Remittances have become a lifeline for many people in Sub-Saharan Africa, but the cost of sending money via banks and money transfer operators remains punitively high. On average, it costs 9.3% (of value transferred) to send the equivalent of $200 to the region, the highest remittance rates anywhere on the planet, according to the new World Bank 2019 report. However, the cost drops dramatically by as much as 90% when money is sent through cryptocurrency-based fintech companies like Bitpesa.
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Banks Most Expensive Cash Transfer Agents
Africans working abroad last year sent $46 billion to support families in their home countries. The money is often used to pay for education, buy food and clothes, start a business, build a house and cover daily living costs. Money sent from overseas is a vital tool of survival for many families in Africa’s often unstable economies.
But too much of the money is being taken in transfer fees by financial companies. According to the World Bank, banks are the most expensive agents for sending money back to Africa at 10.2%, followed by money transfer operators at 7.7% and post offices at 5.5%. This is by far too costly when compared to the Sustainable Development Goals target of cutting financial transfer costs to within 3% of total transaction value by 2030.
Some people have now started to put their hopes in bitcoin-backed fiat remittances as a way of cutting fees and improving efficiency and speed during transfers. When American political science graduate Elizabeth Rossiello founded Bitpesa in 2013, the company initially focused on facilitating bitcoin-supported cash transfers between citizens of the U.K. and Kenya. However, Bitpesa now has operations in eight African countries: the Democratic Republic of the Congo, Ghana, Kenya, Morocco, Nigeria, Senegal, Tanzania and Uganda.
Stephany Zoo, head of marketing at Nairobi-based Bitpesa, told news.Bitcoin.com that the company helps people in Africa send or receive money from around the world at a fraction of the cost charged by traditional agents. Bitpesa also caters to global remittance companies using API services for payments to mobile money operators, as well as bank networks in the African countries in which it has a presence, she stated.
“We process our remittance payments with a blend of traditional and personal insurance such as pooling, as well as using cryptocurrency,” Zoo elaborated. “Our fees are 1 to 3% so it’s significantly lower than those mentioned in the World Bank report. A lot of our clients are money transfer operators that actually move the money and we are the underlying technology or software behind what they do as well as being their foreign exchange provider.”
Informal Cash Transfers
In September, Bitpesa signed a deal with Japanese company SBI Remit allowing people across Africa to make payments for cars, beauty products and electronic gadgets. Africans making overseas purchases deposit their local fiat currencies into Bitpesa’s bank account, after which the payments are sent on the BTC blockchain to SBI Remit, which in turn makes the final