How crypto can help migrant worker remittance: The El Salvador use case
Written by konex on 16 June 2021
Did you know that there are over 230 million migrant workers worldwide who are working outside of their home country?
In Asia, it is estimated that the Philippines have over 10 million workers abroad, with approximately one million leave each year to work in another country. People who work overseas often send money back home to support their families, and while the traditional method of using Western Union and MoneyGram is effective, it is also a very expensive and time consuming service. This is why the announcement from the El Salvadoran government passing a law in favour of adopting bitcoin as legal tender is an interesting one. There are many potential benefits that the adoption of a cryptocurrency will have on its citizens – and helping with migrant workers sending money home is a big one.
In El Salvador, approximately 70% of the population is unbanked, meaning these people do not have a bank account or access to any financial services. The ratio of unbanked is amongst the highest in the world along with the likes of Morocco, Vietnam and Egypt. While it is true that most people who are unbanked have no income to speak of, many family members migrate within El Salvador to find work, or travel to another country in order to find employment to support their family.
Due to the necessity to find work, approximately one quarter of the El Salvadoran population find themselves in the US. Their intention is not to stay permanently, but rather to provide for their family back home. As a result, these families rely heavily on money sent back from expatriate workers, and the World Bank data supports this. Remittances to El Salvador made up nearly USD $6 billion or around a fifth of their GDP in 2019 – which is one of the highest ratios in the world.
It goes without saying that migrant workers who send funds back home are very sensitive to the fees that the money transfer operators (MTOs) charge for their services. So how does it all work? A traditional MTO converts and transfers funds at an exchange rate they set, and also charge fees for their service. The exchange rate tends to be between 1-3% above the interbank rate, and the fee to transfer the money could be as high as 5%. Many of the MTOs are customer facing and often do not have the full capability to transfer the funds so they use the services of a larger remittance provider such as Western Union or MoneyGram. This means that the migrant worker will end up paying additional fees which makes it harder on the struggling families and communities who are dependent on these remittances as they receive less money.
This is why accepting bitcoin in El Salvador could be a game changer in the country as Bitcoin remittances tend to be a lot cheaper – around 1-1.5% in fees as opposed to 8-10% for traditional remittance services. Of course if you use bitcoin to send money home, an MTO will be used, but the MTOs often tend to be hosted in the cloud as opposed to being customer facing. This means the fees will be cheaper as the service is electronic as opposed to going to a physical location and interacting with a human.
Also, you have flexibility regarding the way you can transact the funds. You can make a peer to peer transaction by sending bitcoin from your phone to your family member, or you could use a crypto currency exchange. The unique point here is that if the transaction was made using a mobile phone, a bank would not be needed which would be a big help for the unbanked. Also, because bitcoin is legal tender in El Salvador, the cryptocurrency can be used at places where the US Dollar is used, so a bitcoin payment can be accepted for goods and services such as groceries, rent or even tax contributions.
The bitcoin network is operational 24 hours, seven days a week and 365 days of the year, so you can send remittances home in the evenings, on the weekend or even during public holidays whereas traditional remittances can tend to work from Monday – Friday from 9am – 5pm. The time to process a remittance is also very different. If a traditional service was used, the transaction would usually take 2-3 business days, while bitcoin would take 1-2 hours regardless of when the transaction was made.
It is often said that true financial inclusion begins by lifting the unbanked out of poverty. By giving them a means to save, storing bitcoin on their mobile phones is definitely one way. Also by charging less fees when it comes to remittances means they have more money to spend.
This is just one use case where bitcoin can help migrant workers, but it’s important to note that bitcoin can help migrant workers all around the world.