Fintech Potential for Remittance Transfers: A Central America Perspective

Bersch, Julia; Ruiz, Esther Perez; Yakhshilikov, Yorbol; Clevy, Jean François; Naseem, Muhammad

doi:10.5089/9781513585420.001

Cited by 7 publications

(7 citation statements)

References 21 publications

(25 reference statements)

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“…Freund andSpatafora (2008) andOrozoco (2006) are among the earliest studies on remittance prices. Bersch et al (2021) find for a geographically more limited sample that remittance providers for Latin American destination countries are sensitive to price movements vis-a-vis their competitors, limited evidence for scale economies but lower fees in destination countries with higher levels of financial development. Da Silva Filho (2021) provides a recent and comprehensive review of the drivers of remittance costs.…”

Section: International Monetary Fundmentioning

confidence: 73%

What Explains Remittance Fees? Panel Evidence

Kpodar¹,

Beck²,

Janfils³

2022

IMF Working Papers

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This paper uses data across 365 corridors to document time and country variation in remittance fees and explore factors predicting variation in remittance fees. We document a general reduction in such fees over the past decade although the goal of fees below 3 percent has not been met yet in many corridors. We identify both cost-and risk-based constraints and market structure as barriers to lower remittance fees. Higher transaction costs as result of a more rural population in the sending country and lower scale are associated with higher remittance fees. However, lower risks due to the stability of fixed exchange rates and Internet rather than cash payment are associated with lower remittance fees. Finally, remittance corridors dominated by banks and few players are characterized by higher fees.

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Section: International Monetary Fundmentioning

confidence: 73%

What Explains Remittance Fees? Panel Evidence

Kpodar¹,

Beck²,

Janfils³

2022

IMF Working Papers

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“…Recent studies on digital money or fintech remittances for Central America reveal great potential for the region, for example, to lower transaction costs, which are still above the 3% mark envisaged in the Sustainable Development Goals set out by the United Nations (Bersch et al 2021;Carare et al 2022). However, the study by Alvarez et al (2022) finds no evidence for a significant use of Bitcoin to pay taxes of the transfer of remittances according to interviewees.…”

Section: Bitcoin As International Moneymentioning

confidence: 98%

The political economy of Bitcoin as legal tender in El Salvador: Temporary bandages to permanent wounds?

Boos,

Grigera

2023

WIDER Working Paper

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“…The onset of cryptocurrencies coincided but also advanced promotion of financial technology (fintech), which is a broader term that encompasses blockchain and all other technologies used to enhance and improve financial services and processes. Bersch et al (2021) analysed the potential of fintech to facilitate cheaper and more efficient remittances, and to improve financial inclusion in Central America. They concluded that fintech facilitates cross-border payments, and that greater competition could further decrease fees.…”

Section: Transaction Fees In Bitcoin Network and For Bank Remittancesmentioning

confidence: 99%

Overseas Transaction Fees: Sending Money via Bitcoin vs. Banks

Sajter

2022

Zagreb International Review of Economics and Business

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An important feature of every financial system throughout history is its capability to facilitate transfer of money in a secure and cost efficient manner. Cryptocurrencies as sources of innovative solutions – especially Bitcoin as their most prominent representative – have offered a completely new transmission system for a piece of information that can contain and carry value. There are many approaches to evaluate (un)successfulness of Bitcoin as money, and arguably one of the most important is to assess the fulfilment of its inventor’s original proposition: can it be used to send money directly and securely abroad, to international destinations, without fear of double-spending? Moreover, by removing institutions and their fees from the system hierarchy, can it be done for a lower price? The objective of creating Bitcoin network (among others) was to promote democratization of finance by enabling monetary transactions over the internet without unnecessary intermediaries inserting and charging multiple layers of fees. In decentralized, distributed blockchains such as Bitcoin and Ethereum subjects are incentivized to collectively maintain the public ledger (blockchain) by collecting block rewards (“coinbase”) and transaction fees. Block-chain maintenance is known as mining, and miners are compensated for their effort in the form of fees (and coinbase rewards) for verifying transactions. The objective of this paper is to examine and compare fees for transferring money internationally by means of Bit-coin network, in contrast to using traditional pathways, mostly banks, and in this manner to scrutinize the proof of concept and one of the cryptocurrency solutions to the issue of money transfer. By doing so we are attempting to provide answers to the questions of functionality and cost-effectiveness of an alternative financial system based on the blockchain technology. Transaction fees for international payments made by Bitcoin are compared by analysing a novel dataset obtained from World Bank and Croatian National Bank (CNB). CNB’s data is not publicly available, and was attained for this paper specifically. It contains 1.400 types of fees charged by the 23 banks operating in Croatia for the period of October 2018 to February 2022. Bank fees for international transactions were matched with Bitcoin fees in the same period, with the data taken from Blockchain.com online service. On average, to send 1,000 USD abroad by using Bitcoin network required approx. three times less in fees than by using banks in Croatia. The calculation structure of bank fees, also presented in the paper, required higher costs for sending lower amounts (in terms of percentage); when transferring 200 USD banks worldwide charged on average approx. 30 times more in fees than Bitcoin miners. Additionally, transaction fees for international remittances were analysed with quarterly data from World Bank. Comparative analysis of these and Bitcoin fees was made, and it is clear that (on average) sending money abroad via Bitcoin network bears significantly lower costs for the end user, especially when transferring lower amounts. Due to the non-normality of the distributions of the underlying variables, non-parametric tests were applied and the null hypothesis that transaction costs have identical medians was rejected. In conclusion, when needing to transfer money internationally users can obtain significantly lower costs by using decentralized technologies such as Bitcoin’s blockchain. This finding validates one of the key propositions of the distributed ledgers. Rather than focusing on wild daily Bitcoin price swings and its volatility, Bitcoin network functions as a cost-effective international payment system and proves itself as an alternative to traditional money transfer schemes.

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Fintech Potential for Remittance Transfers: A Central America Perspective

Cited by 7 publications

References 21 publications

What Explains Remittance Fees? Panel Evidence

What Explains Remittance Fees? Panel Evidence

The political economy of Bitcoin as legal tender in El Salvador: Temporary bandages to permanent wounds?

Overseas Transaction Fees: Sending Money via Bitcoin vs. Banks

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