It is an offensive that bodes others to come.
For many years banks and mainstream financial-services groups have had a hammerlock on transnational money transfers.
This grip, which has been somewhat jostled by financial and fintech startups like Wise and WorldRemit, has enabled the companies to charge comfortable transaction fees.
And as the industry feared, all this is about to come crashing down due to the crypto firms.
Coinbase (COIN) , one of the most popular crypto exchanges, has said that it is diversifying into the remittances business, basically money that immigrants and expats send back home to their families and/or friends.
It is a lucrative business, and one of the biggest players in it is Western Union. (WU) In 2020, the global remittance industry was estimated at $702 billion, and it's anticipated to hit $1.23 trillion by 2030, according to Allied Market Research.
Today, to send money to friends or family back home, expats and immigrants can choose between several operators. They can complete the transaction online or in a physical store depending on the amount to be sent.
Transaction fees depend on the amount being sent and how quickly the sender would like the recipient to collect the money. To recover the money, the recipient must have an identity document, the transaction tracking number and sometimes the reason for the transaction. The fees range from 0.4% up to 7%.
Coinbase claims to have developed a very low-cost cross-border money-transfer service. The platform is launching a pilot in Mexico before deploying it probably a little later in other countries.
"We recognize this is a global issue. And while we’re starting in Mexico, over time we’ll consider other regions where customers face similar challenges," Shilpa Dhar, vice president of product, and Moheeth Alvi, lead product manager for payments, wrote in a blog post
They added: "We want to make it fast and easy for users to send crypto to anyone in the world, and allow recipients to participate in the cryptoeconomy. We’re just getting started."
How Does Coinbase's Funds-Transfer Service Work?
Customers send crypto to recipients in Mexico directly from the Coinbase app. Once the funds are sent, the recipient will receive a notification and can immediately view the crypto balance in their Coinbase account, said the firm. From there, the recipient can choose to cash out or save the funds in their Coinbase account.
The crypto exchange says it has partnered with 37,000 physical retail outlets and convenience stores located across Mexico where people can receive cash.
If customers choose to keep their funds on Coinbase, they can hold it or convert and invest their balance in any of the cryptocurrencies that Coinbase supports. In this case they can hedge against devaluation of their local currency by buying USDC, which is a stablecoin pegged to the U.S. dollar, Coinbase said.
How Much Does the Coinbase Service Cost?
The service is free through March, but then customers pay transaction fees. Coinbase does not yet specify the fees or whether they will depend on the amount of the transactions. The crypto firm says only that these fees will be "25% to 50% cheaper than traditional cross-border payment solutions."
Coinbase is not the first firm in the cryptosphere to want to disrupt the legacy service firms in the remittance business. Facebook, now Meta Platforms (FB), launched a similar experiment in Guatemala, Novi.
These firms, which are in the process of finding new sources of revenue, often explain that their new endeavors are motivated by the stated ambition of the cryptosphere to combat financial exclusion.
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