Despite the high costs and challenges of traditional remittances, migrants are sending money home to family and friends at unprecedented rates.
Cryptocurrency proponents have long cited their technology as the answer to payments in regions like Latin America, where most people are unbanked. But those efforts have failed to gain much traction as skepticism about digital assets remains and cash is still king.
Island Pay is the latest company to enter the market in Latin America and the Caribbean on Tuesday, launching a digital wallet that will use Circle’s USDC stablecoin as its primary currency. Called CiNKO, the wallet will be available in more than 30 countries, allowing users to pay for prepaid cards, transact with merchants and make peer-to-peer payments even if they don’t have a bank account.
“Our goal is to continually explore ways to advance financial inclusion in the region, enhancing financial experiences for both the unbanked and the banked,” said Island Pay Chief Executive Officer Richard Douglas. The Bahamas-based fintech company and payments platform is not alone. Dozens of crypto wallets and cross-border payment systems already exist.
Circle works with traditional remittance company MoneyGram International Inc., as well as Stellar, an open network for storing and moving money. Mexico-based Bitzo has partnered with Stellar to allow businesses in Argentina, Colombia and Mexico to transact in USDC. Meanwhile, Western Union Co. is rolling out its own digital payment platforms as crypto competition increases.
The CiNKO wallet is part of a broader push to launch stablecoins and decentralized finance protocols in Latin America, Circle’s chief business officer Kash Razagi said in an email. A recent paper by Circle estimates that this technology could reduce the cost of sending money by 80%. Although it costs nothing to receive USDC in CiNKO wallets, there is a “gas fee” depending on the blockchain that processes the transaction.
Transferring money through traditional financial intermediaries can sometimes take days, and the average cost of sending $200, for example, is 6.2%, according to World Bank data. However, remittances to Latin America and the Caribbean are expected to grow by 27% in 2021 and 11% in 2022, reaching $145 billion last year. Although growth in the region is expected to slow to 3.3% this year, remittances are still expected to hit an all-time high.
Monica Thalan, founder of CryptoConexion, an educational platform that provides information about Web3 and decentralized finance, said ease of use is one of the main barriers to crypto remittances. Most Latin American countries have few places to spend Bitcoin or Ether. “The biggest challenge is the off-ramp,” she said. “How do you convert tokens into your local currency, especially if you don’t have a bank account?”
The USDC, which is backed by the US dollar, trades alternately with the greenback — eliminating the wild rate swings of traditional crypto, Douglas said, and has a growing ecosystem of traders adopting it. CiNKO’s ability to move USDC balances onto a prepaid card makes it immediately usable, he said.
CiNKO, which is available to Android and Apple iPhone users, hopes to add 100,000 users — primarily in Central and South America — by next year, Douglas said. Founded in 2016, Island Pay cut its teeth providing digital payment services in the Caribbean and was one of the first companies to work on a central bank digital currency when it began working with the Bahamas’ Sand Dollar, which launched in 2021. While the company is focused on Latin America, Douglas said, “we have the ability to roll out this technology anywhere.”
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