Made For Africa? Bitcoin Cheaper, Faster Than Traditional Remittances

Made For Africa? Bitcoin Cheaper, Faster Than Traditional Remittances

Bitcoin can’t be printed, it can’t be directly controlled by governments or central banks, but it can be sent around the world instantly at a fraction of what it costs to send traditional remittances, GantDaily reports.

However bitcoin must compete with established services — one reason why widespread adoption in Africa is still a long way off. Western Union has 32,000 registered locations across Africa. MoneyGram has agents in 25,000 locations. They aren’t going away anytime soon, but Western Union is adapting to mobile money transfer.

In sub-Saharan Africa, where 75 percent of the population don’t have a bank account, transferring cash through Western Union or MoneyGram can be expensive. The average fee to transfer $200 to Africa using traditional money transfer services is 12 percent or $24, according to the Overseas Development Institute, a U.K. think tank on international development and humanitarian issues.

Remittance fees alone cost Africans $1.8 billion a year, according to ODI. Ghana received $1.7 billion of remittance income in 2012, according to the Bank of Ghana, GantDaily reports.

Bitcoin is the currency without borders, designed to operate on the Internet with costs of transferring money radically cheaper and faster than traditional methods.

“Bitcoin can greatly alter the remittances industry,” said Michael Kimani, who heads the African Digital Currency Association, a Kenya-based group launched in May to promote digital currency technology. Banks and PayPal can take seven days for a transaction to clear, Kimani said. Bitcoin takes 20 minutes.

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In August, Johannesburg got the first bitcoin ATM on the continent — a sign that bitcoin is gaining traction in Africa. Located at the Metroman beauty salon, the machine converts cash into bitcoin. A second bitcoin ATM is due to arrive in Cape Town. The city is hosting a bitcoin conference in April.

Commission charges for bitcoin ATMs vary — 5 percent is average, GantDaily reports.

According to South Africa-based bitcoin startup Xoin, 30,000 online stores in South Africa now accept the cryptocurrency.

Bitcoin has its critics

A major issue with bitcoin is its volatility. In January 2013, one bitcoin was worth around $13. In December, one was worth $1,147. Since then, its value has dropped again. At the time of writing one bitcoin was worth $221, according to coindesk.

Critics say the fees associated with buying crypto-currency must be taken into account when considering the cost of remittances. As well as overcoming the technical challenges of obtaining bitcoin at an “exchange,” users must also pay a commission. The fee is usually 0.5 percent, but that can vary, according to GantDaily.

Not all banks support bitcoin companies. Some customers of British banks, for example, must first transfer money from their bank account to a bitcoin company’s account in a European bank, pay banking transfer charges and wait up to five days for the funds to clear before they get their bitcoins. Not fast.

Gareth Grobler, who founded South Africa’s bitcoin exchange ICE³X.com, is skeptical about bitcoin’s widespread adoption in Africa.

“You’ve got a company like Western Union, which has been around for longer than most people have been alive, and they trust that method,” Grobler said, according to GantDaily. “That’s a huge stumbling block for bitcoin acceptance.”

Grobler said the real value of the super-secure “blockchain” technology which facilitates bitcoin could be in commodities trading where large sums need to be transferred across borders in a transparent way, GantDaily reports.