April 18, 2015 1:00 pm JST
Cryptocurrency revolution

Southeast Asians get to grips with bitcoin

JUN SUZUKI, Nikkei staff writer

TOKYO -- Bitcoin-based financial services, such as low-cost overseas remittances for foreign workers, are increasingly common in Southeast Asia.

     New services allow users to receive cash without having to deal with the technical aspects of the cryptocurrency.

     There are risks, however. Compensation mechanisms to protect users in the case of trouble are lacking.

     New bitcoin services, however, are likely to proliferate in a region with relatively weak financial infrastructure.

Lower commissions

World-Wide House, an office building in Hong Kong's Central business district, is crowded with women from the Philippines who work in the city. They wait in long lines to send money to their families back home through Bitspark, a local startup offering a cash remittance service through bitcoin.

     Bitspark, headed by founder and CEO George Harrap, began operating in December last year. It charges less than half of other remittance services for money transfers.

     In the Bitspark office, users write their names, contact information and beneficiary account numbers on remittance forms and then hand over Hong Kong dollars to tellers. There is no difference in the process for sending money through Bitspark and traditional remittance services.

     Bitspark charges a 1% or so commission, significantly lower than the around 3% it usually costs to send money from Hong Kong to the Philippines.

     Using bitcoin makes lower commission charges possible. Bitspark converts accepted cash into bitcoins and sends them to its Philippine partner, Rebit.ph, which converts the cryptocurrency into pesos. Rebit then sends the Philippine currency to designated accounts or delivers it to designated addresses.

     The conventional method of remittances tends to be costly because of the number of workers involved in the process. Remittances via bitcoin, in contrast, can be done with close to no cost and instantaneously, meaning commissions can be cut drastically.

     Many Southeast Asian economies are heavily reliant on remittances from workers overseas. For example, some 10 million Filipinos, or around 10% of the Southeast Asian nation's population, work in other countries and send money to their families. Countries in the region also have a large migrant populations who head to the cities from rural areas for work and need to be able to get money back home.

Savings schemes

Inexpensive remittance mechanisms are in strong demand among economic migrants. New services are being created in Southeast Asia to meet their needs.  Among them are ones that accept deposits like bank accounts and keep the capital in bitcoin.

     Demand for financial services is strong in countries such as the Philippines and Indonesia, where banks remain far removed from most people. Only around 20% of adults have bank accounts in the two Southeast Asian countries.

     Philippine bitcoin company Coins.ph launched a service last year that enables clients to open deposit accounts with their e-mail addresses. Users can make deposits in their accounts at banks that have tied up with the new company and withdraw cash through ATMs. They can also use the service to pay cellphone bills and university tuition fees.

     The value of bitcoin has in the past experienced volatility. Coins therefore promises to protect the principal of deposits in pesos. To avoid losses, the company tries to minimize the impact of fluctuations in the value of bitcoin through high-speed trading in the cryptocurrency. But protections such as deposit insurance, which traditional banks offer, are unavailable.

Hassle free

Operators of the new financial services use bitcoin and other cryptocurrencies for deals among themselves; transactions involving customers are usually done in fiat money.

     Ron Hose, CEO of Coins, said it is important to provide financial services to people without bank accounts, and that bitcoin is a tool for doing so.

     The number of bitcoin transactions in the world is estimated at around 100,000 per day. By comparison, Visa cards are used over 150 million times a day.

     In the Philippines, where bitcoin-based remittance services started ahead of other countries, the number of transactions was between 10,000 and 20,000 in the past year, an industry official said. The number, however, is increasing at a double-digit percentage rate monthly. 

Shady deals

Few Asian countries recognize bitcoin and its derivatives as actual currencies. The possession and use of them, however, is not banned.

     That may change. Asian authorities are starting deliberations on regulations to prevent the use of cryptocurrencies for money laundering, remittances to terrorists and other illegal purposes.

     China and Vietnam ban the use of bitcoins by financial institutions; Singapore has begun requiring remittance service operators to submit reports to the government when cryptocurrency-based illegal activity is suspected.

     Currently, the use of cryptocurrencies is moving too fast for countries to regulate it.

     In a statement issued last year, however, the Philippines' central bank expressed concern. The bank stated it "will be closely monitoring developments on these virtual currencies, particularly on their possible use for money laundering and other illegal purposes, and will adopt appropriate measures as needed."

     In the absence of official compensation for losses involving bitcoin, the central bank in Indonesia urged people to use the cryptocurrency with caution.

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