Converting cryptocurrencies into a stable, everyday means of payment is an emerging challenge for fintechs. And until that becomes a reality, using crypto assets to move money across borders is not yet an option for remittance company Wise.
The British fintech, which is a growing provider of cross-border solutions, is watching cryptocurrencies closely given their potential for speeding the remittance process in Latin America, a market where it’s keen to expand. However, it says using crypto in foreign currency transactions pushes up the costs of exchanging money, and is best avoided, for now.
“Currently, most people still have to do conversions between fiat and cryptocurrencies and incur unnecessary friction and fees during the process,” Pedro Barreiro, Wise’s Brazil banking and expansion leader, tells iupana.
“We remain very focused on reducing those fees and friction when people move money around the world,” he adds.
Wise, formerly TransferWise, uses a business model based on local banking networks so as to move money across borders as little as possible and thereby generate cost and time savings. So, if a user sends pounds and wants to convert them to euros, they deposit pounds in Wise’s UK bank account and the company pays the recipient from its euro account.
It’s a formula designed to avoid the high commissions that banks charge for cross-border transfers. Blockchain technology also has potential for reducing costs, though for some players in the sector, it isn’t a viable option because the region lacks an adequate payment ecosystem for cryptocurrencies.
While there are potential use cases for money transfers via and giants such as Mastercard are exploring the possibilities — it is a work in progress.
Earlier this year, Meta announced it would be closing its digital wallet pilot for sending money between the U.S. and Guatemala using stablecoin—a sign that there is still much to be done to develop the market.
According to a report last year by Chainalysis, it’s vital to have a network that allows shoppers to make purchases with crypto and save them the trouble of having to make the conversion to fiat currency.
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Wise: High hopes for LatAm
The fintech, which has a market capitalization of GBP 4.9 billion, has lost almost 50% of its value since going public on the London Stock Exchange in July 2021, amid a sell-off in tech stocks. That hasn’t deterred the firm from pursuing new markets, and it has sets its sights on Latin America.
“It’s a region with a lot of potential to exploit,” says Barreiro.
In Brazil, the firm plans to quadruple the size of its team by the end of 2023. And in Mexico, one of the largest remittance markets in Latin America, Wise is set to open offices next month.
Money transfers to the region increased by 25.3% to US$131 billion last year, according to World Bank figures. Mexico alone received US$51.5 million, which illustrates its appeal to global players such as Revolut.
“In Mexico […] we believe that, by being cheap, convenient, transparent and delivering quickly, that will be a big differentiator with the other players in the market,” says Barreiro.
In addition to the priority markets of Brazil and Mexico, Wise handles money transfers in Argentina, Uruguay, Colombia and Costa Rica and has a license to operate in Chile. The model the company uses with its banking partners varies from country to country as do its fees.
In Brazil, as in other countries where they have a presence, Wise offers a multi-currency digital wallet that lets users to operate with euros, pesos or dollars from the same platform.
Other benefits of its system include users knowing the cost of the transaction from the start, using the same exchange rate as that published by Google, and in addition, transfers are usually completed within hours.
For that reason, the company tries to connect directly to local payment systems, Barreiro says. “When that’s not possible, we look for banking licenses and partners that allow us to access the instant payment infrastructure, even indirectly, to complete payments locally,” he says.