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

LONDON (Reuters) – El Salvador may be promoting the use of Bitcoin to help its overseas citizens send funds home, but the largest remittance companies are wary of offering cryptocurrency services.

FILE PHOTO: Bitcoin banners can be seen outside a small restaurant on El Zonte Beach in Chiltiupan, El Salvador, June 8, 2021. REUTERS / Jose Cabezas

In a move that could herald crypto becoming a more popular way to send money across borders, El Salvador became the first country on Wednesday to adopt Bitcoin as a parallel legal tender.

President Nayib Bukele exploited the potential of Bitcoin as a remittance currency for Salvadorans overseas.

But despite the potential long-term risk to their business if such moves escalate, few of the traditional remittance companies that send the majority of cross-border transfers attempt.

Any effort to get into crypto could be a double-edged sword and squeeze the fees that are the bedrock of their business.

“Western Union and some of the other money transfer providers consider that most of the volume in the money transfer industry goes from developed countries to emerging markets, primarily to people – families and friends – who operate in cash,” said Kenneth Suchoski, US Payment – and fintech analyst at Autonomous Research.

“As far as Bitcoin is not accepted and there is no widespread acceptance, these remittance providers will also be relevant in the years to come,” he added.

Suchoski estimates that less than 1% of the volume of global cross-border transfers are currently in crypto. In the future, however, crypto is expected to make up a larger proportion of the more than $ 500 billion in annual remittances worldwide.

However, Bitcoin theoretically offers a quick and inexpensive way to send money across borders without relying on traditional transfer channels.

MoneyGram International, an early mover among wire transfer companies, said last month that it will allow customers to buy and sell bitcoin for cash in 12,000 U.S. retail locations as part of a partnership with Coinme, the largest licensed crypto cash wallet in the U.S.

“We have built a bridge to connect Bitcoin and other digital currencies to the local fiat currency,” MoneyGram said in an email to Reuters. “As cryptocurrencies and digital currencies gain in importance, a major obstacle to further growth is the entry and exit of local fiat currencies.”

Western Union, the largest remittance company, has tested bitcoin and crypto in the past and has not found a good “use case” with significant cost savings, Suchoski said.

Western Union and other big players, including Wise, WorldRemit, Remitly, Xoom, and Ria Money Transfer, did not respond to requests for comment.


The wire transfer industry has successfully moved from wire transfers via physical retail stores to online wire transfers in recent years, a trend accelerated by the COVID-19 pandemic.

Cross-border transfers via mobile money grew 65% to $ 12 billion in 2020.

But any transition from digital to crypto can prove to be more difficult.

“It’s really hard for me to see how they’re going to compete unless they really lower their price – you can’t compete for free,” said Ray Youssef, CEO of Paxful, a popular crypto platform in Africa that is trying to compete with compete traditional remittance companies.

Remittance companies are already under pressure to cut fees, which averaged 6.5% in the fourth quarter of 2020, according to a report by the World Bank, more than double the goal of remittance fees under the UN Sustainable Development Goal for 2030.

In contrast, Bitcoin transfer fees in Nigeria, for example, are typically around 2% to 2.5%.

Rising regulatory costs associated with combating money laundering and terrorist financing are another burden on traditional remittance companies.

Western Union’s annual compliance costs have risen from around $ 100 million about a decade ago to $ 200 million, Suchoski said.

Bitcoin would likely add to that burden.

Bitcoin’s potential for anonymous transactions has long worried regulators, who fear it could facilitate money laundering and terrorist financing. Many crypto companies have stepped up compliance steps like requiring a user ID, but it’s an expensive process.

“Bitcoin has been used in a lot of underground transactions,” said Suchoski.

Reporting by Tom Aronold and Tom Wilson; Editing by Aurora Ellis

Comments are closed.