Why Does It Cost So Much to Pay?
In our increasingly global economy, most of us have colleagues in another country. With the rise of the gig economy and social networks, it has never been easier to discover outside talent. For example, software development, once concentrated in distinct regions of the world, is now booming everywhere. With the rise of boot camps, MOOCs, and other online programs, people are learning to be competitive in this global marketplace.
Unfortunately, paying this newfound talent is still as costly and difficult as it was 30 years ago. Based on World Bank data as of December 2015, the average global cost of sending remittances was 7.37 percent. Let’s look at the costs for sending payment through traditional and newer channels:
- Commercial banks charge over 11%
- Money transfer company can charge 10% or more
- Post Offices charge over 5%
- PayPal charges over 3.9% for international transactions, 2.9% for domestic
- Upwork charges a 2.75% fee for every payment made
In addition to the high costs, these payments can take weeks to process. International wire transfers are arguably the worst option, taking about 15 days to complete.
Sending money to developing countries is a nightmare to say the very least. Although there are the big gorillas in this space—like PayPal or Western Union—none of them offer the necessary flexibility to operate an efficient global company. I don't need to get into all of their flaws, but the main pain points are the 1) speed to get funds to contractors and 2) the awful exchange rate.
Ryan Stomel, CEO, Call Criteria
Bitwage and BlockCypher partnered to bring down the costs of sending money to under 1% on average. Within minutes, they enable companies to set up faster, less expensive ways to pay employees, freelancers, and contractors around the world. People receive same day or next day payments through a variety of payment methods. In the U.S., India, Argentina, Vietnam, the Eurozone, Brazil, and the Philippines, freelancers and contractors working for companies out of Europe and the U.S. can receive payment in Euro, USD, PHP, BRL, VND, ARP and INR. International workers in Europe, the U.S., India, Brazil, Argentina, the Philippines, and Vietnam can receive wages through Bitwage from Facebook, Upwork, Google, GE, Gigster, the United Nations Food & Agriculture Organization, Airbnb, and Uber.
Using BlockCypher, Bitwage and employers validate addresses, receive confirmations of all transactions, and calculate the current balance for an address. Using BlockCypher’s API services and sandbox test blockchain (BCY), Bitwage was able to experiment quickly, learn, and test many new blockchain ideas. Bitwage also uses BlockCypher to immediately scale for production, with their great customer support and over 99.99+% uptime required for a 24x7 operation. As a result, Bitwage has been able to process more than $1 million in payroll transactions in a single month.
With Bitwage, payroll onboarding is fast and simple as the employer is not required to create a particular account. Employers can pay using Wire or ACH as they have before. Employees and contractors receive payments within 1 to 2 days at a fraction of the cost of a traditional solution.
Using BlockCypher, Bitwage can verify addresses (analogous to accounts) and update back office systems with clearing and settlement information. Bitwage and employers validate the addresses of employees, contractors and freelancers with BlockCypher’s Address API. Through this validation, Bitwage can ensure payment is made the right person. Also through BlockCypher’s Address API, Bitwage calculates the current balance for an employee or contractor, ensuring the correct amount is paid out. Through BlockCypher’s Events and Hooks, Bitwage receives confirmations of all transactions punctually so employers can quickly clear and settle their books. Bitwage also uses BlockCypher’s sandbox environment to quickly test, learn and experiment.
By using BlockCypher, the Bitwage development team saved roughly 35% in development time and costs. These costs include server, maintenance and software development costs. Due to BlockCypher’s multiple data centers and dedicated engineering and support teams, customers have the security and response times they need.
The partnership between BlockCypher and Bitwage means Bitwage has been able to support over 6000 users around the world and pay out $1M a month. With BlockCypher’s web services and infrastructure, Bitwage is able to pass on savings to their customers. Companies are able to pay their employees without the high cost—on average less than 1 percent, as opposed to over 11 percent through banks. They are also able to clear and settle payments much faster. End users receive their payment much faster—same day or next day payment, instead of weeks.
Given how fast our global economy moves, we should be paid for our contribution to it at the same rate.
While various new technologies provide significant protections, it is not the "transfer" process itself that generates the fees but rather the assurance that the funds are available and the transaction cannot be inappropriately reversed. This is why if f you have a healthy bank balance, wire transfers, ACH transfers are all free. In fact, if you look at what Visa or MasterCard actually charge for their services, it is about 10 to 15bps. The bulk of the proverbial card fees - the so called typical 2.5% - is actually kept by the issuing banks and merchant banks. I would submit that 1% is also exorbitant. Consider the following example: if you need to send $100 to somebody on a monthly basis and you pay 1% to the entity sending on your behalf, then that entity is collecting 1%x12months = 12% APR on an annual basis on the actual money at risk (i.e. within 30 days you have high certainty that the funds are there and it is not reversed). Not a bad rate of return!