The Philippines: Bitcoin Remittance Innovation through Isolation
The true innovation occurs with less competition, not more, because not all great ideas are strong right out the door.
When Charles Darwin first visited the Galapagos Islands, he found a plethora of species that had evolved on a completely different path as their brethren on the continent. The iconic tortoises, marine iguanas, flightless cormorants, and equatorial penguins unique to the islands could have only existed because competition wasn’t tough enough to snuff them out before their respective populations could gain a foothold.
The term for this phenomenon, coined by economist Tim Harford and referenced by writer Neal Stephenson, is “Galapagan Isolation.” The theory states that true innovation occurs with less competition, not more, because not all great ideas are strong right out the door. Entrepreneurs with a six-month runway and a seed fund or incubator monitoring them week-to-week will rarely create something truly unique; in that situation, it is generally safer to go with ideas that have been road-tested by someone else.
Galapagan Isolation is observable in smaller locales like the Philippines because our community exists on the fringes of the Bitcoin space. Our problem areas are different, and a less intense level of competition allows our solutions time to evolve and gain traction, instead of being crushed in their infancy by ROI pressure, or rivals with deep pockets.
Remittance is one such problem area, and in terms of the Philippines, it’s a doozy: With the average remittance cost from the US to the Philippines at 5.3%, Bitcoin is seemingly poised to crush the incumbents. That this isn’t already the case might be surprising to some (Bitcoin remitters in the Philippines have lowered that cost to just 1%), but the situation is actually far more complex than it appears on the surface.
A Global Local Presence
This remittance situation is a form of cultural isolation, and not a geographic one. With over 10 million Filipinos currently living outside the Philippines, spreading awareness about a Bitcoin-based alternative is no small task. The Diaspora is scattered across many different regions, professions, and contexts.
Any campaigns espousing the benefits of Bitcoin-powered remittance (more succinctly, “rebittance") need to leverage the face-to-face nature of our various communities. Filipino migrant workers regularly congregate in parks, malls, and city squares around the world on the weekends, which will force most efforts to go offline with their delivery.
Indeed, the most significant competition that “rebittances" face might not even be the established giants like Western Union and Xoom, but the small hyper-local shops that flourish by catering exclusively to these city-specific communities. Most of them charge flat fees (anecdotally, US$5-6 for transactions under US$3,000) coupled with a small margin on exchange rates (between 1 and 1.5%). The advantage that crypto-powered transfers represent doesn’t seem quite as breathtaking from an optics standpoint.
- “Skyline of Makati” by Roberto Verzo
The Exchange Problem
Forgetting, for a moment, the challenge of educating our remote countrymen about the benefits of Bitcoin, the next obstacle then becomes showing them how to actually acquire BTC. In countries like the US and the EU, they may be able to fund their wallets via a Coinbase-connected bank account, but in Asia the answer is not as straightforward.
The act of exchanging fiat for BTC inevitably adds costs to the overall transaction, so even with an otherwise svelte 1% rebittance fee, the total calculation at the end of the day may no longer be as competitive as we would like.
The Last Mile
Once the bitcoins have been acquired, the problem morphs into one of logistics. BTC is transferred from the customer’s wallet to the remittance provider’s, who then delivers the equivalent amount in local currency to the specified recipient. Sometimes this is as straightforward as making a deposit at a local bank. Other times, it means engaging a delivery partner to take the funds directly to someone’s doorstep.
There are literally dozens of ways to send money across the Philippines, and with no clear market leader, a Bitcoin remittance provider must integrate with all of them. Living in an archipelago of over 7,000 islands prevents startups from realistically building out their own logistics services, so they must learn to work with the existing infrastructure and deal with its associated costs.
In nearly every case, an employee must make a trip to a physical establishment with cash in hand. As counter-intuitive as that sounds, it is the most cost-effective way to solve the last mile problem at this current scale.
- “QR Philippines” by Luis Buenaventura
The Argument for Rebittance
Given all the challenges detailed above, it’s important to take a step back and ask ourselves why we even want to go to all this trouble. In international financial circles, remittance is considered a second-class business after all — a proverbial race to the bottom in terms of profitability.
With the average Filipino remittance amount at US$250 per month, it’s likely that our collective activities in the local Bitcoin industry will result in a savings of US$5 to US$8 per transfer. That may seem like a very modest amount when compared with the effort involved, but not when viewed in the context of the bottom-heavy socioeconomic strata of the developing world.
With 90% of Filipino households subsisting on US$10 or less per day, to say that every dollar helps is a gross understatement. By saving just US$60-100 a year, the average low-income household could afford to keep their child in the public school system that much longer. (Although public school tuition is free, most Filipino children need to begin working at a young age in order to contribute to the family.)
The developing world’s Diaspora plays an important role in poverty reduction because their remittances reroute a small portion of the world’s funds to a sector that would otherwise languish for lack of governmental support and external aid. These extremely specific innovations in Bitcoin remittance allow us to optimize the money transfer process further, and squeeze out as much value as possible from a limited resource.
It’s not the most innovative use of cryptocurrency, nor is it the most lucrative. But from the standpoint of financial inclusion, it might just be the most important.