Having gained some recognition as an ardent advocate for cryptocurrency adoption, it is ironic that I recently chose to receive funds in fiat money form over crypto.
Instead of receiving Bitcoin, I chose to use a popular money transfer operators (MTO) to receive funds from abroad. At this point, I wish to point out that prior to this transfer, I had indeed received payments from abroad in either Bitcoin or Ethereum form.
The advantages of remitting or receiving funds via cryptocurrencies might be as clear as daylight but there are still many issues with such digital currencies that stop ordinary people from embracing them. For this particular transfer I had reasons for choosing fiat.
Now the objective of the next narration is to show why people (myself included) should seriously consider using other formal money transfer options (instead of MTOs) and why it is necessary to have such alternatives in the first place.
The subtle challenges
My unpleasant experience with one MTO began towards the end of last year. A colleague based in the Netherlands had informed me their intention to remit a small amount of the Euro currency to myself. Had this arrived on time, this token amount would have probably brightened my holiday season given the excruciating experiences of that year.
The year 2019 started off with deadly protests over a sharp fuel price increase. Scores of people were injured while over a dozen were shot dead. These protests essentially set the tone for the rest of the year.
More protests continued throughout the year as Zimbabweans showed their displeasure at the way the economy was being run. At the same time, the unremitting flow of bad economic data proved to outsiders that Zimbabweans were having a bad year economically.
Poverty levels rose alarmingly during the year while United Nations spent much of that year feeding scores of hungry people. There were problems across many fronts.
Given such a background, it is easy to see why this or any other similar token sent to a different Zimbabwean would have been a welcome relief.
For many reasons however, the sending of money to a recipient inside Zimbabwe from abroad can be quite a challenge. Perhaps it was with this in mind that my colleague—who also happens to be an advocate of cryptocurrency adoption— asked me the best sending option, either through an MTO like Western Union (WU) or via the popular cryptocurrencies like Bitcoin or Ethereum.
I must say that cryptocurrency trading or adoption still faces many odd challenges as outlined in an earlier article. Opting for fiat cash is supposed to be a no brainer.
Now under normal circumstances, a direct payment to my bank account would have sufficed. That is how it’s done elsewhere anyway.
However, there is nothing normal about the Zimbabwean economy, particularly the management of foreign exchange. As widely reported by the local and international media, Zimbabwe has an acute shortage of foreign currency. Consequently, an allocation committee has since been set up to manage the distribution of this scarce resource.
Once a formal payment is received from abroad, it is this central bank appointed agency that takes control of this resource and not the beneficiary. The beneficiary (or the generator of the foreign exchange) has to literally wait and hope that this agency will make a favorable decision of allocating a greater portion of the foreign currency generated.
For example, if an exporting business wants to receive payment in the form in which it was sent, it has to submit a formal application which justifies why a greater amount should be allocated. However, if the allocating agency is not satisfied with the reasons given for the application, such a request will be denied.
The recipient will then be forced to collect the payment in local currency form at a fixed exchange rate that is below the market rate! It sounds absurd but that is the norm here.
Some companies are now circumventing this ridiculous arrangement of surrendering proceeds to this central agency by using informal channels to receive payments from abroad.
Interestingly however, foreign currency payments received via MTOs are deemed to be ‘free funds’ and as such, are not subject to the same stringent foreign exchange regulations. The free funds regulations (or lack thereof) are intended to encourage Zimbabwe’s sizeable Diaspora population to send money through formal channels.
So it is within this in mind that I chose to receive funds via WU, a process that is supposed to have fewer hassles. Now because I chose WU, plans had to be made for a visit to a physical branch of WU or an agent by the sending party.
However, this could not be done immediately as the person assigned to do this had work commitments that prevented him from completing the transfer. Now this combined with the usual end of the year business slowdown meant that the funds could only be sent in the New Year.
When it became possible to visit a WU office after the holidays, the person doing the transfer could only locate one branch in a particular district of Amsterdam city. Unfortunately, this solitary WU branch was apparently closed at that time. A few days later, another attempt was made and this time the branch was open, the transfer was completed successfully.
In just a few minutes, the money was ready for collection. All that I needed was the transaction reference code and a government issued national identity document.
The ‘new’ regulations
However, unbeknown to me and the sender, WU had seemingly changed some of its requirements when collecting. A recipient can only collect if information on the identity document matched that supplied by the sender to the remitting branch. In my case, I had a middle name which I hardly use—and which I forgot to give to the sender—but one that WU apparently needs to process the release of funds.
When I went to WU to collect, it initially seemed like a joke when the cashier told me I could not collect because there was mismatch between the names on my ID and the ones WU was given by the sender. However, it soon became clear this was no funny story when my pleas were expertly dismissed. I was told to ask the sender to go back to the remitting branch and make an amendment on the names section.
My middle name had to be included and that this should only take less than an hour for this to be resolved I was assured. However, I knew better, this was going to take a few more days.
I tried a different branch hoping they would be more lenient, but as it turned out, this is actually the standard practice across all WU branches, at least in Zimbabwe.
Before this latest funds transfer, I had received funds via WU but without any fuss about the middle name. It seemed I had somehow missed the memo advising clients on these new requirements!
In the end, I had no option but to inform the sender that they had to go back and make the amendment. They too were equally puzzled.
Once again, time had to be found to visit the sending branch and get this fixed. It took a few more days plus another transaction fee of 20% charged on the sender’s account for me to finally access to the money!
Between being told of the pending transfer and finally getting my hands on the money, it took roughly 27 days. Sadly, by that time the holiday mood was long gone.
Indeed my situation was not so urgent; I had no burning emergency for which I required the money. So I could put up with this bizarre episode without much trepidation.
That is not usually the case with a lot of these money transfers however; money sent via WU or any other MTOs is often for emergencies like school fees, food, funeral costs etc. There is hardly time for the mindless back and forth seen with this particular transfer.
In their defense, employees at the WU receiving branches that I visited argued that this requirement is necessary in order to stop fraudsters (using this possibility of two or more people sharing the same names) from fleecing the MTO.
However, my contention then and now has been this, there has to be a better way of dealing with such small issues instead of this rather impersonal and inflexible approach.
The chances of another male who happens to have the same name and more importantly, the same identification number, actually receiving the same tracking number (MCN number) and the same amount of money at exactly the same time as I did are next to zero.
The government issued identification number alone is so unique such that it is not possible for two people to share the same. An impostor attempting to use this number can only succeed if he/she has access to the same WU reference code and again, the chances of this happening are so remote.
There are many grounds for putting a waiver on such a ridiculous requirement.
However, as long as the MTO is comfortable in its position, they will not listen. This issue might only come up for consideration when it becomes apparent that an MTO’s dominant position in the industry is under threat.
WU is one of the largest MTOs around, and along with MoneyGram and now UAEXchange, they reportedly have a lion’s share of total funds sent via formal money transfer channels. With this kind of market domination, it will be sometime before WU or its peers start taking customer complaints like mine seriously.
With such market domination, it is easy to understand why a WU agent can ask a grieving person in a similar predicament like myself, to make the amendment first before they can access the remitted funds.
Similarly, it is easy then to understand why many people still prefer using risky informal channels when sending funds across borders. The costs and inconveniences involved when sending money via formal channels—particularly if a problem arises—are just too much. In any case, formal money transfer businesses already exclude those that for one reason or another cannot get a government issued identification document.
Benefits of cryptocurrency remittances
Now for a reader who has been following my regular posts in which I tout the great potential of cryptocurrencies, you will quickly appreciate why such digital assets are destined to upend money transfer businesses.
To begin with, cryptocurrencies can be sent from one peer to another peer, all that is needed is a simple internet connection, the alpha numeric receiving address and crypto wallet. There is no need for a government issued identity document for one to receive or get access to their funds.
Secondly, there is no need to actually visit a physical branch of an intermediary as was done in the instance highlighted above. The blockchain technology that underpins cryptocurrencies plays the role of an intermediary and it does this well.
Since there are few or no middlemen involved, sending remittances via cryptos is thus much faster than through MTOs. It takes some blockchain networks like Ripple or Stellar just a few seconds to move funds across national borders. This kind of movement of funds is not bogged down by some meaningless country specific regulations.
Perhaps the biggest draw to cryptocurrency based cross border remittances has to be the fees charged for the service. Sending crypto funds from one peer to another will cost next to nothing. In many cases, this figure is far less than $1 per transaction.
For instance, remitting $100 from European country to an African country will cost less than a dollar, something regular users of MTOs might not be aware of. Most MTOs actually charge transaction fees of up to 20% of the value being sent. Factors like distance or country risk are some of the determinants of the transaction fee to be charged it would seem.
In addition, with cryptocurrencies based remittances there are no hidden costs, the value of Bitcoin or Tether in Lusaka is the same as that in London.
In contrast, a British pound is acceptable as medium of exchange in the UK while the Zambian Kwacha only circulates within the Zambian territory. A sender in the UK will remit pounds to a receiving person on the Zambian side. However, the Zambian recipient will need to change this to the Kwacha currency.
Herein lies another problem, the MTO will arbitrarily set an exchange/cross rate at which the pound is converted to Kwacha. It seems it is here that users—particularly the sender—are made to pay extra costs. In my case, the exchange rate was set at 1.049:1 against the 1.101:1 that prevailed at many Bureau de Changes on that day.
According to WU’s terms and conditions, which are in fine print, its agents also earn money from the exchange of currencies, in addition to the transaction fee! I did not appreciate the fact that WU used this less apparent term to make extra money off my funds but there is nothing I could have done.
It has been argued that most cryptocurrencies are highly illiquid; they cannot easily be exchanged for fiat money which is more widely acceptable. Even so, cryptocurrency recipients who are not so eager to use or keep these can always resort to a growing number of crypto exchanges (that are also borderless) for swapping services. This means clients will still receive remittances in the preferred fiat cash form but at considerably lower costs. This actually happens without the sender or receiver knowing.
Now if I had chosen to receive the funds in cryptocurrency form, it would have probably taken less than three minutes for the whole transfer to be completed, instead of the several days it eventually took. If I had chosen cryptocurrency for my particular remittance, there would have been no need for anyone to visit that lone WU branch in Amsterdam. A cryptocurrency transaction can be done from a mobile phone, a laptop or desktop computer.
Furthermore, I would not have incurred the extra cost of actually going to the WU branch to collect.
Cryptocurrency remittances are beneficial and convenient to all parties, the users and the service providers as well. It is therefore surprising that some money transfer businesses have not embraced the cryptocurrencies and the blockchain technology.
The blockchain technology is inevitable and it is only a matter of time before the entire industry is disrupted in a permanent way.
The salient aspect of cryptocurrency remittances
Cryptocurrencies have already forced recalcitrant central banks to seriously consider reforming or adopting the blockchain. Central banks have in recent years, realized that if they fail to reform they will be driven out of business by the much maligned privately issued but decentralized digital currencies.
The same is likely to happen to the global remittances industry if it fails to embrace the blockchain. The monopolies that exist in this business have stayed on this long because there is a perception that there is no viable threat on the horizon.
However, that perception is changing fast as evidenced by reports that Moneygram has partnered with Ripple.
If this partnership is given a chance, it might force a total change of the entire remittance landscape. Those lagging behind will be forced to find blockchain partners or they risk being driven out.
Dominant players like WU need to start about their future because the blockchain is certain disrupt their operations unless they reform. Forewarned is forearmed.