SOLVING THE PROSPERITY PARADOX
March 14, 2018
There are two main obstacles of creating a blockchain-based payment network for the world’s poor. First, many of the people sending the money get paid in cash and those on the receiving end predominantly live in a cash-based economy
Second, most people in the developed and developing world alike don’t have the knowledge and the tools to use blockchain effectively. While cash may very well go the way of the dodo, until employers start beaming value to smart wallets in the developed world, and tiny street side merchants in Manilla, Port-au-Prince, and Lagos start accepting digital payments, we will still need hard currency. Western understands that and that’s why it is so relevant today, with more than 500,000 agents all over the world. If you are looking to exchange your remittance for cash your options are limited. Western Union wouldn’t be effective if it only had one agent.
It’s network has allowed it to maintain a monopoly position on the entire market for decades. There have been a few if any companies with a seamless, easy-to use “killer app” technology.
Enter Abra, and other companies like it. With a name like Abra, one would expect to see a little “Cadabra,” and the company does not disappoint. Abra is building a global digital asset management system on the bitcoin blockchain. It’s stated mission is to turn every smartphone into a teller that can dispense physical cash to any other member of the network.
We wanted to test whether this solution improved Analie’s experience.
Analie is one of 200,000 Filipinos living in Toronto, Canada. Twenty years ago she left the Philippines as a young woman with no money, no formal education, and very little knowledge of where she was going in her adoptive country. Analie has worked hard and carved out a prosperous house for herself, and now, her family. Ten years ago, she used her savings to put down a payment on a house, a remarkable feat as she had been dutifully sending money to her family in the Philippines for the previous three hundred months. Analie sent home so much money that her mother, now in her seventies, was able to purchase a home of her own in Manila.
Analie and her mother both downloaded the app to their Android smart-phones. Analie’s balance to start was in Canadian dollars. At the click of a button, Analie initiated the transfer to her Mom she got it in pesos, almost instantly. At this point her mother had the choice of keeping the pesos on her phone as a store of value or choosing to spend them at a growing number of merchants who now accept the Abra payment system. By creating a payment system and a store of value, Abra effectively displaces the original traditional banking systems two most essential roles: payments and value storage. This alone is a revolutionary concept. But here’s where it gets really interesting: Mom wants cash. She pays her rent, buys her food, manages just about every other expense in cash. She checks the app and notices there are about four other Abra users within a four-mile block radius. She messages them all to see who will exchange their digital pesos for physical pesos and at what price.
The four come back to her with different “bids” for their services. One person will do it for 3 percent one person will do it for 2 percent and tow more for 1.5 percent. Mom decides to go for the one offering 2 percent – not because it’s the cheapest but because this teller has a five star rating and has agreed to meet her halfway. They meet and she swaps her Abra pesos for physical pesos, the vendor/ teller makes their commision and they both walk away happy. Abra takes a 25-basis-point fee on conversion.
The entire process, from leaving Toronto to Filipino recipient holding cash, takes less than an hours and costs 25 basis points net, inclusive of foreign exchange and all other transaction costs. Whereas every Western Union money transfer transaction seven or eight intermediaries – corresponding banks, local banks, Western Union, the individual agents and others – the Abra transaction requires only three: two peers and the Abra platform.
“I get now it now. That’s really cool!” said Analie, ecstatically.