Who will take the cake? The use of cryptocurrency to send remittances is gaining ground in Latin America, and although skepticism persists, there has been a rapid proliferation of solutions that seek to speed up the colossal movements of money across borders.
Bitso, the Mexican unicorn, is heading in that direction. The fintech processed US$1 billion in international transfers involving crypto assets during the first half of 2022, which represents a four-fold increase from the same period of 2021. It’s a milestone for an industry that is just starting to explore real use cases.
To conquer the market, Bitso has diversified its product offering for two target audiences: individuals and small businesses on the one hand, and on the other, remittance companies and other financial institutions that want to get into the crypto universe. For either group, the key to differentiation is offering transfers (almost) in real time and with low commissions. High fees are a pain point for the final consumer and can hold back the digitalization of cross-border money transfers, slowing financial inclusion as a result.
“The advantages offered by this service include a reduction in costs for this type of transaction, in addition to the security and efficiency of shipments, and even if end users don’t notice the process has been carried out using cryptocurrencies, they will benefit from much lower prices,” Bárbara González, who is both CFO of Bitso and CEO of its Mexican operation, tells iupana.
“The benefits that cryptocurrencies bring to the process of transfers between countries are many, so without a doubt we are facing exponential growth,” says the executive, who led Bitso’s finance department during last year’s capital raising that turned it into a unicorn valued at about $2.2 billion.
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A new cross border payment model
Mexico and Colombia are Bitso’s biggest markets for remittances. (The company also has a presence in Argentina.)
Bitso’s app allows wire transfers in dollars between both the U.S. and Mexico and the U.S. and Argentina. A transfer of this type would typically involve moving money between banks within the same country, but the company’s wallet allows users to send and receive dollars from a bank account in the U.S. to a Bitso account.
And in the case of companies, they can use Bitso’s technology to speed up operations using stablecoins as rails in their portfolios. An integration via API allows financial institutions, such as fintechs or banks, to offer services for the sale, purchase, and delivery of virtual assets, which customers can hold or convert to fiat money.
The company has agreements with remittance companies in the U.S. that use Bitso’s infrastructure to move money to LatAm, explains González.
“This is a big advantage for the remitter since it reduces the working capital needed to meet payment obligations,” she says.
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Crypto regulation: a key issue in Latin America
However, the sums that platforms such as Bitso move are a drop in the ocean of remittances, which totals about US$131 billion per year.
Despite the digitalization efforts, the reality is that remittance deposits and withdrawals continue to be mainly in cash. This was confirmed by Western Union, which told iupana this year that its physical remittance points, far from decreasing, continue to increase.
Wise, a fintech specialized in international payments, says the use of cryptocurrencies to send or receive remittances generates friction for the consumer due to the absence of an ecosystem that allows their use on a massive scale in the virtual or physical world.
González expects the sector to mature when cryptocurrency use cases are normalized and generalized, which is something she sees coming hand in hand with greater regulation.
Latin America has made progress in this regard. According to the iupanaPRO index — a series of indicators that rates the regulatory progress on key financial technology issues on a scale of 1 to 5— the authorities of most countries in the region have made some sort of advance in regulating the crypto world. For example, Peru is at level 2 (there is a draft legislative bill), while Mexico is at level 5 (fully regulated), thanks to its Fintech Law and a framework of regulations focused on exchanges.
“We increasingly detect a greater openness, as well as an important development in regulatory issues, which are essential to continue encouraging the growth of this technology,” adds the Bitso executive.
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Crypto, fiat and the challenges of the future
Clear rules, the dissemination of accurate information, and greater supervision by the authorities should help mitigate some of the risks — real and reputational — of crypto assets, particularly at a time when the market is barely recovering from the “winter” that this year abruptly wiped out trillions of dollars in assets, spawned massive layoffs and hurt the image of digital currencies.
Indedd, investors are exercising caution and have slowed their pace of disbursements. Global investment in blockchain and crypto startups fell 35% in the third quarter of 2022 from the same period of 2021, according to CB Insights.
“One of the main challenges is education and knowledge about the potential that cryptocurrencies have for making this type of financial process much more efficient,” says Gonzalez.
For example, contrary to what some people may believe “users do not take any type of exchange risk” in the conversion from crypto to fiat, she says. And while the exchange charges a commission at the time of conversion, it is “much lower than those charged through traditional methods
This is an important point, given user frustration with high fees and long waiting times for remittances. In the fourth quarter of 2021, globally the average cost for US$200 transfer was 6%, according to the World Bank.
González expects Bitso to process some US$4 billion in international transfers in 2023. “Little by little, the crypto industry is gaining a share of the growing market for international transactions and cross-border payments,” she says.
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