Sub-Saharan Africa sees 75% of the population with no bank account; those in the know say the currency could assist a great deal of folk make payments on their bills and generally get a handle on their finances.
Transferring cash via banks or MTOs (Money Transfer Operators) like Western Union or MoneyGram can be costly. The Overseas Development Institute computes the average charge to transfer $200 to Africa using traditional money transfer services is 12%. If you send $200, you pay $24. The ODI added up all the transfers that happen in a year, and found remittance fees cost the African continent $1.8 billion a year.
Bringing remittance prices down to 5 percent from the current average cost of 12.4 percent would put US$ 4 billion back in the pockets of Africa’s migrants and their families according to the Africa Institute for Remittances (AIR) Project. South Africa, Tanzania, and Ghana are the most expensive sending countries in Africa, with prices averaging 20.7 percent, 19.7 percent, and 19.0 percent respectively, so it makes so much sense for Bitpesa to move to Tanzania and Ghana. According to data from the Send Money Africa database, funded by AIR Project, Africans pay more to send money home than any other migrant group. Sub-Saharan Africa is the most expensive region to send money to, with average remittance costs reaching 12.4 percent in 2012. The average cost of sending money to Africa as a whole is almost 12 percent, which is higher than global average of 8.96 percent, and almost double the cost of sending money to South Asia, which has the world’s lowest prices (6.54 percent)
Currency as Language
Part of Bitcoin’s magic is the ability to create digital scarcity and in so doing a monetary value is derived. Since money is a consequence of the emergence of a social structure and as such it is the language through which value is communicated. For instance, the value derived from remitting back money to people back at home. Bitcoin promotes this valued relationship and low cost.
As Bitcoin is a virtual peer-to-peer currency — designed to operate on the border-less internet — the costs of transferring money can be radically cheaper than traditional methods, and the process is much quicker.
“Bitcoin can greatly alter the remittances industry and beyond,” says Michael Kimani, who heads the African Digital Currency Association, a Kenya-based group launched last May to promote digital currency technologies. “From seven days [for a transaction to clear] using banks & PayPal, down to 20 minutes speaks volumes.”
Remittance Companies in Africa
Bitpesa is a Nairobi-based start-up that is firmly settling into the remittance industry. Recently they announced they had raised $1.1 million dollars in phase two of their seed round that was led by Pantera Capital. Bitpesa realizes that its remittance service is predicated to some level of extent on the ease or difficulty, cheapness or expensiveness of acquiring bitcoins for expats in their host countries. Bitpesa wants to reach its target of capturing of 1% market share, a figure that approximately translates to 6,500 transactions per moon/month. Bitpesa offers a 3% cut-rate fee (no hidden costs apply) for you to make your transaction. Remittance inflows to Kenya increased by USD 137 million or (11 percent) to USD 1,428.5 million compared with USD 1,290.6 million in 2013. The 12 month average flow during the same period sustained an upward trend to USD 119.0 million from USD 107.5 million over the same period (Chart 1). In the month of December 2014, remittance inflows increased by 14.2 percent to USD 130.2 million from USD 114.0 million in November 2014.
Beam is a service in Ghana that converts Bitcoin sent from abroad into the local currency, cedi. Since launching three months ago, it has attracted 30 users who pay a 3% fee on each transaction rather than the average 12% from traditional transfer services.
Note: Bitpesa and Beam charge the same 3% cut-rate fee. Interesting?
Ghana received $1.7 billion of remittance income in 2012 according to the Bank of Ghana, and Beam’s founders are optimistic about the future. Remember Bitpesa recently moved into Ghana.
“Bitcoin is going to make a huge difference when it starts to get accepted by merchants in Ghana,” says CEO Nikunj Handa. “People won’t need to change Bitcoin to any other currency so there will be no broker fees involved and people can get really very low-cost transactions. But Bitcoin is in its early days yet, and we need banks and merchants to catch up.”
Great thing is the founders of Beam have the mind to launch “Value Remittances” — a service which will allow people in other countries to use Bitcoin to pay the water, electricity and phone bills for their family members in Ghana.
Kitiwa, a similar service in Ghana, says it has processed over $90,000 worth of Bitcoins.
But not everyone is so optimistic about Bitcoin’s future in Africa.
Critics say the fees associated with buying crypto-currency must be taken into account when considering the cost of remittances. As well as overcoming the technical challenges of obtaining Bitcoins at an “exchange,” users have to also pay a commission. The fee is usually 0.5%, but that can vary between exchanges.
However, by-passing most of the online process is possible with voucher services like Azte, which charges a 4% commission for the convenience. And Xoin, based in Stellenbosch, derived with a similar proposition involving QR codes on vouchers, which you scan with your smart mobile device.
I haven’t even mentioned the standard charges because not all banks support Bitcoin companies as yet. For example, some customers of Brit banks have to initially transfer money from their bank account to a Bitcoin company’s account in a European bank. In order to do this, they pay banking transfer charges and have to wait up to five days for the funds to clear before they get their Bitcoins, yeeah, its faster watching paint dry on a wall.
The competition with existing established services is also a huge reason some shout that widespread adoption of Bitcoin in Africa is still a long way off. Let’s take a look at two of them: MoneyGram has agents in 25,000 locations across Africa, and Western Union has 32,000 registered locations across the continent with a 1 billion folk, majority of which have gotten used to them. But we can see that such companies are adapting to such things as mobile transfers, will they adopt Bitcoin use, we can only wait and see.
“Africa, in particular, is kind of at the frontiers of mobile,” says Hikmet Ersek, chief executive of Western Union. “The people do like mobile, use it like mobile… but also as a wallet. This mobile wallet has been very successful in Kenya (MPESA). We did not see a big success in other countries…but the future, I think, will be that, once the consumer figures out how to use it.” I AGREE with Ersek, the proliferation of knowledge will leap the innovation miles ahead into the future in Africa.
Pointedly, this complexity, and this issue of trust makes the man who founded South Africa’s Bitcoin exchange ICE³X.com skeptical about its widespread adoption on the continent. To stand against a company like Western Union, which has been around for longer than most people have been alive is quite a daunting task; the people who use their services are quite rigid in terms of shifting loyalties, and they trust that method. That’s a huge stumbling block for Bitcoin acceptance.
For some people the real value of the Uber-secure blockchain technology which facilitates Bitcoin could be in commodities trading where big sums need to be transferred across borders in a transparent way. Intriguing? The security risks would be enormous, but not impossible.
Not to mention, Bitcoin is highly erratic. In January 2013, one Bitcoin was worth around $13, surging in December to a high of $1,147. A friend of mine, Solita (the Crypto –world dubbed her ‘LadyWhiteCoin’) believes that “maybe we’ll see BTC close to or around 1000 – 1200 this year. Who knows…?” Yeah, then she moved to mention that I study the words of “Bitcoin Guru” Andreas Antonopoulos, which I am; the man does know his Bitcoin.
Scenario: If I buy Bitcoin and transfer it to another person, the price is very likely to change overtime. So I could send $500 worth of Bitcoin to someone, but as the price fluctuates they actually only get say $450. That’s a bummer! Right now, bitcoin is really only going to be a better deal for someone who really understands financial markets and watches the price constantly. Ultimately, greater solutions need to be developed for mainstream adoption and tangible financial benefits.
At any rate, any currency that returns power to the individual is always welcome in my book. I just hope many folk in the continent will join the bandwagon as it rolls down the hill, perhaps we might emancipate ourselves from the tyranny of ‘Fiat Poverty’, which I realize is an oxymoron!