Overseas remittance is big business. In 2020, the World Bank reported that overseas transfers totalled a staggering $540 billion. Given that this was during the midst of the pandemic, there is every possibility that this figure will grow as the world edges towards recovery.
When you need to send money abroad there are many different options. The most traditional ones are bank transfers and wire transfers but the process can still be complicated, long and expensive. In this article, we will look at whether cryptocurrencies can make this process easier and less costly.
The typical process of sending money abroad
Before we take a look at cryptocurrencies, and in particular Bitcoin, it is worth reminding ourselves of the process that is usually used to send money abroad. Generally, the person sending the funds would use their own currency and pay this to a money transfer operator. The person receiving the money would then collect this in their country with the operator’s fees having been deducted.
The transfer operators don’t typically operate in a vacuum. They operate as part of a large network of remittance software providers. This is part of the reason that transfers can get expensive. The operators, of course, need to take their cut to run their business. However, a substantial percentage of any fees go straight to the remittance software providers.
Just how the costs add up
There is always the chance of reducing fees by using a money transfer company, but even then the process is slow and complicated as well as being expensive. On average, remittances lose around 7% to fees. The fees between countries differ substantially with it being possible to pay as little as 3% and as much as around 9.5%.
Part of the costs are due to the fact that the service providers have to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. Often the fees involved are difficult to interpret and this even leads to a complete lack of transparency with the exchange rate.
The Bitcoin alternative
When looking at Bitcoin, or any cryptocurrency, as a viable alternative it is worth remembering that these are international. More than that, they are not linked to any country at all: they operate without any form of border. This means that no matter what country you are in you can send and receive Bitcoin.
What may seem a little off-putting when it comes to exploring Bitcoin as an alternative, are the complexities involved with the blockchain. The good news here is that there are companies developing that allow for bitcoin remittances without the need to understand this. Using these services allows users to completely bypass the fees associated with the remittance software provider.
How it works – the step by step process
If cryptocurrency is something that is new to you, it may appear a little daunting or intimidating. As you will see, the process involved in using the likes of Bitcoin is relatively simple and, over time, becomes just as easy as a typical bank transfer. Let’s take a look at the steps involved with both buying and selling:
Purchasing the currency
The first step involved with cryptocurrencies is to go ahead and buy some coins in the first place. This is a simple process and there are a variety of exchanges that allow you to trade coins like Bitcoin up. Before you can do this you will need to register an account and you may also be asked for identification.
When it comes to choosing which company you are going to use, it is worth carrying out some research. You will find that not all of these companies are created equal. Some have great interfaces that work well whereas others are more difficult to navigate. Some will want you to sign up as a premium user in order to avoid high transaction fees whereas others just allow for standard users.
You will see that there are certain companies that are geared to those who are looking at crypto as an investment. Others are more about providing a service for those who are looking at making transfers in crypto.
How to send coins
Once you have your coins, you will then need to know how to go ahead and send them. Before you can do this you will need to make sure that your intended recipient is able to access crypto and a digital wallet. As long as they have a digital wallet, regardless of the provider, then you are good to go.
The recipient’s wallet will have an address associated with it. The address will be a string of numbers and letters. With this, you can send your crypto to the wallet. Making a mistake with the address will see your coins being sent elsewhere with you being unable to retrieve them.
How the recipient benefits
When your recipient sees your transfer hit their digital wallet (this could take a few minutes or a few days), to benefit from the coins they will need to go ahead and sell them. The value of crypto is known to fluctuate so to ensure the intended value it is important that the recipient acts relatively quickly.
If your recipient chooses to hold on to the coins that you have sent it is possible to spend these directly. Although the places that will accept them as a form of payment are limited, they are increasing all of the time, especially with Bitcoin.
Is it worth using crypto to send money overseas?
Having seen that it can indeed be done, the next consideration has to be if it is worth doing. The short answer is a resounding yes! Not only is the blockchain extremely secure, it also brings some substantial savings in terms of costs.
While there are transaction fees associated with Bitcoin, using it as a way to send funds overseas still has the potential to undercut the costs associated with traditional methods. By sending the funds directly to a recipient, you are bypassing the systems and organisations that lead to the fees being so substantial.