Every summer job I ever held before I turned twenty was in or around a kitchen. I did it all—scrubbed dishes, garnished dishes, grilled, baked, waited and frialated. And during that time, I worked closely with many Central and South Americans, all of whom shared one thing in common. Every week or every month, they all sent a fraction of their wages back to the families they had left behind. Some dared to send cash in the mail, but most passed it through a money transfer service like MoneyGram or Western Union. Economists package all these messy human details into one clean phrase: remittance market. It's the business that makes money by moving money and, as is usually the case, the middleman walks away with a plate full of trimmings.
When I first learned about Bitcoin, my mind immediately jumped back into the kitchen. If only these people knew that there was a global currency out there that they could transfer over the internet for free, I thought. And, if only Bitcoiners would take more notice of this market, perhaps they could somehow make it cheaper for people send their money home, while still turning a profit.
Now, it finally seems to be happening. ArtaBit, a currency exchange that operates exclusively in the Indonesian market is looking for ways to offer remittance services to its customers. Ayoub Naciri, one of the co-founders of ArtaBit, presented his proposal to an auditorium full of prospective investors last month at the Ultra Light Startups pitching event in New York City. I caught up with him to ask how it would work.
Ideally, if Bitcoin were a viable currency, people would just be able to send it themselves. But there are still many obstacles to doing this. Bitcoins are relatively difficult to get. Once you have them, there are very few places you can use them. And because of this, sending them home would require two conversions, one getting into Bitcoin and one getting out. A company like ArtaBit would function to streamline all of this by partnering with exchanges on either end of the transaction. In Naciri's scenario, one partner in America would accept USD, convert them into bitcoins and transfer them to the ArtaBit Bitcoin address. Another partner in Indonesia would then immediately convert them into Rupiah. Artabit then takes the Rupiah and disburses it to the customer.
But the person using it wouldn't even have to know what Bitcoin is. "All this stuff is completely hidden," says Naciri.
ArtaBit still acts as the middleman, but because Bitcoin transactions are so inexpensive, Naciri says his company could significantly lower the cost for customers, even while paying commissions to its partners. He proposes a five percent fee on transfers of US $200 or more, which is half what Western Union charges for an immediate cash transfer of the same amount.
The savings would be even greater for people who wanted to send small amounts of money. As it is, these are the customers that get whacked the hardest by traditional money transfer services, which collect exorbitant fees on smaller transactions. "With a typical Indonesian immigrant, the profit is the work in a low pay job as a domestic worker," says Naciri. "Because of the remittance fee structure, they have to accumulate a certain amount of money" before it's financially feasible to make the transaction. With ArtaBit, an Indonesian worker could send home $20 every week and pay less than $2 in fees (again, less than half what Western Union would charge).
Here's a complete breakdown of the savings they claim they can achieve:
Naciri says that ArtaBit would only offer remittances for the transfer of USD to Rupiah. Much larger markets exist in India, China, Mexico, and the Philippines, all of which have been growing steadily in recent years. The World Bank estimates that remittances to the developing world will increase by at least six percent annually, reaching $534 billion by 2015.
Although Bitcoin has democratized the transfer of digital money and put the necessary technology in the hands of the public, having the right to use it remains an elite legal privilege. Any company offering remittance services in the United States is required to file with the Financial Crimes Enforcement Network and must also obtain money transmitter licenses in every state it does business, paying a service fee to each. AltaBit's primary challenge will be finding willing partners that are already licensed to operate as money transmitters. BitInstant, a Bitcoin payment processor based in New York might be one option.
"What's holding us back is getting someone who has a license," says Naciri. "If we had that, we can start within a week."