There are approximately 42.8 million immigrants living in the U.S. Many are migrant workers who come to the U.S. to earn money for their families back home. Remittances, the process of sending money back to a migrant's home country, are more than a $50 billion industry in the U.S., according to the World Bank.
Sometimes because of their legal status, these migrant workers may not have access to traditional financial services. They go to their local Western Union or MoneyGram to send money; these companies together make up a dominant 20% of the remittance market share. These companies also make a killing by charging exorbitant transactions fees, which can be in excess of 10%.
The much-hyped Bitcoin currency, with its low transaction fee and ability to cross nation-state borders could solve this problem. Bitcoin could be used for remittances in a process where it is bought for U.S. dollars, transferred to the intended recipient back home, and then sold for the local currency. In doing so, the only cut would be Bitcoin's marginal transaction fee.
It would seem that the biggest barrier to widespread Bitcoin adoption by migrant workers would clearly be education—cryptocurrencies aren't exactly easy for the layman to understand. But that doesn't have to be so, says Arjan Schütte, a leading expert on financial services for the underserved.
"Most people see cryptocurrency as a consumer innovation. I see it as an infrastructure innovation. To me the business-to-business answer is so big and so obvious," he says. In Schütte's opinion, Bitcoin or another cryptocurrency could form the backend of the remittances industry in such a way that someone trying to send money home never actually has to touch Bitcoin.
"Eighty-five percent of international money transfer is done cash to cash: Someone walks into a store, hands someone a bunch of cash, and mom picks it up in cash. In that case, this customer wouldn't at all know or care that some cryptocurrency is in the middle of their transaction," he says.
Currently, Bitcoin transaction fees are effectively negligible. If a money transfer business were to implement it, they would naturally add their own transaction fee in order to turn a profit. Still, Schütte says, migrant workers would come out on top compared to the predatory situation they face today.
"In our current system the company that's sending the remittance—usually Western Union—is turning around to a bank and says 'Hey, I need to buy pesos' and so the bank charges them a foreign exchange fee for that service," Schütte explains. "But if you can circumvent that bank you can significantly reduce the cost of moving money from point A to point B."
It then stands to reason that an upstart money transfer business would try to make as much profit as it can, while still undercutting its status quo competitors enough to draw away customers. An alternative outcome might see Western Union itself adopting Bitcoin as its backend, which would simultaneously guarantee its profit margin while passing on savings to the underbanked by virtue of cutting out the banks.
Now the only question is who will be the first to implement this scale of cryptocurrency transfer across borders with the ease of use that Schütte envisions.