In an increasingly globalised world where migration is on the rise and interconnectivity is rapidly developing, the multibillion-dollar remittance industry is only expected to grow. Although at the macroeconomic level it has some adversarial effects, it is nonetheless a vital market as it generally contributes to bridging the gap between rich and poor.
Offering a relatively stable source of income, independent of the local, often dire economy, remittances constitute a lifeline for countless individuals and households in the developing world. Unlike a range of other financial flows managed by governments and non-governmental agencies aimed at alleviating poverty, remittances precisely target the needs of their recipients with little to no interference.
In the first stage, remittances are found to alleviate poverty through funding basic survival, education, housing, health, repayment of debts, and unavoidable socio-cultural spending such as weddings and funerals. In the second stage, remittances impact on poverty in the long run, allowing for entrepreneurship or investments which enable income-generating activities.
The State of the Industry
While a small proportion of remittances flows through informal channels -such as relatives bringing cash back home- banks generally dominate the industry with giant remittance companies, such as Western Union and MoneyGram, owning around half as much market share as financial institutions. Yet, stable as it may seem and crucial as it is, the industry is beset by problems and fundamentally at risk.
One of the critical issues relates to the high transaction fees to which remittances are subject. So much so that out of an approximate $440 billion being transferred around the world, an amount which according to the World Bank is three times the amount of official aid flows, at least $32 billion in remittances fails to reach recipients.
Another major problem is de-risking which, according to the Chairman of the International Association of Money Transfer Network Mohit Davar, is stifling competition and concentrating power on a mere handful of players. De-risking, also known as de-banking, refers to financial institutions severing ties with clients as part of anti-terror, anti-laundering regulation compliant policies. Money Transfer Operators (MTOs) and small remittance agencies are among the most affected by such activities. While the money transfer system is by no means immune to misuse, average remittance transactions are relatively low and therefore inefficient for the malign purposes which such regulations seek to counter.
Also relevant is the fact that traditional financial service providers are increasingly out of sync with the changing socio-economic profiles of migrants and their needs as customers. As averages wages rise, beyond merely sending money home, migrants now demand a broader set of services which include transferring bank credits and managing money in multiple countries. Falling behind, traditional banks have been slow to incorporate new technologies that could facilitate automated identification, real-time transaction scanning and real-time cross-border settlements and other services that fit the needs of this age.
With such problems in mind, and eyeing disproportionate transfer and exchange fees in particular, critical analysts are claiming this century-old industry is ripe for disruption and in recent years digital-first players have been on the rise to do just that.
The Promise of Bitspark
One of the key companies set to disrupt the remittance industry is Hong Kong-based Bitspark: the world’s first cash-in, cash-out blockchain remittance platform, built in 2014. Its mission is to ‘bank the unbanked’ and offer remittance services at higher volume, at higher speed, with significantly lower fees. It seeks to free both MTOs and customers from the limitations of banks and at the same time provide a better financial system for the world’s two billion unbanked.
Assessing these aims, we would say that Bitspark’s root purpose is to make for a more just, financially accessible and inclusive world.
In 2017, Bitspark evolved with its innovative Project Zephyr. The Project aims to incentivise the growth of remittance businesses around the world and effectively end dependence on banks for the industry. Already reaching eight markets with their products and services, predominantly in Africa and Asia, with Project Zephyr, through Bitspark’s web platform and mobile app Sendy’s strategic switch to Bitshares, MTOs and remittance customers are to gain access to more than 180 fiat-pegged cryptocurrencies, making the cash-in cash-out process in over 350,000 locations significantly easier.
From Bitcoin to Bitshares
The switch to Bitshares is a departure from Bitspark’s previous reliance on Bitcoin, which due to it frequently suffering from transaction congestion raised questions about scalability -especially by those aiming to operate in such a vast market as remittances. Bitshares, for which Bitcoin essentially paved the way, is an industrial grade, decentralised exchange (DEX) platform for trading cryptocurrencies. It currently has over a 1000 cryptocurrencies built on top of it. Created to support a heavy transaction load at low cost, it constitutes a perfect platform for companies such as Bitspark which aim for radical global transformation.
In contrast to Bitcoin - the liquidity of which becomes problematic outside of major FX pairs such as the USD or EUR - Bitshares provides the architecture to navigate the complex landscape of exotic currency remittances with relative ease. This is where Bitcoin falls short and traditional banks flat out fail. Imagine sending $200 worth of CFA from Tanzania to Kenya along traditional banking channels and in the process losing approximately $50, due to the multiplicity of fees imposed along the way. Working with Bitshares, due to its decentralised arrangement, makes direct native currency trading possible without hedging USD.
In addition, and equally relevant, explains Maxine Ryan, the co-founder and COO of Bitspark, is the fact that the speed at which Bitshares operates is 9,090 times faster than Bitcoin making it possible to process 100,000 transactions per second (tx/ps). Comparing this to Visa which can only process 1,700 tx/ps provides us with ample perspective into the potential this offers.
Bitspark’s Zephyr Token
Apart from Bitspark’s switch to Bitshares, Project Zephyr is also of notable interest due to its coupling with the launch of its Zephyr token. The token will be used as a reward mechanism for both MTOs and customers who undertake economically meaningful tasks using Bitspark’s remittance network such as sending and receiving money, topping up Sendy mobile balances, referrals and liquidating cash reserves at an MTO.
This strategy, to which 30% of the total supply of Zephyr is dedicated, is devised to incentivise active participation and customer conversion. The rest of the supply is available at launch to the general public (30%), designated for the company’s further expansion into new markets (35%) and distributed among the Bitspark team (5%).
In a brilliant move, Bitspark vows to reinvest 25% of service fees from every successful remittance transaction into buybacks of the Zephyr token on the Bitshares DEX. This strategy is set to increase the buying pressure of the token. As more users grow the network, more transactions will occur, thereby raising the value of the token, which in turn incentivises more user acquisition.
In practice, this means that MTOs and Top Up Agents, who are operating according to the rules of the free-market and can set their own preferred commissions, will also be receiving an amount of Zephyr - as will customers - with every transaction. This is expected to foster a healthy market and enable the full operation of Bitspark agents without banking facilities.
In line with Bitspark’s root purpose, the company is committed to transparency which means that all transactions that happen on Bitspark’s Zephyr Network and all balances held on behalf of the company are publicly viewable on the Bitshares blockchain.
Eyeing the future
Bitspark is a notable disruptor of the remittance industry that is actively seeking to translate a Great Idea into reality. Its actions are geared towards removing reliance on banks, which is one of the biggest hurdles for MTOs and prevents the industry from evolving. The Bitspark remittance platform counters this dependency, offers state of the art technology which is more in line with the profiles and needs of contemporary migrants and does so at minimum cost, making sure that money flows to where it is most needed.
Although primarily a remittance platform, motivated by and without losing sight of its root purpose Bitspark continues to evolve and branch out to engender higher degrees of freedom and financial inclusivity. Just recently, on the 30th of August 2018, marking the fourth stage in building Bitspark’s bankless financial ecosystem, it launched SparkDEX, Hong Kong’s first decentralised cryptocurrency exchange.
Apart from securing funds in a manner far superior to any centralised exchange, SparkDEX stands out with over 1600 markets of cryptocurrency, pegged cryptos and tokens available; it features a live transaction status; imposes no transaction limits and requires no intrusive identification verification of its users.
As Bitspark continues to strive for a more just, financially accessible and inclusive world, we are eager to find out how it will reach out to a public who is not just excluded from financial institutions due to structural arrangements, but are also disengaged at the level of discourse.
How will Bitspark work to foster public understanding and trust around a complex and jargon-laden phenomenon such as the blockchain? In what way will it manage to communicate its value proposition across culture? How will it continue to develop its own capacity for service and stay in sync with changing customer profiles? And how will Bitspark evolve its own values and internal operations in relation to the wider financial community?