Bitcoin Takes On Remittances Incumbents in Kenya: BitPesa vs. MTOs


Image: Cointelegraph

Image: Cointelegraph

The World Bank expects cross border remittances by international migrants to developing countries to total $436 billion this year. Growth is expected to boost this to $516 billion in 2016.  Remittances play a big role in the beneficiary countries: in both monetary and human development terms (health, education, social). Its impact on economic growth and poverty reduction is extensively documented.pdf. Sub Saharan Africa, where inbound remittances totaled $32 billion (2% of GDP), is no different. Nigeria ($21 billion) & Egypt ($17 billion) top the recipient list in Africa. Remittances in SSA are far more stable than FDI and private financing inflows. Remittances to Kenya totaled $1.2 billion.

“The increased financial weight of remittances in external flows to Africa and the positive role that remittances can play in Africa’s development have brought about heightened attention to the topic among policymakers.”Mthuli Ncube et al


BitPesa Ltd. is a Kenyan startup, offering online remittance services. They describe temselves as “. . . a digital currency platform for Africa.” Their first product is Bitcoin for remittances. A brief video illustrates how they expect to do this.

Basically, a sender abroad wishing to send money to a beneficiary in Kenya, purchases bitcoins (BTC) – sends BTCs to BitPesa Ltd. – BitPesa forwards an equivalent KES to the receiver charging a 3% flat fee in the process. Coincave, a similar-ish startup handling remittances through bitcoins, has been well received in Mexico.



Remittance Fees Global average vs. African average

Remittance Fees Global average vs. African average

The global average remittance fee (excluding SSA) is about 9% vs. a 14% average for inflow remittances Africa. The figures are bleak for remittance corridors within Africa, say Nigeria to Ghana. Inter-African transfers cost as high as 25%.

The report found 10 routes with bank transfer charges over 20 percent. Charges from Nigeria to Ghana were 22 percent. To send from Tanzania to the rest of East Africa, or from South Africa to its near neighbors is particularly expensive, peaking at 25 percent for bank transfers between South African and Malawi. Some of the fees charged by money transfer companies are even higher; if you send money that way from Ghana to Nigeria you may have to pay a staggering 39 percent.” – ODI report

Western Union & MoneyGram are the two dominant players in Sub Saharan Africa. This duopoly of money transfer operators (MTOs) controls 2/3 of the market share. The anti-competitive market nature of this market has bred exorbitant fees that have little to do with the intrinsic costs.

An illustration of the traditional remittance model by Faisal Khan, a payments consultant.

Mechanics_Cross Border remittance mechanism

Mechanics_Cross Border remittance mechanism


Cross border money transfers are encumbered by tight, albeit necessary regulation. KYC (Know Your Customer) & AML (Anti Money Laundering) frameworks and guidelines are designed to curb the funding of criminal activities and keep proper records on the flow of money. These regulations are partly credited for the high fees. But why the large disparity in money transfer fees in different regions? Incumbents lay claim to an extensive global agent network, financial muscle from years of profitable business and sway from long spanning relationships with banks, regulators and lawmakers. Dispiriting barriers to entry, such as fines for contravening regulation, have entrenched veteran MTOs and resulted in a low competitive industry. This state of affairs has stirred up conversations on – The Changing Landscape of remittances (podcast)


Sensationalist media probably got you apprehensive about Bitcoin. However, there’s more to it than what the press has to say.

Jerry Berito, a Bitcoin pundit, aptly categorizes the 3 functional qualities of bitcoin: store of value, unit of account and medium of exchange. Many who rush to dismiss bitcoin’s future generally point to its shortcomings as a store of value and unit of account. Granted, its volatility undermines its potential use as a currency (for now).  As a medium of exchange, however, a consensus exists on its benefits as a payment system. Bitcoin: A Primer for Policy Makers – breaks down the machinations of Bitcoin.

“Bitcoin’s invention is revolutionary because for the first time the ‘double spending problem’ (an age old computer science problem) can be solved without the need for a third party. Bitcoin does this by distributing the necessary ledger among all the users of the system via a peer-to-peer network.” Jerry Berito

Effectively, as a payments system, it scraps out the need for an intermediary third party payment company such as PayPal, Visa, and Western Union etc. This feature, profoundly lowers the cost of transferring money compared to traditional payment networks. 1% is a figure that is tossed around. BitPesa intends to leverage this feature and lower costs to a flat 3%.


The breakthrough of Bitcoin has inspired other innovations. Ripple is one such network. Wikipedia describes Ripple as a ‘payment system, currency exchange and remittance network’. It refines the qualities of the bitcoin protocol as a distributed transfer network first, and offers a native currency (known as XRP) as a somewhat secondary feature. The network is open source and allows for anyone to build on top of its platform. Both real world and digital assets can be exchanged within its networks at low transaction fees via gateways. These gateways can be anyone – MTOs, Banks, startups etc.

There’s plenty of buzz around its potential for changing money transfer technology. If it succeeds, I expect BitPesa to add it onto its product array.

 ABATING THE FRICTION OF MONEY TRANSER IN SSA: Benefits & Challenges of Crypto Networks

Lower cost of transaction is the ultimate value proposition for the adoption of emerging technologies such as crypto networks in remittances, especially in Africa and developing countries. In Kenya for instance, exorbitant fees could come down from the current 9% to 3% and lower. This translates into a 6% increase for beneficiaries. These savings can be channeled into human development and economic activities that directly benefit the people and countries involved.

Financial regulators also stand to benefit from increased foreign currency inflows and reserves. 6% savings in fees translates to an equivalent increase in foreign reserves; a direct impact on GDP and indirect contribution to these economies.


Elizabeth Rosiello, the CEO of BitPesa, spoke to Max Keiser on the possible launch date (latest second quarter of 2014) [video 12.30]. Understandably, she divulged little on the intricacies of their business model in Kenya and dodged a couple of questions on the progress of talks with stakeholders, particularly the Central Bank of Kenya, the financial regulator. Speculation suggests the company will partner with 2 commercial banks in Kenya and an MNO (Mobile Network Operator). MNOs offer a trickle-down logical extension of remittances to the mobile wallets, bypassing financial access hurdles such as need for a bank account.

Favorable regulation is key for success. Fortunately, the Central Bank of Kenya has been on the frontline in fostering mobile money innovation amongst financial regulators of developing countries. If history is anything to go by, I reckon they are likely to acquiesce to the idea.







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