Bitcoin transfer in El Salvador could cost Western Union $ 400 million annually

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Jaime García really hates sending money to El Salvador with Western Union.

“At this point, I have a hard time going to the actual Western Union office, handing me the actual cash, then giving me another $ 25, and then sending the money,” Garcia said. to say.

“And of course it takes three days before it actually arrives in El Salvador.”

Garcia, who lives in Saskatchewan, Canada, fled El Salvador at the age of 11 after rebels bombed his home. His biggest problem with transferring cash overseas is what happens to loved ones when they receive money, rather than the inconvenience on his part.

“They have to take a bus to go to a physical location to pick it up, and there are gangsters hanging out in their offices. You know the purpose of people to go there. They’re basically robbing them, ”said Garcia, a team of researchers at SGI Canada Insurance.

Garcia has had the ability to pay online using the Western Union app since her last transfer to CNBC, but still faces high fees (12.5% ​​for a $ 100 transfer) and cash in El Salvador . What happens to those who receive it?

Garcia isn’t the only frustration with old payment channels that have long dominated the cross-border payments business.

Many of the 2.5 million Salvador diaspora send money to friends and family who still live in El Salvador. Last year, they sent a total of nearly $ 6 billion, or about 23% of GDP, the majority of which was sent to intermediaries who make these international transfers possible.

Matt Hougan, Bitwise Asset Management’s chief investment officer, said:

“This is a worn out Twitter statement, but Bitcoin actually fixes it,” Houngan said.

The trouble with the transfers is one of the main reasons President Nayib Bukele of El Salvador proclaimed the fiat currency Bitcoin. As part of their launch, the government introduced their own national virtual wallet called El Salvador’s Slang, which means “chivo” or “cool”. It offers free transactions and enables fast cross-border payments.

“It won’t be overnight. Tomorrow 100% of the money transfers will not be transferred to the Chivo app. These will take time and people are naturally anxious to try new things with money. The current level of interest rates will prove unsustainable. “

Chivo wallet

Bukele is a young, tech-savvy, aspiring authoritarian. He also tied his political destiny to the country’s Bitcoin experiment, so he took every step to make it work.

One of these advantages is to offer free Bitcoin worth $ 30 to all El Salvadorans in the country who sign up for the Chivo wallet. In countries with a monthly minimum wage of $ 365, this is not a small amount.

Remittances from abroad make up almost a quarter of El Salvador’s GDP, and about 70% of the population receive remittances. The average monthly transfer amount is $ 195, which is 50% of the total income of households receiving transfers. Therefore, it is vital for most of the country to flow cash from abroad to El Salvador.

According to official figures, around 60% of cash goes through remittance companies and 38% through banks. Fees vary from company to company, but in general, the lower the payment, the higher the rate.

For example, if Garcia wanted to send $ 10 to her cousin in San Salvador, he would pay $ 3.24, a nearly 33% fee, to Western Union.

However, when you use Muun’s self-custodian wallet for trading, you pay a penny or a 1% commission. And when Garcia pays from a Tibo wallet reserved for residents of El Salvador, both domestic and foreign, the transaction is free. Once the cousin receives the money, they can go to one of Chivo’s 200 new government-run ATMs and withdraw US dollars from their virtual wallet.

“Where you are now, you can send Bitcoin to anyone with a Chivo wallet in El Salvador. It is worth going to one of the ATMs in a few minutes and withdrawing cash free of charge. You can do it. “Alex Gladstein, Chief Strategy Officer of the Human Rights Foundation.

“It’s wonderful. It’s an incredible humanitarian improvement.”

The president estimates that money service providers like Western Union and MoneyGram lose $ 400 million annually in transfer fees when the population imports large bitcoins. Born and raised in El Salvador, Mario Gomez Roazada worked as a banker at Merrill Lynch and Credit Suisse and now runs a crypto asset derivatives exchange that he believes will approach $ 1 billion.

Western Union responded to CNBC’s request for comment on whether the company is concerned about how this will affect its business and whether it plans to change its pricing structure to respond to increasing competition. Did not answer.

A woman shopping in a Bitcoin accepting store in El Zonte, El Salvador.

Garcia says he’s not a Bukele booster, but he’s a fan of the project, mostly for referrals.

Garcia hadn’t given cryptocurrencies twice before making the announcement in June. “But the country of my birth decided to get into Bitcoin, so I wanted to know all about how it worked,” Garcia said.

He’s been looking into this for the past three months, becoming a Bitcoin investor and keeping some of his digital coins in a refrigerated vault in his Trezor hardware wallet. After talking to his friends and family, Garcia said that he felt that one of the most powerful features of the Chivo wallet was the fact that users could run it in US dollars or Bitcoin.

In countries where 70% of citizens do not have access to traditional financial services, Chivo not only provides a convenient slope for those who have never participated in the banking system, but also to test waters simply by trading. Sensible. US dollars to get started.

“It’s interesting to see how the transfers work within a few months and what percentage of them use Bitcoin Network Rail,” says Lozada. “My guess is that most people will initially monetize Bitcoin in US dollars, as they are used to, but Bitcoin is gradually becoming the main trading and pricing vehicle. Consumer goods like milk are expected in the future, and bread is priced directly in bitcoin, and people could start having bitcoin. “

A street vendor in San Salvador who has an anti-bitcoin sticker.

Not your key, not your coin

Some Salvadorans had already started paying for cheap, fast and limitless cryptocurrencies with the Strike app before Bukele deposited his reputation in Bitcoin with the bank.

The strike began in El Salvador in March and soon became the most loaded app in the country. Many people are starting to use mobile payment apps to send and receive money abroad.

The strike refused to disclose the exact volume of trade over the past six months. Nevertheless, the current money transfer system and its high fees are charged between Strike and Chibo.

However, according to experts, users need to be careful before fully participating in the government’s new wallet.

Gradstein, who recently spent in El Salvador, points out that Chibo’s wallet is no different from a bank and that the government has the power to freeze its value. Hence, he firmly believes that Salvadorans are dominating their economic destiny by moving Bitcoin from Chibo to their wallets and giving them more control over their funds.

Garcia also points out that we are still in the early stages of deployment. “Is it hackable? We don’t know yet, ”he said.

“I think there is a bitcoin financial sanitation that a lot of people don’t understand when it comes to holding Chivo wallets,” he said. “People are not suspicious of the government. People are suspicious of platforms like Mt. Gox, a centralized unit that holds money that has been hacked in the past. . “

“The overall concept behind Bitcoin is decentralization, the fact that individuals can control their financial condition and money.”

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