Happy Tuesday—Leo Schwartz filling in here for Jeff John Roberts this week as he moves across the Rockies.
With the exception of one of the industry’s top (alleged) scammers being sentenced to prison in Montenegro and a surprising Saturday deal between the SEC and Binance, this was a relatively slow weekend in the world of crypto, so I want to take the opportunity to write about my favorite topic: remittances.
Last month, I spoke with Daniel Vogel, the cofounder and CEO of the Mexican crypto exchange Bitso, who told me that crypto was finally poised to disrupt the pesky cross-border payments sector. Through cryptocurrency, the argument goes, cross-border payments could be sent instantaneously and with minuscule fees, bypassing the traditional banking system and the legacy bogeyman of Western Union and Moneygram, which charge migrants upwards of 10% to send money back home to their families.
In a recent interview, Alex Holmes, the CEO of Moneygram, told me this isn’t quite the case. Founded in 1980, Moneygram was once the challenger to Western Union, which dates back to 1851, but is now firmly an incumbent in the space. Holmes said the central obstacle for remittance companies is the fact that the traditional banking system is designed for domestic payments or larger, institutional transfers sent by corporations, which can afford the massive fees. “I don’t think banks are greedy—I think they’re simply lazy,” Holmes said.
Despite the obstacles, and growing inflation, Holmes said that Moneygram has been able to decrease costs for remittances, with its global average fee around 3%—and even lower for online payments. That's still triple what crypto companies like Bitso say they can offer, but now within an order of magnitude.
Holmes says the pricing advantage can be deceptive, however. Moneygram has experimented with crypto, even introducing buy and sell features into its mobile app last year. The issue, according to Holmes, is that fiat currency is still king for users—the vast majority don’t want to hold crypto, and if they receive crypto, they want an immediate off-ramp into fiat. Like many cross-border payments companies, Moneygram dabbled with Ripple’s XRP, but quickly realized that they would need to partner with exchanges and market makers to transfer XRP into currencies like the Mexican peso, which drove up prices. Therein lies the challenge. Cross-border payments of crypto to crypto are fast and cheap. Going from crypto to fiat currency is not.
Moneygram is now working with Stellar to allow users to buy, hold, and withdraw the stablecoin USDC, but the use case is still not totally clear. Holmes said the advantage here is that people in countries affected by inflation like Venezuela and Argentina can hold USDC in their wallets and transfer to their local currency when they want, but holding USDC still doesn’t have a clear advantage over holding U.S. dollars, aside from the potential fee reduction.
With regulatory uncertainty causing companies and consumers to tread more carefully, crypto still seems far off from providing a convincing alternative for cross-border payments. According to Holmes, crypto firms need to create “the perception of improvement” to justify their existence. “I do think that there’s probably more noise than there really is value at this point,” he said.
Leo Schwartz
leo.schwartz@fortune.com
@leomschwartz
