Giving users a fix that’s 10x better
As seen through using Bitcoin to power international remittances
A growing number of players seem to use bitcoin for financial services. The most common use appears to be for powering person to person payments (remittances) for people who may not have a bank account. Examples: Abra, Bitpesa, Rebit.
These players have typically argued that using bitcoin at the back-end can bypass costly regulatory and banking systems thereby dramatically reducing costs and expanding access to folks without bank accounts.
Frankly, it’s not a space I’d paid much attention to but I’d lazily figured that the volatility of Bitcoin to dollars (or another fiat currency) was their biggest challenge. No one spends bitcoin for everyday stuff, so senders want to put in [dollars] and recipients want to take out [rupees or naira etc].
But how to give users a reliable experience when you need to trade dollars for bitcoin, then trade bitcoin back into say rupees… while the value of bitcoin (or ethereum or another cryptocurrency) is so volatile?
How Cashaa Exploits Bitcoin Price Differentials for Remittances.
This headline in CoinDesk really caught my eye. “Exploit!” not “Solves” — wow!
In brief, Cashaa lets traders handle the exchange. They take the cash, trade into bitcoin in the sender’s market (ie the UK), and then trade out of it in the recipient’s market (ie Nigeria) and turn over the cash to the recipient. Because of the spreads on bitcoin between those two countries, they make a margin and Cashaa takes some too.
This definitely seems clever — customers need not worry about bitcoin at all, users can trust that the amount they put in will come out, and margins pay for Cashaa to be free for senders and recipients, etc. (Of course there are still questions about how many traders are keen on such trades, how long such wide spreads will persist, etc).
But as I read the article, I realized that eliminating bitcoin exchange volatility is the least of Cashaa’s challenges.
Instead, it’s the operational aspects that every remittance business must face in a competitive sector which appear the most daunting.
- How to get the word out about the new service in the UK?
- How to create many touchpoints where senders can hand in cash and recipients can take it out?
- How to do all this better than long-standing players like Western Union and others who already have brand and distribution solved?
I’ve never been in the pure remittance business, but I’ve struggled with brand and distribution challenges in several businesses and I know how expensive and operationally difficult it is to solve these issues.
Will the bitcoin remitters like Cashaa, Abra and others be able to solve these core existential challenges?
There’s a simple test here that can help figure this out.
In my experience, if a critical mass of people perceive a new offering to be 10x (ten times) better than the status quo, then the entrepreneur will be able to mobilize the customer word of mouth, investor capital, and other resources required to carve out a chance at survival in a competitive space.
I wonder whether simply using bitcoin to eliminate regulatory / bank costs is really introducing a 10x better offering. Instead, perhaps there are specific corridors where existing offerings are so bad that bitcoin remitters can plug a hole. Or perhaps it’s a wondrous mobile experience (and not the bitcoin angle) that these ventures will figure out and use to find a viable play.
Services like WorldRemit appear to be succeeding by giving people more ways to send their money — not just to an agent or bank account, but right to their mobile as well. That (on top of lower fees) seems more likely to make users sit up and take notice.
It’s not surprising that bitcoin for remittances (among other new fintech plays) are exciting on paper. But they need to pass the 10x test before they will succeed in the real world.
It’s worth keeping this test in mind as we develop and invest in new models.
PS — after writing this blogpost I came across this article which discusses bitcoin remittance players in detail.
