Why is sending money so expensive?

February 21, 2019

Anybody who has experience with sending money abroad knows how much of a hassle this can be. Whether by bank transfer, through retail channels or by taking cash through customs and exchanging it for another currency at an exchange shop, cross-border money transfers are generally expensive and slow.

It’s one thing to tolerate these conditions for a one-off payment, but when it comes to regular payments, especially if resources are scarce and people depend on them for their livelihood, the difficulties and costs of sending money abroad are simply not justifiable.

The clearest example of such vital cross-border money transfers are remittances which now amount to over $600 billion USD a year globally and form a literal lifeline for countless families around the world and an important driver of socio-economic progress for emerging economies. On average, such payments come at a cost of between 5-8% of the transferred amount. This basically means that billions of dollars of hard-earned money are not ending up where they are needed the most.  

At a time when data such as emails, pictures, music and videos can be transferred almost instantly across the world, there is no good reason why transferring value should be so tedious, slow and expensive.

Of course, the reasons why cross-border payments are so expensive are manifold, the main ones being the following:

1. Cash and FX

As we’ve often stressed, a lot of people do not have bank accounts making the process of receiving money from abroad extra complicated and pricy. Especially when dealing with weaker currencies. Just to give an example, as one of our customers explained, sending an amount of 2000 RMB (296 USD) from China to The Gambia through Western Union, requires finding an agent, filling in a complicated form, paying a fee of 250 RMB (37 USD), informing the contact abroad who then (a few hours later) has to find an agent, show their passport and give a reference number, only to find out less than 296 USD in Dalasi will be received on his or her end.  

2. The banking system

Unless there is a direct relationship between banks, when using the banking system, cross-border money transfers have to go through a complex network of correspondent banks, which apart from making the actual transfer happen are also responsible for converting currencies. At every step, costs are incurred.

3. Regulations

Increasingly complex regulatory arrangements also drive up the costs. As part of de-risking, banks have been cutting off ties with small money transfer businesses. Additionally, because of the complexity and high costs involved in compliance, entrepreneurs in this field have less of an incentive to enter the market, allowing banks and big players such as Western Union and MoneyGram to dominate the remittance sector at the expense of those who rely on them.

Raising up an alternative ecosystem

Although all of the above factors drive up the price, it’s also important not to be naïve. High costs can be avoided. However, they are purposefully raised for profit by the institutions and intermediaries that dominate the sector. Anyone who’s familiar with how banks operate knows that the true cost of facilitating money transfers are negligible – down to a dollar or less – and charging $20 USD or more per transfer signifies everything that’s wrong with the system.

In fact, the whole reason why bitcoin was created in the first place was to counter such institutional greed and take a first step towards restoring financial balance and opportunity.

When Bitspark was founded, we soon realised the possibilities before us and how transferring value through bitcoin was an effective way to bypass existing systems, thus increasing speed and reducing cost. However, as we developed our services and really sought to create a cash-in cash-out ecosystem with crypto as a vehicle, instead of bypassing we begun tapping into existing infrastructures, connecting more Cash Points to our network.

As regulations stack up and smaller traditional transfer operators exit the market, leaving it to the big players to set the rules, there is no reason to expect conventional cross-border transfers to become any cheaper or faster. As we realised a few years ago, and as is increasingly recognised, technology has the potential to change it all for the better.

Take mobile phones, for example. While almost 2 billion people are without bank accounts, almost everyone in the world now has a smartphone. Bitspark’s ecosystem leverages mobile infrastructures to increase financial inclusion for the unbanked, cutting unnecessary intermediaries out of the equation. This is how we make cross-border money transfers so much easier.

By now, we have well evolved beyond bitcoin and are leveraging stablecoins. That is, cryptocurrencies pegged to fiat currencies. Because stablecoins have practical use, they make it possible for us to offer our services in every corner of the world. We are on our own way to further drive adoption and truly transform the landscape of cross-border money transfers for good

Sending money with the Bitspark mobile app

You can do many things with the Bitspark mobile app which serves both as a crypto wallet and exchange. Sending money across borders is easy and takes only a few taps. As an example, say you want to send money from Hong Kong to someone in the Philippines, you have two ways of doing that using the PHP stablecoin.

Option 1: Send stable.PHP to someone with Bitspark app
If the person you are sending to also has the Bitspark app, sending money takes only a couple of minutes. If you don't have any funds yet in your wallet, visit a Cash Point near you to convert HKD cash into sparkdex.HKD. With the HKD stablecoin in your account, you can exchange the balance to stable.PHP and send that to the person in the Philippines. The PHP stablecoin will arrive in only a few minutes and the receiver can then take a number of action: cash out at a Cash Point, exchange for different currencies, or in selected regions even pay for the solar electricity bill.

Option 2: Send stable.PHP to someone without Bitspark app

If the receiver in the Philippines does not have the Bitspark app, you can still send them money using the PHP stablecoin. Follow the same steps as described above to get stable.PHP into your account. Then when you tap 'send' on the PHP currency in your wallet, select a Bitspark affiliated agent under 'Send Via' and follow the steps on the next screen. This allows you to send a "cash out" transaction in someone else's name.


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