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How can bitcoin compete in the money transfer market?

With all of the ways to transfer money — from banking to peer-to-peer platforms — can bitcoin compete?

Bitcoin is a digital currency that allows people to pay for things electronically. It’s billed as a method to help people avoid the typical downsides to transferring money, such as high transaction fees. But the jury is still out whether it’s truly a good option for money transfers.

How does bitcoin stack up for money transfers, and can it compete in the money transfer market?

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade.

Traditional transfer methods are easier

Though many people still use banks for international money transfers, online transfer services are gaining popularity for their simplicity.

Basically, here are the steps to using a money transfer service:

  • Tell the money transfer platform how much you want to transfer and who you want to send money to.
  • Send your money to the money transfer platform.

That’s it. The money transfer service takes care of the details of sending your currency, and your recipient receive the funds as soon as the same day.

Transferring through bitcoin is a little different

Here’s the basic process for transferring money through bitcoin:

  • Deposit your fiat currency (government-issued currency, like dollars, euros and yen) onto a bitcoin platform.
  • Buy bitcoin and send it to your recipient.
  • Your recipient sells the bitcoin for fiat currency on a bitcoin platform.
  • Your recipient withdraws the fiat currency to their bank account.

The process involves a few more steps than using a traditional money transfer platform. What’s more, you have to complete them yourself — nobody takes care of the entire process for you.

This may be a strike against bitcoin.

Transferring money through bitcoin is more complicated than doing so through traditional money transfer services.
How much does it cost to transfer money using different methods?

What about the cost?

Before we talk about the costs of transferring money through bitcoin, let’s consider how money transfer services usually make a profit:

Here’s an example of how a transfer service skews the exchange rate for a profit.

Let’s say you want to transfer $10,000 to France. Your $10,000 may actually be worth 9,400 euros, but a bank may convert your $10,000 to 9,000 euros instead. This means you’ve effectively lost 400 euros.

If you convert one fiat currency (for example, CAD dollars) to another fiat currency (euros), you’ll only lose money once on the exchange rate.

On the other hand, if you transfer money through bitcoin, you’ll lose money twice on the exchange rate.

Here’s why: Let’s say you want to convert CAD dollars to euros, using bitcoin as the transfer method. In this case:

  • First you need to trade CAD dollars for bitcoin, where you’ll lose money on the exchange rate between these currencies.
  • Then you need to trade bitcoin for euros, where you’ll again lose money on the exchange rate.

With bitcoin, you get charged twice instead of just once.

This “double charging” is a big reason why transferring through bitcoin tends to be more expensive than transferring through peer-to-peer platforms, foreign exchange (or “forex”) and even banks.

Name Product Deposit methods Fiat Currencies Cryptocurrencies
NDAX Cryptocurrency Exchange
Bank transfer (ACH)
CAD

24
cryptocurrencies

Get a $10 bonus when you open an account and deposit at least CAD$100. T&Cs apply.
NDAX is a Canada-based digital asset exchange with CAD currency pairs and with options for advanced traders.
Bitbuy Digital Currency Exchange
Cryptocurrency, Interac e-Transfer, Wire transfer
CAD

9
cryptocurrencies

Get CAD 40 and give CAD 40 when you refer a friend who deposits CAD 250+. Valid till 31 December 2021. T&Cs apply.
At this Canada-based cryptocurrency exchange, you can fund your account in CAD via Interac eTransfer and bank wire.
Wealthsimple Crypto
Bank transfer (EFT)
CAD

34
cryptocurrencies

Get a $50 cash bonus and commission-free trades when you open a Wealthsimple Trade or Crypto account and deposit and trade at least $150. Sign-up today to take advantage of this offer!
Buy and sell a range of cryptocurrencies instantly with no deposit or withdrawal fees.
Netcoins Exchange
Netcoins Exchange
Cryptocurrency, Interac e-Transfer, Bank Wire, Online Bill Payments
CAD

7
cryptocurrencies

Buy Bitcoin and 5 other cryptocurrencies instantly using this straightforward broker.
CoinSmart Cryptocurrency Exchange
Credit card, Debit card, Interac e-Transfer, Bank Wire, Bank Draft
CAD

10
cryptocurrencies

Get a $20 bonus in BTC when you open an account and deposit at least CAD$100. T&Cs apply.
Buy and sell cryptocurrency quickly and easily, with instant verification and 24/7 customer support, on this Canadian exchange.
Gate.io Cryptocurrency Exchange
Cryptocurrency
USD, EUR, GBP, HKD, SGD, AUD, CHF, MXN

879
cryptocurrencies

Finder exclusive: New users get $90 worth of Gate.IO points and an airdrop of $5 in random tokens if trade volume exceeds $100 in their first week. T&Cs apply.
A feature-rich exchange with over 700 tokens including derivatives, yield farming and lending products.
Coinberry Cryptocurrency Exchange
Credit card, Debit card, Interac e-Transfer, Wire transfer
CAD

6
cryptocurrencies

Get a $20 bonus when you buy or sell at least CAD$50 in digital currency. T&Cs apply.
Buy and sell cryptocurrency with Canadian dollars on this beginner-friendly Canadian exchange.
Crypto.com App
Credit card, Cryptocurrency, PayPal, TransferWise, SEPA
USD, AUD, CAD, CHF, EUR, GBP, NZD, SGD, JPY, ZAR & 9+ more

156
cryptocurrencies

Buy 100+ cryptocurrencies, earn up to 14.5% p.a. on holdings, pay with your crypto for cashback at stores, get loans and more with this complete crypto-finance platform.
Binance Cryptocurrency Exchange
Bank transfer (ACH)
USD, AUD, GBP, EUR, RUB, TRY, NGN, UAH, PHP, CZK & 20+ more

316
cryptocurrencies

New users earn up to USD $500 in bonus rewards on qualified deposits and trades. Valid till 31 December 2021. T&Cs apply.
Trade an extensive range of reputable coins on this world-renowned exchange, popular for its high liquidity and multi-language support.

US residents: As of September 2019, US-based users can only trade USD on the American dollar onramp of Binance, Binance.US.
UK residents: In addition to normal crypto trading services, Binance offers margin lending. As this is a regulated activity which they are not authorised to offer in the UK, we advise you not to use this service. If you're interested in margin trading, see authorised providers.
CA residents: Binance is not available for Ontario-based users.
FTX Cryptocurrency Exchange
FTX Cryptocurrency Exchange
Credit card, Wire transfer, Silvergate Exchange Network (SEN), Signature SIGNET
USD,EUR,GBP,AUD,HKD,SGD,TRY,ZAR,CAD,CHF,BRL

72
cryptocurrencies

Sign up through Finder for a 5% discount on all trading fees. T&Cs apply.
FTX is an exchange built by traders for traders, with a range of derivatives markets such as options and futures with deep leverage, in addition to standard spot markets. Note: Not available for US customers.
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Reducing correspondent banking costs

Bitcoin does have one thing going for it: swatting away pesky intermediary bank fees.

When you transfer money through a bank or transfer service, your money may be routed through intermediary or correspondent banks. This happens when one bank doesn’t have a direct relationship with the institution it needs to send money to. In this case, the bank uses a middleman to transfer your money.

Does using a middleman come with fees? You bet. It’s one of the frustrating parts about transferring money, especially because it’s tough to know if you’re going to be charged a fee in the first place.

An advantage of bitcoin is the near elimination of intermediary fees, at least when you’re transferring bitcoin to someone else. You may need to pay a small transaction fee for your bitcoin transfer to be added to the blockchain. However, this fee is miniscule (cents on the dollar, usually) compared to the $15 to $30 charge you might pay for an intermediary bank fee.

Pro Tip

The blockchain is a public digital ledger that records bitcoin transactions. Without it, you couldn’t send bitcoin to anyone!

You may still pay intermediary bank fees when you transfer fiat money to or withdraw fiat money from a bitcoin platform.

For the most part, transferring through bitcoin reduces intermediary bank fees.

Is it faster?

When you initiate a bitcoin transaction, it’s confirmed on the blockchain in about 10 minutes. Some bitcoin platforms require multiple confirmations before they’ll clear a transaction, but you can often complete a bitcoin transfer in under an hour.

If that were the only step needed to make an international money transfer through bitcoin, the process would be blazing fast. However, you also need to factor in how long it takes to deposit money into and withdraw money from your bitcoin platform. Both steps can take a few days each, so finishing an entire transaction could actually take several days.

Unfortunately, that’s not faster than existing options. International wire transfers take several days too. Domestic wire transfers can be completed within a few hours. And you can complete in-person transfers in mere minutes with services like Western Union.

So, transferring money through bitcoin isn’t faster either, considering deposits and withdrawals.
Bitcoin vs. PayPal

How could Western Union’s recent Coinbase integration change things?

In June 2017, remittance giant Western Union announced a trial integration with Coinbase, a secure online platform for buying, selling and storing digital currency.

A top issue with bitcoin is the time it takes to transfer the cryptocurrency from one person or entity to another — it can simply take too long for most money transfers, not to mention everyday transactions like picking up a bagel. By experimenting with Coinbase, Western Union may be putting down the tracks toward real-time bitcoin transfers.

For now, Western Union stresses that the pilot integration will not support digital currency transactions. Instead, WU becomes a part of the Coinbase’s app and will use the platform in its back end for fiat currency transfers.

But it’s a step toward using blockchain technology to integrate compliance and regulate bank integrations — and ultimately speed up digital currency transactions, moving cryptocurrencies out of the “alternative payment” column.

Why isn’t bitcoin the go-to solution for money transfers?

We know that transferring fiat money through bitcoin is pretty expensive and complicated. And it’s not always faster than using a traditional money transfer service.

Because of this, it’s been tough for bitcoin to become a strong contender in the money transfer market. P2P platforms and forex services have made it cheaper and easier to send money, solving many of the problems associated with bank transfers.

Bitcoin can compete with the other players, but only if bitcoin platforms solve the hairy problems of making the process less expensive and less complicated.

A good start would be to create a set-and-forget service, where a customer has to do nothing else but send money to a bitcoin platform. The bitcoin platform would take care of the rest, including converting the money and transferring the money to the recipient. Of course, money transfer services can already do this, and bitcoin would have to offer the same convenience before it can catch up.
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Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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