Payment companies and systems could lose up to $1 billion per year due to the integration of the Bitcoin wallet Chivo into El Salvador’s financial system. This was stated by Mario Gomez Losada, former product director of the Liquid cryptocurrency exchange and founder of PowerTrade, to CNBC.
According to the UN, in 2007 about 2.5 million Salvadorans living abroad sent home roughly $3.7 billion annually — 18% of the country’s GDP. By now the volume of these remittance flows has grown significantly, and in 2020 it reached $6 billion (23% of GDP), CNBC noted.
According to IHS Markit, remittances from abroad are received by about 70% of El Salvador’s population. On average, people send $195 monthly — for some households such transfers reach up to 50% of their total income.
About 60% of these operations are processed by money-transfer companies. Another 38% are handled by credit institutions.
Payment companies charge substantial fees for cross-border money transfers. Moreover, the charges depend directly on the amount sent — the higher the amount, the cheaper the transaction.
For example, Western Union’s online transfer fee for $100 from a U.S. bank account to El Salvador составит $5 (5%). For a $1,000 transfer, the company would take $19 (1.9%). For cash transfers the fees are even higher: sending $100 would cost $15 in fees.
“Money transfers — the area in which the status quo of our traditional financial system is awful. People are charged extremely high fees that they cannot afford. It’s a tired Twitter trope, but Bitcoin really solves the problem,” said Matt Hougan, Chief Investment Officer at Bitwise Asset Management.
Losada gave a fairly aggressive assessment, reflecting on potential losses for payment companies. Earlier, El Salvador’s President Nayib Bukele said that citizens of the country annually enrich the remittance systems by $400 million.
As reported, on Sept. 7 the law recognizing Bitcoin as legal tender took effect.
The legalization of cryptocurrency led to sell-offs of government bonds.
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