Bitcoin Won’t Kill Western Union Yet
Filipinos understand remittance companies like Western Union. They understand them because more than anyone, Filipinos work overseas. When it comes time to send money home, they’re often faced with the reality of having to send money via a remittance company, paying a hefty fee to do so.
There are places in the world that depend on moving wage remittances. The Philippines is a famous example because so many of its people choose to work overseas. The average level of education is good and people can generally speak and write English. Filipino workers flock to places like Hong Kong, where it’s hard not to notice a thriving money change business. Some workers send parts of their salary back home each month to help pay the bills and to save for the future.
Today, up to 10% of the Philippines GDP relies on foreign remittances, making it an ideal place to test new fintech ideas. Bitcoin is an obvious choice, but there’s one problem: it’s not going to change things soon.
At first glance, Bitcoin seems well suited to solve the remittance problem in the Philippines. It’s an agile currency, making it easy to move around. All you need is a key and a wallet. The person receiving it only needs the same. Online Currency exchanges are common, and it isn’t difficult to move Bitcoin to and from major currencies like the US Dollar and the Euro. The time it takes to move transactions relies on how long it takes to solve each block (10 minutes), and the fees to do so are minuscule. Internet access is universal in the perfect Bitcoin economy. Everyone has a digital wallet and bank accounts are everywhere. If you know anything about the Philippines, you know exactly where we’re going with this. Using Bitcoin to disrupt companies like Western Union is still just a dream.
The reason has to do with the ‘first and last mile’ problem. When you pick apart the costs associated with sending money to developing countries, it’s easy to see where the problems lie. The costs weigh heavily on the first and last mile of the transaction journey.
The ‘first mile’ is all about everyday costs associated with running a business. Marketing, customer acquisition, salaries, licensing, overhead and hardware are all major considerations. Bitcoin can’t solve this because Bitcoin companies face the same ‘first mile’ realities. It’s a wash in this regard.
The interesting part comes in the ‘last mile.’ The ‘last mile’ represents the final person or business to touch the money before it ends up in the hands of the consumer. In the Philippines this often takes the form of pawn shop money changers and other small businesses. These agile businesses are able to serve a remote populace in ways that larger, more cost-effective providers can’t. If bank accounts are a novelty for rural Filipinos, how do you convince them to set up an online Bitcoin wallet? The answer is simple. You don’t. And if you’re Western Union, you make sure to pay those ‘last mile’ vendors well considering they’re the only game in town.
The part of the transaction where Bitcoin offers the most promise, doesn’t equate to a big enough piece of the cost pie. It’s great to be able to send funds in a fraction of the time it takes other providers for a fraction of the cost, but if you can’t solve the ‘last mile’ problem, not much is going to change.
What does this mean for the future of remittances?
It might seem like remittance startups don’t stand a chance. Yet, that’s just a short-term view of things. Just one or two innovations could turn the whole business on its head.
SMS mobile money services like Kenyan MPesa is a great start. With SMS mobile money, users can send funds from a Bitcoin wallet to a bank account through SMS without the need for a ‘last mile’ vendor.
Barring a shift over to mobile money, better logistics partnerships might hold the key to Bitcoin remittances. Instead of trying to cut out small scale vendors, Bitcoin companies could try to work with them to a better way to move money around.
Regardless, businesses like Western Union aren’t going away any time soon. But that shouldn’t stop young and hungry idealists from trying new things to make the developing world a better place.
