According to a report commissioned by Citizens International and published by the United States Agency for International Development, the main reasons for sending money home is to take care of basic needs such as food, shelter and clothing for a parent.
The money remittance market has until now been dominated by money transfer companies such as Western Union and MoneyGram. Using present methods, those diaspora communities can expect to spend up to 10% in transaction fees.
The growing use of bitcoin on the African continent will make it much cheaper to send money home. And it would appear that there is demand for it. Falk Benke, chief technology officer (CTO) of Beam explains that the demand is as a result of low level of sophistication in payment systems. In addition, 70% of Ghanaians are unbanked, making Beam’s introduction into the market timely indeed.
A customer sends bitcoin from his wallet to Beam’s bitcoin wallet. Once Beam receives confirmation that the bitcoins have been transferred, the company then sends the money to the recipient. The system enables smartphone users to scan QR codes and send the funds.
Currently, the product is in beta phase. The entire transaction takes 10 minutes, but the company hopes that with complete automation, the entire process will take about just under a minute. This compares well to present methods that can take up to three days for funds to be received in cash or reflect in a person’s bank account. Senders using the service are charged a flat-fee of £1 ($1.60) on each transaction, regardless of the amount. In addition, the firm levies a 3% markup on its exchange rate. Due to the low fees, Beam is also able to pass on the savings to its customers.
The Beam platform has built-in anti-money laundering and know your customer requirements. Globally bitcoin regulation is still in its infancy, and plenty of jurisdictions such as the US and UK have not yet issued clear guidelines on how to treat bitcoin.
Beam was co-founded by Nirunj Handa along with Falk Benke. Before starting the company, both taught software development at the Meltwater Entrepreneurial School of Technology. They began the startup at Meltwater’s incubation program, which provided them with some seed capital.
In Ghana and Nigeria, Beam is teaming up with banks that are licensed to deal in remittances to ensure compliance. In the UK, Handa said, the firm will endeavor to comply with the guidelines that have been provided by Her Majesty’s Revenue and Customs, and the Financial Conduct Authority going forward.
The use of bitcoin for diaspora remittance could with the right incentives grow into more than just providing for subsistence needs. In the USAID report cited earlier, only 11% of diaspora remittances are used in business. This may be attributed to the high transaction costs and huge bottlenecks that have hitherto been in place. Diaspora remittances could be harnessed to create economic opportunity that would uplift citizens in African countries.
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Images from Beam and Shutterstock.