Global money transfer firm Western Union could lose as much as $400 million a year in remittance fees after El Salvador officially adopts Bitcoin as currency on Sept. 23.
Jaime Garcia, a Canadian resident who fled the Central American country when he was 11 after rebels bombed his house, said that when sending money home to El Salvador, a single transfer of $100 comes with a 12.5 percent payment fee.
Garcia said he does not like sending money home through Western Union because it is time-consuming and expensive.
His main problem is the inconvenience it causes his loved ones. “They have to take a bus to go to a physical location to pick it up, and there are gangs who hang around those offices and rob them,” said Garcia, who leads a team of researchers at SGI Canada Insurance.
Major money service providers such as Western union and MoneyGram that serve as middlemen for international money transfers earn a significant amount by charging hefty fees for their services.
“Remittances are one area where the status quo in our legacy financial system is terrible, with extraordinarily high fees leveled at populations that can ill afford them,” Matt Hougan, chief investment officer of Bitwise Asset Management, told CNBC.
“It’s a worn-out Twitter saying, but bitcoin does really fix this,“ Hougan said.
The inconvenience surrounding remittances is the main reason El Salvador President Nayib Bukele declared Bitcoin a legal tender.
The government launched Chivo, its own national virtual wallet. Chivo is Salvadoran slang for “cool”. The service does not charge any fees on transactions and it’s faster.
El Salvadorans can now send Bitcoin to anyone with a Chivo wallet in minutes and the recipients can easily receive the equivalence in cash by going to the ATMs and withdrawing the money without a fee.
In addition, El Salvador has launched 200 new Chivo ATMS to make it easietr for citizens to transact.
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