for Salvadorans overseas.
    But despite the possible long-term risk to their business if
such moves escalate, only a few of the traditional remittance
companies who send the bulk of cross-border transfers are
dabbling.
    Any efforts to get into crypto could be a double-edged
sword, pushing down the fees that form the bedrock of their
business.
    "For Western Union and some of the other remittance
providers keep in mind that most of the volume in the remittance
industry is going from developed markets to emerging markets
primarily to people -families and friends - that operate in
cash," said Kenneth Suchoski, U.S payments and fintech analyst
at Autonomous Research.
    "To the extent that bitcoin isn't adopted and there's not
widespread acceptance, these remittance providers are still
going to be relevant for the years to come," he added.
    Less than 1% of the volume of global cross-border
remittances are currently in crypto, estimated Suchoski. But in
the future crypto is expected to account for a larger slice of
the more than $500 billion in global annual remittances.  
    Yet bitcoin offers, in theory, a quick and cheap way to send
money across borders without relying on traditional remittance
channels.
    An early mover among remittance firms, MoneyGram
International  MGI.O  said last month it will allow customers to
buy and sell bitcoin for cash at 12,000 U.S. retail locations
under a partnership with Coinme, the U.S.'s largest licensed
crypto cash exchange.
    "We've built a bridge to connect bitcoin and other digital
currencies to local fiat currency," MoneyGram said in an emailed
statement to Reuters. "As crypto and digital currencies rise in
prominence, a core barrier to further growth is the on/off ramps
to local fiat currencies."
    Western Union  WU.N , the largest remittance business, had
tested using bitcoin and crypto in the past and hadn't come up
with a good "use case" that involved significant cost savings,
said Suchoski.
    Western Union and other large players, including Wise,
WorldRemit, Remitly, Xoom and Ria Money Transfer did not respond
to requests for comment.
    
    CRYPTO CRIME 
    The remittance industry has successfully made the evolution
from transfers via physical retail outlets to online in recent
years, a trend hastened by the COVID-19 pandemic.
    Cross-border remittances via mobile money rose by 65% in
2020 to $12 billion.
    But any transition from digital to crypto may prove more
challenging.
    "I really have a hard time seeing how they're gonna compete,
unless they really slash their price - you can't compete for
free," Ray Youssef, CEO of crypto platform Paxful, which is
popular in Africa and seeks to compete with traditional
remittance firms.
    Remittance firms are already under pressure to cut fees,
which averaged 6.5% in the fourth quarter of 2020, according to
a World Bank report, more than double the United Nations
Sustainable Development Goal's 2030 target for remittance fees.
    In contrast, bitcoin transfer fees in Nigeria, for example,
would typically total about 2%-2.5%.
    Increasing regulatory costs related to efforts to combat
money laundering and terrorism financing are another burden for
traditional remittance firms.
    Western Union's annual compliance costs had risen closer to
$200 million from around $100 million a decade or so ago, said
Suchoski.
    Bitcoin would likely add to that burden.
    Bitcoin's potential for anonymous transactions has long
worried regulators, who fear it can facilitate money laundering
and terrorism financing. Many crypto companies have boosted
compliance steps, such as requesting user ID, but this is a
costly process.
    "Bitcoin has been used in a lot of underground
transactions," Suchoski said. 

 (Reporting by Tom Aronold and Tom Wilson; Editing by Aurora
Ellis)
 ((Tom.Arnold@thomsonreuters.com; +442075428510; Reuters
Messaging: tom.arnold.thomsonreuters.com@reuters.net))