Payments across borders are always touted as an important use case for cryptocurrencies, which can cut through the Gordian Knot of intermediaries, fees and delays. But opinion on the ground varies depending on who you talk to.
Indeed, this market – often simply referred to as remittances – is actually a group disparate business-use cases with different characteristics and requirements. Broadly speaking cross-border payments fall into four segments: consumer to consumer payments, which can vary widely from migrants to high net worth individuals; supplier payments, sometimes referred to as wholesale or B2B; business to contractors called payouts; and e-commerce.
The largest and most experienced payment processor using blockchain is Silicon Valley-based Align Commerce, which is focused on B2B cross-border payments involving some 60 countries. Align Commerce operates a "multi-rail" approach. The blockchain is the preferred payment rail but the company is constantly comparing methods, old and new, to find the best option for a given transaction.
Align Commerce CEO Marwan Forzley told IBTimes UK: "There is a decision-making logic that says, do I send this transaction on crypto or not. The decision is based on cost, liquidity, timing of payment – many things."
Forzely likened the efficiency switch between crypto or traditional payment rails to a hybrid car, "it's not electric, it's not gas, it's in the middle. So if you can't run on electric you switch back to gas.
"We don't think of Bitcoin as the be all and end all. We are obsessed with the customer experience. Technology that makes the customer experience better is what we use."
Common criticisms of Bitcoin remittances are a lack of liquidity, as well as practical problems in cashing out and exchanging cryptocurrency for fiat. Forzely said: "I think all cryptos in general are developing technologies. So there are varying degrees of liquidity. The key thing is to find the markets where it's liquid enough to make transactions happen. The market is over time becoming more and more liquid. Two years ago there was nothing, now it's workable. It's not ideal yet. It's workable."
Other players in the space would disagree. Michael Kent, CEO of Azimo, a mobile app launched in 2012 to beat high-street money transfer prices, said of crypto as a remittance rail: "It just doesn't really work yet; I haven't seen an effective use case for it anywhere yet."
For Kent a key problem Bitcoin faces is liquidity. In very liquid markets like pound/dollar or euro/dollar, very tight spreads can be offered, thanks to all those people prepared to make those markets. But this becomes much harder in places like Nigeria, or the Philippines. "There's not that much Bitcoin, or whatever blockchain-based currency being traded – of course there's not."
He said some players in the market using Bitcoin may claim to have liquidity but simply cannot meet the demands of say $5m (£3.4m) a day in USD/peso being pumped through. "Very quickly they can't really guarantee pricing or delivery time scales. If you are a remittance business, what you are trying to do is manage working capital very tightly. You have to know how much it will cost, how long it will take to settle, and what the pricing is."
In order to cover themselves, Bitcoin exchanges, when they can give pricing, provide a large spread. This is because they cannot trade it all out immediately, said Kent. He also took issue with fact that Bitcoin remittance providers often claim to have very low fees. Trumpeting a reduction to 1.5% fees is actually "phenomenally expensive", he said.
"My retail spread for people doing dollars or pounds is 0.4%, so 40 basis points. They are already three times more expensive than we are to do the same thing.
"If there is a significant volume, it's often because people are trying to get money out of their economy. So China actually has a reasonably liquid market for renminbi to Bitcoin, but that's because people are trying to take it out of China on the sly – not necessarily something you want to be associated with, if you are in a regulated financial services sector."
Regulation is a thorny subject for cryptocurrency; Bitcoin seems to present a red flag for regulators and by association banks. On the other hand, the need to move money around the world is driven by big, long-term demographic trends: more migration, more international commerce, a demand for lower prices, not to mention catering to the unbanked of the world.
An expert in this area is Ismail Ahmed CEO and founder of WorldRemit, which offers remittance services from 50 countries. WorldRemit uses bank deposit, cash pick-up, Mobile Money, or mobile airtime top-up. Regarding Bitcoin as a transaction rail for the unbanked, Ahmed pointed to de-risking around international remittances and cross-border payments. And Bitcoin companies are perceived to be very risky.
He said: "A lot of the big banks, particularly in the US, are shutting down their relationships with correspondent banks in the emerging economies: Latin America, Africa, Asia – it's a big issue now.
"So for banks in emerging economies to maintain the correspondent relations, they are actually going to extremes to kind of stay away from anything they think is likely to raise questions when a correspondent bank is doing due diligence."
Ahmed said this paranoia has reached the extent that some correspondent banks have actually asked WorldRemit to disclose even if the company were to begin testing cryptocurrency.
Undeterred, blockchain technology providers are exploring new corridors all the time. Blockchain Technology Limited (BTL), one of the few such companies to be publicly listed, has just tied up a deal to offer XapCash remittance services in stores as well as online. BTL, which is split between Canada and London's Canary Wharf, has been focused on Mexico and South America, and is about to expand into Europe and Asia.
Guy Halford-Thompson, CEO, BTL has employed cherry picking of corridors where crypto can satisfy particular needs. He said countries where currencies are not so stable and where it's hard to get money in and out are a good bet.
"Take somewhere like Argentina – you've got a double whammy. That's where cryptocurrencies tend to be most popular."
Asked how BTL differentiates itself from other remittance companies, he said: "A lot of companies say, well, you can use your debit card and put money on the mobile app. That debit card works in developed countries but in a lot of places when you use that debit card it charges you; it's only free within certain countries. Also I would say, imagine you want to send €100 to Mexico. Can you send it there in the next five minutes?"