Canadians send billions of dollars abroad every year, and pay hundreds of millions of dollars for the privilege. While the growing number of options to send money has helped push fees down, it still on average costs about 6%, or $12, to send a typical $200 remittance from Canada, according to the World Bank. Meanwhile, the volume of remittances from Canada has soared to top $18 billion last year, up from a little over $7 billion a decade ago, meaning even more money is being swallowed up by fees.
Stablecoins promise fast, low-cost international transfers
Stablecoin advocates, however, think they can help. “You can quickly send money anywhere in the world for less than a penny,” said Didier Lavallee, chief executive of digital asset company Tetra Trust Co., on the promise of so-called stablecoins.
Unlike often-volatile cryptocurrencies, whose prices are based on speculation, stablecoin issuers hold assets (mostly U.S. treasuries) to back up their value, making them a much more reliable way to hold, and send, funds.
Lavallee, who is working to bring a Canadian dollar-pegged stablecoin to market, said he doesn’t expect them to be used for everyday purchases like buying a cup of coffee. Instead, they’re more relevant for the estimated 20% of Canadians who send money abroad. “If you’re doing remittances or sending money to your family in another country, then this kind of token will be specifically interesting to you, because that’s going to be one of our big use cases.”
Potential savings come with steep learning curves and fraud risk
But while stablecoins are touted as a potentially cheap way to send money abroad, there are important considerations to keep in mind.
One of the biggest questions is familiarity and comfort with the programs needed to send, and receive, the tokens. “A lot of people, most people I would even say, just have no clue how to use coins or crypto in general,” said Enoch Omololu, a money expert at Savvy New Canadians. “They’re just not knowledgeable enough to use it, either on the sending end, or on the recipient’s end.”
Omololu excluded stablecoins from a recent report he prepared on the best remittance options because of their added complexity, as well as increased chances of fraud, email scams, and losing the money forever if sent to the wrong wallet address. “It just opens a new world of risk,” he said.
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Stablecoin infrastructure does keep improving to help minimize potential problems though, said Lavallee. Tetra itself has secured investments from the likes of Wealthsimple, ATB Financial, National Bank, and Shopify, some of whom are working on ways to simplify the process.
“You can open a Wealthsimple account, and you’re basically a few clicks away from buying a U.S. stablecoin, and then sending that stablecoin,” said Lavallee. “All you really need is the other party that’s receiving the money to have a digital wallet that can accept the underlying token, which is pretty plain vanilla stuff to do now.”
While it can be fairly straightforward—and cheap—to send stablecoins for those familiar with the platforms, moving money on and off the system adds costs. Crypto-trading platforms charge a range of fees to buy and sell those stablecoins, which can vary as much as they do at conventional currency exchange outfits.
There are also more dedicated routes to buying stablecoins like Paytrie in Canada, which accepts e-transfer payments and charges a 0.6% fee on buying and selling, plus some additional costs depending on which blockchain is being used.
Omololu said he’s sent funds through stablecoins and it’s worked perfectly every time, but that it can get complicated if someone wants to convert the money into a local currency. “It can be cumbersome, if you want to spend it like cash.”
Traditional remittance services remain competitive
The full costs mean stablecoins can provide an option for sending money, but might not be the best choice for many.
Money transfer company Wise said it’s always open to explore new technology options to send money, but with a global average price per transaction of around 0.54%, its existing platforms compete well. “The reality right now is that the cost of moving money using stablecoins is actually still higher than just using Wise on most routes,” said Ankita D’Mello, principal product manager at Wise, in a statement.
With stablecoins adding one more choice to the many on offer to send money, Omololu recommends narrowing down the options with three key questions. First would be looking at which options service the country you want to send money to, since there’s often limitations. Next might be looking at transfer times, as they can vary from nearly instant to several days. And third would be comparing the whole cost of the transfer, including any upfront fees as well as fees hidden in inflated exchange rates.
And while it can be daunting to sift through all of the options, it’s better than in the past where the choices were so limited that people weren’t as aware of how much extra they were paying.
“More people are actually aware that they are losing money by going through the traditional routes,” said Omololu. “A lot of people are interested in finding out about apps they can use, like cheaper ways to send money abroad, faster ways to send money abroad as well as safe ways to send money abroad.”
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