How Bitcoin is Reshaping the Remittance Industry

For decades, Western Union and MoneyGram have been the biggest players in the global money transfer market. They sometimes charge hefty fees and take days to process transfers across countries. But Bitcoin, the most popular cryptocurrency in the world, is altering that by changing the way people send and receive money globally by making transactions faster, cheaper, and safer.

As more individuals monitor the Bitcoin price USD and consider its use beyond investment, discussions around its potential role in financial inclusion and cross-border transfers are becoming more prominent. Bitcoin is a faster alternative to the traditional banking system for things like migratory workers sending money home to their families and businesses paying contractors in other countries.

The World Bank says that in 2023, more than $860 billion was sent in remittances around the world. However, for low-income migrants who send tiny sums of money back home, the costs are still too exorbitant. 

Fees for sending $200 might be anywhere from 5% to 7%, depending on where it's going and how it's being sent. Also, people who receive money typically have to go to a physical site and provide ID, which makes the procedure lengthy and not very effective.

Banks, clearing houses, and foreign exchange providers are all examples of intermediaries that traditional systems rely on a lot. These intermediaries cause delays and extra costs. In some nations where the banking system isn't very good, people may have to travel for hours to get their money.

1. Lower Transaction Costs

When you use Bitcoin, you send money with very low fees, especially compared to typical remittance services. Bitcoin fees are generally still lower than wire transfers or money transmission services, even when the network is busy. More crucially, new ideas like the Lightning Network, which is a second layer for Bitcoin, make it possible to make micropayments almost instantly and for very minimal fees.

2. Faster Settlement Times

Bitcoin transactions usually settle in a few minutes; however, this can change based on the network load and the confirmation settings. This is a big deal for families who need money quickly. There is no waiting time for bank approval, and there are no delays because of holidays or business hours.

3. Global Accessibility

One of the best things about Bitcoin is that it doesn't have any borders. People who live in distant places without banks can still send and receive Bitcoin as long as they have a smartphone and internet connectivity. This gives those who don't have bank accounts more chances to make money, especially in places where there aren't many traditional banks.

Countries like El Salvador, which made Bitcoin legal tender in 2021, have been the first to try out crypto-based remittances. The government says that transfer fees went down by 50% once they started using Bitcoin-based services.

In Nigeria, the Philippines, and India, which have substantial diasporas, more and more migrant workers are using Bitcoin to avoid expensive remittance corridors. The cryptocurrency can then be converted into local currency, often more affordably than through traditional channels.

There are certain problems with Bitcoin, even though it has some perks. The most common one is volatility. Because the price of Bitcoin can change a lot in only a few hours, those who send and receive money often don't know how much their money is worth. A $60,000 remittance may be sent while Bitcoin is worth only $58,000, which means that the recipient will get less money in the real world.

To fight this, a lot of remittance services only employ Bitcoin for the backend settlement procedure. The end consumer uses solid fiat currencies, and Bitcoin is only a way to move money. This hybrid model takes the best parts of both blockchain and traditional currencies and puts them together.

Uncertainty about regulations is another reason why widespread use is not happening. Some countries, like China, have made it illegal to use cryptocurrency, while others are still trying to figure out how to do so. In the world of remittances, Know-Your-Customer (KYC) and Anti-Money Laundering (AML) requirements make things even more complicated.

Still, regulators around the world are starting to see the promise of crypto to make money more accessible. The International Monetary Fund (IMF) and the Financial Action Task Force (FATF) have both put out rules for crypto compliance, which shows that more people are accepting it.

It won't happen overnight that people will stop using traditional remittance and start using blockchain-based alternatives. But the energy is there, that's for sure. As the infrastructure for Bitcoin gets easier to use and the rules get better, crypto remittances may become the new normal, especially for younger, tech-savvy immigrants.

Banks and other financial organizations are already paying attention. For instance, Western Union is trying to use blockchain. At the same time, fintech businesses are building new platforms that employ crypto rails to cut expenses and improve the user experience.