What is ‘Remittance’, and How Does BTC Play a Role?

Remittance is the term used to describe funds sent internationally. Remittance is the transfer of money by a migrant worker or a citizen with familial ties abroad, for household income in their home country. For example, when a migrant worker in the US sends money to his family or friends residing in his home country, he sends a remittance.

Many citizens or residents of low- and middle-income countries rely heavily on remittances. In some countries, remittances make up a significant percentage of the gross domestic product (GDP).

While countries with smaller economies are not necessarily the top recipient of remittance inflows, the impact of remittances on the GDP is much higher in these smaller countries than in countries with more significant remittance inflows but with a larger GDP. In 2021, India was the number one remittance recipient, accounting for 12% of global remittances, having received an estimated remittance inflow of about $87 billion. India’s high remittance, however, accounts for just about 3% of its GDP; whereas, the Polynesian kingdom of Tonga received an estimated $220 million in remittances in 2021; Tonga’s total remittances made up over 40% of its GDP for 2021.

In 2022, despite economic uncertainties, worldwide remittances grew by an estimated 5% to $626 billion, according to a World Bank press release.

Drawbacks of The Current Cross-Border Payment Systems

Senders and recipients of remittances rely on cross-border payment networks to carry out transactions. The current systems of international money transfer have drawbacks such as slow transaction finality, restrictions based on jurisdiction, transaction limits, high fees for processing transactions, and the non-presence of certain money transfer companies in some regions, among others.

The average time it takes to process cross-border payments on the Society for Worldwide Interbank Financial Telecommunications (SWIFT) network – the global network used by banks for international settlements – is an estimated one to four days; depending on other factors, it could take even more time to complete a transaction via SWIFT.

Traditional money transfer companies such as Wise, Payoneer, and Remitly are somewhat faster on the surface, but behind the scenes, they still rely upon the systems of international banks or remittance software providers (RSP) to balance their accounts internally and to effect out-of-platform transfers. These money transfer companies do not operate fully in some jurisdictions; this limits the services offered to residents in those jurisdictions. One of the issues customers are faced with is the limit on the amount that could be transferred by a customer. Some money transfer companies even place limits on the amount a customer can receive. Payoneer, for example, has a general $50 minimum withdrawal limit for withdrawals in local currency. In low-income countries, a $50 withdrawal limit would be highly inconvenient.

Bitcoin, the Game Changer of Cross-Border Payments

Bitcoin possesses all the qualities that the current systems of cross-border payments lack. While banks and money transfer companies act as intermediaries between a sender and recipient of remittance, Bitcoin is peer-to-peer (p2p). Bitcoin is trustless.

The transaction limits that exist in the current payment systems, do not exist in Bitcoin. There is no limit to the value that can be exchanged through Bitcoin. A recipient can receive fractions of a Bitcoin (satoshis) worth just a few dollars, and transfer the same as long as it covers the network fees, which are typically just a few satoshis.

Banks typically do not process transactions on weekends or public holidays. Money transfer companies, who mainly rely on the banking systems to process out-of-platform transactions, mark transactions initiated during the weekend or on public holidays as ‘pending,’ until the resumption of the workweek. Bitcoin, however, is available round the clock. The blockchain network does not take days off. This is useful for remittances. In the case of an emergency, for example, when an expatriate needs to quickly send funds to his home country during the weekend, he will not be held back by the “it’s the weekend, we’re closed” policy of traditional finance platforms.

Thanks to the Lightning Network, a scaling solution to make Bitcoin process transactions with the fastest possible finality, Bitcoin transactions are now near-instant. The delays in processing overseas payments are totally erased by Bitcoin.

With the advent and gradual popularity of Bitcoin ATMs, recipients of remittances will have access to readily available fiat gateways, where remittances received in BTC are converted to and withdrawn as fiat any time of the day, week, or year. This totally eliminates the need for recipients of remittance to fill out paperwork, visit a currency exchange (bureau de change), or perform over-the-counter (OTC) trades before they can exchange their remittance into local currency.

Bitcoin’s practical use case as a means to effectively send and receive money across nations and continents is not mere rhetoric. A practical and recent example is the government of Ukraine’s adoption of cryptocurrencies following the Russian invasion. As major cities in Ukraine were bombed, the banking and financial systems closed. The government turned its attention to the ever-available and ubiquitous Bitcoin. Just after the invasion and the shutdown of banks, Ukrainian government officials posted cryptocurrency addresses on official social media accounts. In just four days after the start of the invasion, supporters all over the world sent more than $10.2 million. In just four days of starting a crypto fundraising campaign, Unchain Ukraine, a global crypto-native fundraising campaign raised $1.8M in global crypto donations for Ukraine. Just about a month into the war, more than $100 million worth of crypto was raised. Remittances to Ukraine have increased by a large margin as a result of the war and the subsequent shutdown of the country’s banking system; a large part of the remittances are facilitated using Bitcoin and other cryptocurrencies.

Earlier this year, Coinbase launched an initiative, in partnership with Remitly, that allows its US-based customers to send crypto remittances to beneficiaries in Mexico. The recipient can easily convert the crypto into cash and pick it up in more than 20,000 locations throughout Mexico.

Takeaway

Bitcoin is ubiquitous. Bitcoin does not discriminate. It does not limit the services available to the people in a particular jurisdiction. It is available and accessible in every jurisdiction on planet earth where there is access to the Internet. The place of Bitcoin, and other cryptocurrencies that are focused on effective cross-border payment solutions, in the billion-dollar remittances market, is undisputed.

To learn more about Bitcoin, visit our Investing in Bitcoin guide.