Crypto currencies’ suitability for global cross border currency transfers

Theoretically speaking, the attributes of many crypto-currencies make them potential alternatives in use cases such as payments, money transfer and store of value.

Below, we take a look at the prevailing options in the money transfer industry relative but not limited to East Africa to assess the viability of crypto-currencies as a tool for money transfer.

SWIFT

With this method of international transfer, be prepared to spend on anywhere from $25 to $65 for outgoing wires and $10 to $25 on incoming wires, plus enduring 2 to 5 business days.

Depending on exchange rates offered and the number of banks involved in the transfer among other factors, you may incur more in fees and wait more days to finish the transaction.

All-in-all, be prepared to lose anywhere from 4% to 8% of the money you were sending.

Transfer operators like Western Union and Money Gram

The fees incurred in this approach usually depend on some factors like the speed of delivery, the amount of funds being transferred and the distance the funds are to travel.

Be ready to lose anywhere from 8% to 15% of your initial amount in addition to some extra barriers which may include documentation, literacy and technological penetration.

Mobile Money

Mobile money is a method of money transfer that involves depositing money onto your telecom service sim card (phone number) with the help of an agent, that you can then send to someone else on their sim card and the recipient can withdraw it at an agent’s outlet.

A typical cross-border transfer using MPesa, the pioneer mobile money service by Safaricom Kenya will cost you no less than 1% of the total being sent, excluding any forex charges.

Sending charges for mobile money services provided by the top telecom companies MTN & Airtel in Uganda look a little bit like the list below.

  • 03 to 10% of the total for same network transfers.
  • 8 to 33% (MTN) and 1.4% to 40% (Airtel) of the total for cross network transfers.

Charges for withdrawing money from your sim card via an agent are listed below.

  • 7 to 13% of the total amount being withdrawn.

These charges are levied using a transaction tier system.

This means that the amount charged for someone sending or withdrawing five thousand shillings differs from the charges in sending or withdrawing a hundred thousand shillings.

The charges listed above are a percentage of the upper limit for each of these tiers.

Wallet apps

Emerging fintech companies like Eversend allow you to deposit money into your wallet once you download the app and send it free of charge to anyone else with the app.

Sending onto another medium such as a sim card of someone in another country or to their bank account will be charged anywhere from 1.5% to 3.5% on the foreign exchange rate.

For example, sending Ugx100,000 means it will be received onto a Kenyan mobile phone number as 2589.8 KES and 23,224.62 RWF on a Rwandan mobile phone number.

Transactions are completed in 5 minutes while sending to a bank account is completed on the same day unless it has been initiated late, upon which completion happens the next day.

Barriers to acquisition and custody of crypto assets

Using cryptocurrencies for payments and money transfer calls for these considerations.

  • Own or have access to a computer or a mobile phone.
  • Have access to the internet.
  • Have sufficient tech savviness to set up and operate an account on a crypto-exchange plus a crypto wallet (if they don’t want to use the one built into their account).
  • A sufficient budget for the costs involved in depositing and withdrawing fiat currency into/from their crypto-exchange account, and footing the spread in crypto-currency trades.

Crypto exchanges like Binance will charge a sending fee that varies from one crypto-currency, for example 0.0005BTC or 0.01ETH, from the wallet built into your account.

These account wallets come with stipulations on the minimum amount one can send.

Successfully initiating a transfer from a personal crypto wallet to another crypto wallet will cost about 0.00023BTC for the averagely ten minute transaction.

As mentioned above, many of these crypto wallets will allow you to set a lower transaction fee which will then result in longer processing time for your transaction.

Transaction processing on block-chains

On a typical proof-of-work Blockchain, for example considering Bitcoin, the successful completion of a transaction will require almost ten minutes on average.

Close contenders like Ethereum on average complete a transaction in 0.25 to 5 minutes.

Transactions are validated within each new block created hence your transaction being completed in the time between which it was initiated and the time the next block is completed.

One can opt to use less of the blockchain’s resources by delaying their transaction.

This approach dictates that a transaction will not be processed within the next available block and thus spend less time on transacting but wait longer for completion.

During short-term price volatility of crypto-currencies, their networks tend to get crowded with people trying to buy, sell and move coins which drives up the cost of transactions.

Networks like Ethereum have been gradually transitioning to a more efficient consensus algorithm called “Proof of stake” in an attempt to realize the capacity of thousands of transactions per second in contrast to the original fifteen transaction per second.

Deductions

All these options are subject to some level of hindrance from barriers such as literacy levels, technological penetration and requisite documentation, usually a proof of identity.

Most of the options above are limited jurisdiction-wise (either their services aren’t available in some countries or require additional re-routing before a transaction is completed).

Even with the costs involved in depositing and withdrawing fiat currency into/from their crypto-exchange account, and footing the spread in crypto-currency trades, crypto currencies are still a much cheaper option for someone who sends money across borders frequently.

A major impediment to using crypto-currencies for money transfer is volatility as it’s hard to know whether what you are sending will still be that exact amount by the time it is received.

Additionally, with the advent of wallets for storage, and crypto-exchanges that support swapping stable-coins like Tether (USDT) for fiat currency, volatility is steadily becoming more of an old excuse than a valid reason not to use crypto-currencies for money transfer.

Gerald Ainomugisha is a freelance Content Solutions Provider (CSP) offering both content and copy writing services for businesses of all kinds, especially in the niches of management, marketing and technology.