Remitbee — a step forward
but its time to think zero to one
For all the bashing Western Union takes for its predatory pricing practices, one thing we need to credit them for is being the pioneers in the movement of digital money, that is in the 18th century. Believe it or not, before banks, Western Union was the first company to introduce the concept of “wire transfer”. Western Union was a telegraph company and they allowed money to be moved through the ‘wire’ as a telegram instead of actual cash to be transferred.
In the modern day, the cross currency nature of the remittance industry is primarily used by immigrants who leave third world countries to start a new life in the land of opportunity. They move to these developed regions and earn enough to live modestly and use the rest of their earnings to send money back to help the family, pay back loans or even save in higher interest accounts. Remittance ends up being a huge economic driver in some countries such as India, the Philippines, and Mexico with a high number of expats. That is why US President Donald Trump even threatened to levy taxes for Remittances going into Mexico as a way to negotiate his border wall. In an ever-increasing globalized world, the needs for cross-currency transfers are increasing for global trade as well.
The traditional way money transfers are completed is by using the “agent” model. Several companies operate through retail locations, supermarkets, and stores. The money paid by the customer is recorded and on completion of the transaction, it is available to be received on the other end. However, during this procedure, the agent pockets a percentage of the amount as his commission. This considerable network of agents usually makes these transactions expensive costing about 6.94% according to the World Bank.
The traditional agent-based companies have ruled the remittance market for a long time now with Banks, Western Union, and MoneyGram being the leading players. When we started the business, customers had to take physical cash to retail locations and wait in line to send money. For decades, this is the way things were done and it became a norm. There was no other way to do this until recently.
The entrance of cryptocurrency and seeing the positive impacts with regards to the movement of money was a paradigm shift for me and many others in the industry and it showed us that we do not have to do things the way it was done for decades. It gave the hope that central players who dominate the flow of funds can be disrupted and moreover, consumers technology empowerment can displace the traditional way of doing businesses.
In particular what crypto did for me is, make me understand that the digital revolution is accelerating and it was breaking the social fabrics of our previous generation which could have not been broken before. Why the agent model worked was much more than about accessibility but something that is often overlooked in business: Trust.
With Bitcoin, you do not need to trust anyone because of the decentralized nature of ‘money’ itself. Bitcoin’s core ideology allowed me to see that there was no need for this ‘agent’ or 3rd party and that you can build trust digitally by offering customers what they really need and then building a brand around it.
Because bitcoin was not ready to disrupt the remittance industry as I highlighted in the previous article, what we did with Remitbee was make the sending process easier by optimizing the current financial infrastructure and as a result drop-down fees exponentially. When we launched Remitbee we launched it with a feature called wallet which is the ability for customers to fund their transfers with money from their banks. This avoids the high interchange fees and at the same time, is faster than EFT/ACH. By cutting down on fees and increasing speed, we are ultimately doing what crypto remittances were intended to do.
Limitation
However, there are many limitations to this method. Most importantly in the process of scaling the company, we face some hurdles.
Onboarding
Customer onboarding for a financial company requires a ton of documentation which is tough in a privacy-centric world. We must face the reality of onboarding customers by doing KYC; at the same time prevent fraudsters and also keep customers experience pleasant. It is a fine juggling act which becomes harder as you scale.
First Mile Problem
Existing payment infrastructure created by banks and credit card companies has service fees and interchange fees which range from 1–2% for merchants. On the other end of the spectrum, some companies have ACH transfers which are more cost-efficient but is a batch based system which makes it very slow and takes 2–3 days to clear. The customer either can opt for a speedy transfer at a high cost or low-cost transfer which takes longer to clear. There is no sweet spot.
With our Remitbee wallet system, we can make transfers both fast and low cost. However, the limitations of this are, as the business grows so does the cost of verifying the payments against wallet deposits and the multiple third parties we depend does not make it a consistent experience.
Last Mile Problem
Payment channels across the world are heavily segregated meaning there are too many different vehicles for how money is spent. For example in the United States, there can be 2 routing numbers, one for local deposits and one for wire which can get confusing for customers who are doing payments. In Europe there are IBAN numbers, in India, there are IFSC codes and in Australia there is BSB, Canada has Transit numbers on top of the SWIFT network codes. Sending payments should be like going on google maps and searching up your home address by the street name. Currently, the payment infrastructure is like finding your home using latitude and longitude coordinates.
To complicate matters, different startups are coming up with different ways to solve this problem so customers are investing time into these apps and there is no standardized way of doing things.
After a couple of years of Remitbee growing in this industry, I’ve come to realize we have just put one step forward but to turn this segregated remittance ecosystem upside down and to make it efficient, there can be only one solution, and that is decentralization. Decentralization is the Zero to One method to solve the payments infrastructure problem. From 2017, we have been researching how this can be achieved and what we essentially found is the solution to the limitations we face is liquidity decentralization. What I envision is that there would be no longer “money transfer” companies but more of liquidity providers.
This is why we are investing resources back into blockchain/decentralized solution as the long term solution to cross-currency transfer.
In my next article, I will try to explain our thought process in more detail about what we are trying to accomplish with blockchain and where I think the remittance industry will be in the next decade or so.
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