MICROCAPITAL BRIEF: Money Transfer Startups Bitpesa, Igot Leverage Bitcoin to Reduce Price of Remittances

Currency exchange companies such as Kenya’s BitPesa and Australia’s Igot are tapping into remittance markets such as Kenya’s, which reached a volume of USD 1.43 billion in 2014, by using Bitcoin transfers to undercut the fees charged by firms such as US-based Western Union to deliver money across national borders. Bitcoin is a digital currency that can be bought and sold over the internet and exchanged for traditional currencies.

The Sub-Saharan region reportedly is the world’s most expensive to send money to because of factors such as regulatory barriers and limited competition. Data from the World Bank “remittance prices” website shows average costs to send money to Kenya from Four Countries; these range from 6 to 15 percent. Michael Kimani, head of the African Digital Currency Association, said, “I know people who pay 17 percent, imagine, for moving money from one country to another. [In Kenya] the rates are so expensive, it makes sense to start here.”

In contrast, BitPesa charges a 3-percent fee while Igot charges a 1-percent transaction fee. Varying exchange rates can also impact the effective costs of such transfers.

The value of one bitcoin reached a high of USD 979 on November 25, 2013; it is valued at USD 223.24 as of April 27, 2015. There are currently 14.1 million bitcoins in circulation. Although bitcoins continue to be “mined”, only 21 million bitcoins will ever exist.

By Mathew Cerf, Research Associate

About Bitcoin

Bitcoin is a digital form of currency based on a peer-to-peer payment network with no central governing authority. Created in 2008, it is known as a “cryptocurrency”, which uses cryptography to secure and control its transactions. The value of bitcoin reached a high of USD 979.45 on November 25, 2013, and was valued at USD 219.40 as of April 27, 2015. As of March 2014, there were 12.4 million bitcoins in circulation. Although bitcoins continue to be “mined”, only 21 million bitcoins will ever exist.

Sources and Additional Resources

[1] The World Bank: “Remittance Prices

[2] Coindesk: “Igot Expands and Remittance Services to Kenya” http://www.coindesk.com/igot-expands-exchange-and-remittance-services-to-kenya/

[3] Central Bank of Kenya: “Diaspora Remittances” https://www.centralbank.go.ke/index.php/diaspora-remittances?yr=2015

[4] Bloomberg News: “Bitcoin Service Targets Kenya Remittances With Cut Rate Fees” http://www.bloomberg.com/news/articles/2013-11-28/bitcoin-service-targets-kenya-remittances-with-cut-rate-fees-1-

[5] Coindesk: “Bitpesa Uses Bitcoin to Slash Kenyan Remittance Costs” http://www.coindesk.com/bitpesa-uses-bitcoin-slash-kenyan-remittance-costs/

[6] Bitcoin.org: “What is bitcoin?” https://bitcoin.org/en/faq#what-is-bitcoin

[7] VOA News: “Kenyan Startups Tackle Expensive Remittances Through Bitcoin” http://www.voanews.com/content/kenyan-startups-tackle-expensive-remittances-through-bitcoin/2702724.html

[8] Bitcoin Stack Exchange: “How Many Bitcoins Will There Eventually Be” http://bitcoin.stackexchange.com/questions/161/how-many-bitcoins-will-there-eventually-be

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