Learn about remittance, how it works, and how bitcoin solves the remittance challenges.
Have you ever received money from someone on a different continent from you? Or have you ever had to send money to someone who lives at least 10,000 miles away? Ever wondered how money gets sent in one currency and is settled in another?
It’s quite simple. You want to send Naira but you have Dollars, your bank takes your Dollars and sends the Naira on your behalf. When you understand this concept, you’ve taken the first step towards properly understanding remittance.
What is remittance?
Remittance is defined as money sent as payment. It is typically used when referring to cross-country or intercontinental transactions.
Technically, money doesn't have to cross borders for remittance to take place successfully. The sender and receiver just need a settlement system that works well. Traditionally, this is done with a third party. I’ll explain.
Let’s say John wants to send money to Ada. John lives in Lagos, Nigeria, and has naira. Ada lives in the US. John wants to send dollars to Ada. Let’s call the third party Michael. Traditionally, John would approach Michael with the naira equivalent of what he wants to send to Ada, and Michael would deposit the USD equivalent in Ada’s account.
In this case, John and Ada represent people on different sides of the globe looking to send money to one another, and Michael represents our traditional banks and settlement organizations. For the longest time, this is how remittance has taken place.
However, as the world evolves, the current systems are not as effective as they used to be. Remittance is becoming increasingly difficult due to various factors, let’s have a look at some of these.
Common hindrances to remittance
Accessibility
The biggest problem associated with remittance is accessibility. It is super difficult to get the currency you need to send abroad. Imagine living in Africa and you need to send money to a remote island in Asia. Even sending money to fairly accessible areas like Europe, the US, and even within Africa is difficult. Finding reliable third parties is often time-consuming, and often very inconvenient. In emergencies, this system simply doesn’t work.
Speed
Even after finding a reliable third party, you’ll find that the process of sending money and having the recipient confirm receipt takes time. After initiating an international transaction, the money can take hours, and even days, to get to its destination.
Inconvenience
Another challenge we face sending money across borders is how inconvenient it is. And this could come as a result of multiple things. IMT organizations like the Western Union for example often operate during the week. If you need to send money, you’ll first have to find a bank close to you, and most of the time these banks have long queues. Then, after sending, you’ll have to wait for hours or days, depending on how the money is being settled. If you need to send money on the weekend, you’ll have to wait until the following week before initiating the transaction. The process is tedious, time-consuming, and highly inconvenient.
Transaction fees
In addition to how stressful these transactions are, they also tend to cost a lot of money. Transaction fees are often quite high, especially in Africa. Sub-saharan Africa reportedly has the highest transaction fees in the world, with an average of 8% transaction fees. This further hinders remittance for people living in these areas.
How bitcoin solves remittance problems
We’ve discussed the problems most people face with remittance today. It seems daunting, but the good news is that there is a solution. You can easily avoid many of these problems by opting to transact with bitcoin. I’ll explain.
Accessibility
Bitcoin is so much more accessible than any other currency. In all parts of the world, you can buy, sell, send and receive bitcoin. All you need is a wallet address and this only takes a few minutes to set up. It also eliminates the need for finding foreign currencies because bitcoin becomes the common denominator.
Speed
Instead of waiting hours or days for your transaction to process, you can send bitcoin anywhere in the world in minutes, or even seconds via lightning.
Convenience
Using bitcoin is a lot more convenient. There are no queues, no delays, no time constraints. And our favorite part- there are no off days. Even on weekends, you can initiate and complete bitcoin transactions. You can definitely count on bitcoin to come through for you in emergencies!
Transaction fees
When you’re using bitcoin, you no longer need to worry about transaction fees. Bitcoin transactions have noticeably lower transaction fees. For lightning transactions, the fees are as little as less than 1%.
The next step
Remittance can be stressful and time-consuming. However, it doesn’t have to be. With bitcoin, you can enjoy faster, more convenient transactions at any time. Download Bitnob to get started.