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

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

El Salvador may be promoting the use of Bitcoin to help its overseas citizens send funds home, but the largest remittance companies are cautious about offering cryptocurrency services.

In a move that could herald the growing popularity of crypto for sending money across borders, El Salvador became the first country to introduce Bitcoin as a parallel legal tender on Wednesday. Continue reading

President Nayib Bukele exploited Bitcoin’s potential 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 money transfer companies that send the bulk of cross-border transfers try.

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 remittance providers recognize that most of the volume in the remittance industry from developed markets to emerging markets goes primarily to people – families and friends – who operate in cash,” said Kenneth Suchoski, US Payment and Payment Services 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.

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

An early mover among the transfer companies, MoneyGram International (MGI.O) said last month that it will partner with Coinme, the largest licensed crypto cash exchange in the United States, to enable customers to buy and sell Bitcoin for cash at 12,000 US retail locations.

“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, entry and exit to local fiat currencies are a core barrier to further growth.”

Western Union (WU.N), the largest remittance company, has tested bitcoin and crypto in the past and has not found a good “use case” that brings 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 Africa’s popular crypto platform Paxful trying to compete with 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 United Nations sustainable development target for remittance fees by 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 increased 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,” Suchoski said.

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