Consumers are increasingly using cryptocurrencies for remittances.
Against that backdrop, Stellar CEO and Executive Director Denelle Dixon and AirTM Co-founder and CEO Ruben Galindo told PYMNTS that new financial ecosystems are taking shape, pivoting off the great digital shift, yet still embracing traditional payments infrastructure.
The greenfield opportunity is there, as $76 billion is being transferred annually in cross-border payments to individuals outside the U.S.
And as the panelists noted, there are frictions that could be readily addressed by using cryptos — spotlighted by the fact that when using traditional money transfer operators (MTOs), it can take several days for the funds to settle and be accessible. The fees are high, too, averaging about 4.7% of the money sent.
The pump must be primed, so to speak, to introduce cryptos more fully into the mix. PYMNTS research shows that more than half of the consumers making cross-border P2P payments hold cryptos — which outpaces the roughly 12% of U.S. consumers who hold cryptocurrencies.
For the global remittance firms, there are advantages to using cryptocurrencies in cross-border activities — the funds can be settled in minutes, not days, as costs are measured in fractions of cents.
But trust is critical, as more than half of consumers surveyed by PYMNTS state that trust is the critical aspect that would make them more likely to choose a specific provider.
Dixon noted that it is no surprise that U.S.-based cross-border remittances have been rising in the midst of the pandemic. She said that roughly a third of those payments are sent to friends and families in need. “They are suffering their own hardships,” said Dixon, “especially economic ones.”
But there’s a flip side, too, said Galindo, who remarked that the rise of digital platforms serving the gig economy has brought new demand to the cross-border space.
“We at AirTM are seeing that there are lots of people in Latin America who are looking for opportunities to generate additional income from, or to create their livelihoods, online,” he said. The gig economy has offered individuals ways to increase their earnings through taking surveys online and other activities — and being paid by U.S. and European firms. Firms, increasingly, are also looking to pay their own vendors more quickly and efficiently, said Dixon and Galindo, which opens crypto-driven, cross-border payments to new markets.
Marrying the traditional rails to the newer, blockchain/digital rails, they said, can improve access to the global financial system. Galindo pointed out that blockchain provides the “on-ramp to the internet of money,” which he said can be abstracted from local currencies.
As Dixon put it: “We’re not saying that the traditional financial infrastructure needs to go away — it can be leveraged to create more opportunity for those MTOs and those already involved in the remittance market to increase their market share and growth by using the digital rails.” She pointed to the recent announcement that MoneyGram is partnering with Stellar to use the blockchain for near-instant settlement in USDC as an example.
Read also: MoneyGram, Stellar Development Team on eWallet Offering Near-Instant Settlements in USDC
As Dixon noted, outbound senders can send 100,000 transactions for less than a penny, and developers have lower costs tied to introducing new products and services that, in turn, expand the cross-border digital payments ecosystem. The savings can be passed onto the end-users through reduced fees, she said.
Still Room for the Traditional Processes
Dixon and Galindo noted that there still is room — and, at present, a need — to convert those digital holdings into fiat. That’s especially true where consumers visit money transfer agents in person, to pick up cash or to pay bills with local providers. Galindo said his firm offers dollar accounts (backed by Stellar) so that users can spend or receive dollar payments whenever they want, regardless of where they’d had their original funds. AirTM, he said, has been seeing monthly payments volume of about $20 million across its platform and digital wallets.
And in further discussion of the marriage between traditional and digital rails, Galindo contended that many firms in Latin America have dollar accounts in the United States, as they need to pay vendors and are earning money in the States, too. “There’s so much valuable infrastructure, which will complement each other,” he noted.
Dixon and Galindo agreed that over time, as digital rails gain ground, the fees tied to the transactions will decline. And that will draw more users into the system, said Dixon, improving financial inclusion. “Building locally and solving local problems, because you actually know what those problems are and can craft solutions around it, is the best way to tackle these issues,” she said.
Said Galindo: “With an open ecosystem, it’s easier for anyone and everyone to participate.”
For the businesses themselves, said Dixon, cross-border transactions that take advantage of the best attributes of digital and traditional infrastructure can improve payroll — making it easier to pay gig workers operating in another country, for example, with speed and security.
At present, roughly 18% of the cross-border transactions done with crypto and sent as family and friend remittances are done with bitcoin, and another 14% are done with stablecoins. Dixon said that those stats point to the trust factor that is so critical to eCommerce. Senders and recipients are increasingly comfortable with the lower volatility inherent in those asset-backed stablecoins.
Looking ahead, Dixon said, “We will create that bridge between the existing financial rails and the new digital rails — so that we can even create more opportunity for these consumers who want to get money to their friends and family.”
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