International money transfer market – best fit for Bitcoin
Remittance market is a huge transfer of money happening every day. According to World Bank report the estimated remittances size in 2015 was forecast to be $601 billion. International transfers were one of the best-fitting envisioned applications of bitcoin, as it is state border-less by definition and cheap to send money irrespective of amounts sent, while only fees per transaction size in bytes matter. However, it is still a hard way to get Bitcoin adapted at a massive scale. Early stage of its development makes it an instrument for tech advanced people only.
With introduction of new bitcoin services we are moving closer to the case when bitcoin is used daily by many households, bitcoin ATM is one of such services. Initial idea of bitcoin machines is to exchange cash to bitcoins or other cyrptocurrencies and vice versa, bitcoin to cash. However, there are other use-cases for bitcoin ATMs evolved. One of them is international remittance.
Bitcoin ATM remittance – first attempts
Robocoin, a company which installed the first bitcoin ATM in Vancouver and currently out of business, was trying to facilitate remittances via their wallet software and promoting their machines as remittance kiosks at some time. The idea was that users use their proprietary wallet in order to store and send bitcoins. Due to direct integration with their machines users could deposit and withdraw cash at any of Robocoin locations worldwide. Main drawbacks of this model were: it was centralized as Robocoin had control over users’ funds and also limitation of usage to Robocoin network, which was growing but still not enough to get significant network effect. Later company tried to move from bitcoin machines to bigger network where any business with cashier could become a service point of the network and re-branded the wallet to Romit, however, in the beginning of 2016 the wallet service was closed and users had to withdraw any funds left in the wallet.
Sending money with bitcoin ATMs is affordable
More logical step is to use any bitcoin ATM available worldwide. There are more than 600 locations today. Average buy bitcoin operation costs 8% and average sell bitcoin operation costs 5.5% to end user according to our statistics gathered across all bitcoin machines worldwide. So if someone uses two bitcoin machines on average to send money the costs of such a transaction will be around 13%, which is pretty high compared to other alternatives on the market, e.g. Western Union (available almost everywhere). However, there are options to find a cheap to buy machine and cheap to sell on the other end – and remittance becomes relatively cheap. Money transfer with Bitcoin behind makes it very fast as well.
While gathering stats for a recent post about bitcoin ATM industry in the U.S. we observed an interesting trend: many operators provide near zero or even negative rates compared to Bitcoin Average feed for selling bitcoins to machines, which meant users can exchange bitcoins for cash immediately with a very good rate. The most obvious reason is a lack of banks’ support for bitcoin ATM businesses. Normally an operator deposits cash received from ATM to a bank account and wires money to a bitcoin exchange, where bitcoins can be bought to close the business cycle. However, due to unwillingness by banks to handle this business case, operators need to find other bitcoin sources, e.g. by incentivizing customers to sell bitcoins to a machine, while the most fee can be collected when bitcoins are sold to other customers from the same machine.
This observation resulted in an implementation of Remittance via bitcoin ATM page on our site, where you can find cheapest destinations from and to any country or city where there are bitcoin machines available. This page was created as a proof-of-concept to show that transfers via bitcoin ATMs can work.
Let’s check what are the options to send money and how much it costs:
The cheapest option at the moment of writing this post is sending money from Kazakhstan to the U.S., which has a fee of -1.4%, which means both sender and recipient will earn (!) 1.4% from such a transaction.
Canada to the U.S. cheapest option is -1%, and again, you can earn almost 1% on such a remittance:
Prices for the biggest remittance corridors
Top remittance receiving countries in 2015 were:
Unfortunately, there is no bitcoin ATM available in India, however, there are machines in the rest countries from the list. The following are the lowest fees available for transfers from the U.S. to these three countries:
This looks like an affordable option compared to current market players. The advantage of bitcoin ATM is that amounts to be sent and received can be very small, e.g. $10-$30. And the fees for such amounts via standard remittance tools might reach 30% or more, however, with bitcoin ATM the fees are the same (unless there is tiered pricing at a bitcoin machine).
How to send funds with a bitcoin ATM
Finally, lets look at how actually to use bitcoin ATM in order to send funds from one side to another. There can be several scenarios, but the general one is:
- Sender buys bitcoins for cash at a closely located bitcoin ATM
- Sends bitcoins to receiver via Bitcoin network
- Receiver sells bitcoins for cash at another closely located bitcoin ATM
The process can be simplified as receiver can provide his bitcoin address to sender, so that when sender purchases bitcoins, he uses QR code of recipient’s address directly. In this case sender doesn’t even need to have a bitcoin wallet.
Mirror situation applies when receiver doesn’t have a wallet, but rather sends a picture of a QR code provided by bitcoin machine to the sender. Sender uses this bitcoin address to send bitcoins to, and recipient gets cash out of the machine.
The process is even simpler with pre-fund services like the one developed by BitAccess and can be used at any of bitcoin machines of that type, when you can send bitcoins in advance, and get notified when cash is ready for withdrawal. So it is basically eliminates the step when recipient needs to send QR code to the sender. Sender can initiate the process himself, and there will be just one action required from receiver – go to machine and grab cash.
Two above scenarios show that it is enough when only one person is technically advanced to have a bitcoin wallet set up and that opens a lot of opportunities, as you don’t need to teach your relatives how to use bitcoin, you basically just teach how to initiate sell transaction at a bitcoin ATM and send you a pic of QR code, the rest you can do on your end, and your family will just get cash out of machine.
Extreme case of using bitcoin ATMs as a remittance tool could be when recipients send a QR code given by bitcoin ATM, and sender purchases bitcoin directly to this address from another bitcoin ATM. In this case payment is sent from one bitcoin machine operator to another operator and sender with recipient just use cash on both sides without need to install any software or use bitcoin in any way. There are couple drawbacks in this scheme. Amounts accepted and dispensed by machines are not always very well divisible, which can create new fee for sender. But if the sender machines accepts $1 bills or equivalent in other countries’ currency, then such extra fee can be minimized. Another problem can occur when the bitcoin transaction sent from one machine to another one is not included into a block immediately and this happens quite often these days. In this case operator has to be contacted and case to be revealed manually.
Also hopefully commission size charged by bitcoin ATM operators will go down over time and that will open even more opportunities for bitcoin ATM usage as a remittance tool.