How switch­ing to cryp­tocur­ren­cies can keep more money in your pocket

Southeast Asia Globe - - Banking - BY JANELLE RETKA

As the Philip­pines con­tin­ues to hold rank as the South­east Asian coun­try with the largest num­ber of mi­grant work­ers head­ing over­seas, the amount of money be­ing sent home to fam­ily mem­bers in the is­land na­tion is ris­ing. Us­ing cut­tingedge tech­nol­ogy, lo­cal en­trepreneurs are ex­plor­ing av­enues for cut­ting the cost of re­mit­ting money, which keeps more earn­ings in Filipinos’ pock­ets

In the 1970s, a surge of mi­grant work­ers went to work on oil rigs in the Mid­dle East from the Philip­pines with the words katas ng Saudi on the tip of their tongues – “fruit of Saudi”. The fruit was the money they sent back home from the higher-pay­ing jobs abroad.

By the mid­dle of the decade, the des­ti­na­tions and de­mo­graph­ics of mi­grant work­ers from the coun­try had grown. Women joined the out­go­ing work­force, and the gov­ern­ment, which had be­gun to recog­nise the need to reg­u­late mi­gra­tion, formed an ad­min­is­tra­tion to mon­i­tor the in­creas­ing re­cruit­ment of its cit­i­zens.

To­day, Filipinos con­trib­ute to the work­forces of roughly 100 coun­tries, with 10 mil­lion liv­ing over­seas and at least a mil­lion mi­grat­ing from the is­lands each year, ac­cord­ing to the In­ter­na­tional Labour Or­gan­i­sa­tion. The de­mo­graphic has earned its own acro­nym: OFW, for over­seas Filipino work­ers.

As the num­ber of over­seas work­ers has grown, so has the “fruit” be­ing sent home. By Oc­to­ber last year, the coun­try was ex­pected to be among the top five coun­tries glob­ally to re­ceive re­mit­tances from over­seas, amount­ing to roughly $32.8 bil­lion, ac­cord­ing to a World Bank re­port. Only In­dia and China were likely to ex­ceed this. The amount is ex­pected to in­crease.

As of June, the World Bank recorded the av­er­age global cost of send­ing re­mit­tances to be 6.99% of the amount – a sig­nif­i­cant im­prove­ment from 9.67% in 2009. But judg­ing from these re­cent cost es­ti­mates, Filipino mi­grant work­ers could still be part­ing with a to­tal of $2.29 bil­lion an­nu­ally as they work to im­prove their fam­i­lies’ well-be­ing back in the is­land na­tion.

Be­cause of the high rates of mi­grant work­ers and re­mit­tance fees, the re­mit­tance busi­ness it­self has long

been seen as fruit­ful in the Philip­pines. Ewal­lets and other fin­tech have helped bring down the cost of re­mit­tance – the World Bank es­ti­mates that this form of trans­fer is the most cost-ef­fec­tive, at an av­er­age global cost of 3.2% – while even more cut­ting-edge tech de­vel­op­ments may push this fig­ure down fur­ther.

“Cryp­tocur­rency and blockchain tech­nol­ogy can greatly as­sist with re­duc­ing the cost and rais­ing the speed of re­mit­tance trans­fers world­wide, in­clud­ing to the Philip­pines,” said Jayant Menon, lead econ­o­mist at the Asian De­vel­op­ment Bank.

With blockchain tech­nol­ogy, to­kens or cryp­tocur­ren­cies are elec­tron­i­cally trans­ferred to an­other per­son in min­utes us­ing a code and a “block” that con­tains an un­al­ter­able record of its value, al­low­ing the trans­fer to be ver­i­fied with­out a third party. This cuts down time and the need for an in­sti­tu­tion such as a bank and its staffers. The block can then be con­verted back into fiat cur­rency – the Philip­pine peso, for ex­am­ple.

“Although com­pe­ti­tion as well as in­ter­na­tional agen­cies like the UN are try­ing to ex­ert pres­sure to bring [in­ter­me­di­ary trans­ac­tion] costs down, they are un­likely to fall to the lev­els that are as­so­ci­ated with blockchain tech­nol­ogy,” Menon added. “In the Philip­pines, where a large ma­jor­ity of the pop­u­la­tion re­main un­banked, this tech­nol­ogy has great po­ten­tial in rev­o­lu­tion­iz­ing the re­mit­tance mar­ket.”

Some Philip­pines-based com­pa­nies are al­ready work­ing on de­vel­op­ing this blockchain so­lu­tion.

“The mis­sion of our com­pany is fi­nan­cial in­clu­sion. In the Philip­pines, roughly 70% of peo­ple have no ac­cess to fi­nan­cial ser­vices,” said Colin Goltra of Coins.ph, an ewal­let that al­lows Filipinos – and, now, users in Thai­land – to send and re­ceive money with­out a bank ac­count. Mean­while, “many of them do have ac­cess to smart­phones [and] some re­me­dial ac­cess to the in­ter­net.”

“There’s this weird dis­con­nect where you know you’ve got peo­ple that are daily, ac­tive users of In­sta­gram, Face­book – you know, re­ally mod­ern, mo­bile apps – yet the fi­nan­cial in­fra­struc­ture that they use is lit­er­ally just cash,” Goltra said. Some­times this is be­cause they don’t have enough money to open an ac­count. It can also come down to a lack of bank branches for the coun­try’s 7,000plus is­lands.

Coins.ph cap­i­talises on this tech­nol­ogy us­age, mak­ing it pos­si­ble for users to pay bills on­line or with­draw Philip­pine pe­sos from their Coins ewal­let at re­tail part­ners such as 7-Eleven. Over­seas Filipino work­ers can go to a sim­i­lar re­tail part­ner to “Cash In” money to their own wal­let. Us­ing Coins.ph, they then re­mit the money to a fam­ily mem­ber in the Philip­pines.

Tra­di­tional re­mit­tance com­pa­nies like Western Union can cost users 8% or more of the amount they send home, but Goltra said his com­pany costs users just 1% to 2%. That’s be­cause Coins.ph con­verts re­mit­tance into cryp­tocur­ren­cies such as Bit­coin or Ethereum be­fore send­ing it to the re­cip­i­ent, who can with­draw it as fiat cur­rency, do­ing away with the need for a mid­dle­man by mov­ing the funds di­rectly from one Coins wal­let to an­other.

“Many of these re­mit­tance cus­tomers don’t even re­alise they’re us­ing cryp­tocur­rency be­cause re­ally it’s only be­ing used as a back­ground tech­nol­ogy,” he said.

Coins.ph gained its 5 mil­lion users largely by hands-on ed­u­ca­tion on how to use the plat­form and in­cen­tive pro­grammes that give new users re­bates for try­ing the ewal­let, Goltra said.

This hands-on cus­tomer ed­u­ca­tion is ex­actly what Bloom So­lu­tions aimed to avoid when it launched what it hoped would be a so­lu­tion to Philip­pine cryp­tocur­rency re­mit­tance, said Luis Bue­naven­tura, the com­pany’s co-founder and chief strat­egy of­fi­cer.

“Although com­pe­ti­tion as well as in­ter­na­tional agen­cies like the UN are try­ing to ex­ert pres­sure to bring [in­ter­me­di­ary trans­ac­tion] costs down, they are un­likely to fall to the lev­els that are as­so­ci­ated with blockchain tech­nol­ogy”

“There’s this weird dis­con­nect where you know you’ve got peo­ple that are daily, ac­tive users of In­sta­gram, Face­book – you know, re­ally mod­ern, mo­bile apps – yet the fi­nan­cial in­fra­struc­ture that they use is lit­er­ally just cash”

“Those are very ex­pen­sive ac­tiv­i­ties to be un­der­tak­ing be­cause you have to [ed­u­cate and mar­ket to cus­tomers] on both sides of the trans­ac­tion, [even though] the sender might be any­where in the world,” said Bue­naven­tura.

In­stead, his team tar­geted over­seas re­mit­tance com­pa­nies with Filipino clients to help them use Bit­coin to re­mit the money to Bloom So­lu­tions, which is con­nected to banks, cash pickup part­ners and more across 99% of the coun­try. This process low­ers the cost of the trans­ac­tion while al­low­ing cus­tomers on both ends to con­tinue us­ing the in­sti­tu­tions they were ac­cus­tomed to.

“It doesn’t re­quire them to change any of their be­hav­iour,” he said of mi­grant work­ers and lo­cal re­cip­i­ents. “The only thing that they’ll no­tice is that the cost got a lit­tle bit less.”

As with Coins.ph, Bue­naven­tura said cus­tomers are rarely aware that blockchain tech­nol­ogy is even in­volved in the process. Since its start in 2015, the com­pany has moved roughly $150m in re­mit­tance. Bloom So­lu­tions also helps pro­pel the re­mit­tance in­dus­try, he said – en­abling smaller re­mit­tance com­pa­nies to par­tic­i­pate with­out for­ward­ing money over­seas in ad­vance of an­tic­i­pated trans­fers, which cus­tomers nowa­days ex­pect to hap­pen in­stan­ta­neously. With blockchain, that’s pos­si­ble, he added.

Both com­pa­nies have plans to branch out into neigh­bour­ing coun­tries in the fu­ture to ad­dress the wider re­gional – and global – re­mit­tance is­sue. They’re not alone in de­vel­op­ing cryp­tocur­rency re­mit­tance so­lu­tions for the re­gion. Hong Kong’s Bitspark al­ready ser­vices Malaysia, the Philip­pines, Vietnam and Indonesia with cryp­tocur­rency re­mit­tance. OMG, by OmiseGo in Thai­land, is an­other cryp­tocur­rency ewal­let with a fo­cus on re­mit­tance and plans to launch be­fore the fourth quar­ter of 2018.

As Coins.ph and Bloom So­lu­tions con­tinue to build on their ex­per­tise while shoring up mar­ket share and pro­tect­ing it from the grow­ing com­pe­ti­tion from over­seas, both are con­fi­dent of one thing: cryp­tocur­ren­cies will dras­ti­cally change the story of mi­grant work­ers and the fruits they earn and send back home.

Luis Bue­naven­tura, co-founder of BloomSo­lu­tions, which is work­ing on a cryp­tocur­rencyso­lu­tion to re­mit­tance

Colin Goltra of Coins.ph, an ewal­let that al­lows users to send and re­ceive funds with­out a bank ac­count

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