India is the world’s largest receiver of remittances. Besides making it faster and easier, Bitcoin could help India save up to $7 billion in fees paid to international remittance companies and add this amount to the country's wealth.
According to India’s Economic Times, foreigners living in Gulf countries, most of which are Indians, sent about US$100 billion in remittances. A lot of these Gulf-based Indians are working as blue collar workers and have families that are dependant on them back home.
However, there is not only money being sent back to India. In fact, a lot of money is also flowing out. Ibtimes.co.in reports that in FY 16, Indians sent US$4 billion alone to students studying outside the country.
Traditionally, all this money is sent by parents who are supporting the higher education of their children. Most Indian people tend to either use wire transfer services like Western Union or Moneygram or banking channels like SWIFT.
Western Union in India has a partnership with India Post, the Indian post office that allows them access to nearly 10,000 post offices throughout India. The Western Union network is well recognized in India and they have over 110,000 agents in the country.
The Indian remittance scene
We wanted to better understand how the Indian remittance market is structured so we talked with some players who operate in India.
ZebPay Co-founder and COO, Sandeep Goenka says, “India is the world's biggest remittance market at more than $70 billion.”
He points out that the majority of the remittance is small amounts of around $200. For small amounts especially, users end up paying up to 15% in fees to companies like PayPal, Western Union or to banks through transfer and exchange rate fees. Bitcoin makes it extremely easy to send a small remittance back home.
Besides making it faster and easier, it could help save India up to $7 billion in fees paid to international remittance companies and add this amount to country's wealth.
ZebPay’s focus is on creating bitcoin infrastructure and a reliable bitcoin exchange in India and they have a partnership with BitWage. They also offer services which allow their users to buy Amazon India and Flipkart shopping coupons. ZebPay also offers a mobile phone top up service for prepaid cellular phones in India.
Kamesh Mupparaju, CEO of BTCXIndia, agrees about the size of remittances to India and the potential that bitcoin has in this area:
“Bitcoin has a huge potential to make remittances cheaper, and for India especially. The absolute majority of remittances to India are sums under $500, and for transfers of this size fees quickly become a very high percentage of the total sums sent.”
Kamesh thinks that Bitcoin offers a very cheap and effective solution for small remittances and can cut total fees of 1-2% for transfers of say $50 and in many instances other remittances services charge as high as above 10%.
Banking the unbanked
India is a nation of 1 billion people and a lot of them do not have access to basics that are taken for granted by many people in other countries. Banking is just one of those primary needs.
However progress is being made in that area. After the Hindu nationalist right-wing Bharatiya Janata Party (BJP) won the 2014 election and Narendra Modi became the Prime Minister, he initiated the Jan Dhan Yojana (Public Wealth Scheme) scheme aimed at giving the unbanked access to bank accounts.
According to PwC, India’s unbanked population has fallen from 557 million in 2011 to 233 million in 2014. However, a great deal of people still remain underserved or unserved by financial services sector.
Simon Dixon, CEO BnkToTheFuture.com and Fund Manager Bitcoin Capital, says:
“We feel it is a long term play, but we recently invested in UnoCoin - the largest Bitcoin exchange in India as we saw potential in creating financial services for the unbanked in India, a very large and active remittance market that could benefit from some cost savings, as well as one of the largest consumers of Gold where a a Bitcoin to Gold market may offer some end benefits to those in the Gold business.”
Potential but no clear road ahead
Bitcoin as well as other cryptocurrencies hold great potential. India has a very high mobile phone penetration. The country has the fastest growing telecom network in the world.
It is expected that by the end of 2016, India will have 684.1 million mobile phone users. All these people can potentially use cryptocurrencies. The grey area however is bitcoin regulation.
The Reserve Bank of India (RBI) in December 2015 said that it appreciated the technology behind Bitcoin, “With its potential to fight counterfeiting, the 'blockchain' is likely to bring about a major transformation in the functioning of financial markets, collateral identification (land records for instance) and payments system.”
What is clear though is to run a remittance business successfully in India, you need proper licenses and clearances.
Eric Grill, CEO CoinOutlet, says:
“Although bitcoin regulation in India is a grey area, it is clear that for remittances purposes only companies with bank licenses are allowed to offer prepaid mobile wallets and cross border remittances. The trend will be toward cross border bitcoin remittances which include donations, and payments for goods and services, as more people adopt bitcoin use.”
Kamesh of BTCXIndia also thinks that the main hurdle is the unclear regulatory situation. He concludes that there has been no clear guidance from Indian authorities for how exchanges, re-sellers, and other bitcoin companies are to be regulated.