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In an interview with Dan Romero, Coinbase’s Vice President focusing on international expansion, Diar discusses the exchange’s growth pla...

Coinbase Eyes Emerging Markets in 2019 Push

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In an interview with Dan Romero, Coinbase’s Vice President focusing on international expansion, Diar discusses the exchange’s growth plans in the next year. Having already secured key fiat ramps in developed countries, and awaiting a license in Japan, Coinbase has put in motion its efforts in addressing key emerging markets.

Coinbase has been working close with Japan’s Financial Services Agency (FSA) in order to obtain a license to operate in the country with the aim of launching later this year, almost a year after the official announcement. Having already a close partnership with one of Japan’s largest Banks, MUFG, Coinbase is more focused on localizing the user experience in an effort to address each market with its own set of expectations.
But the developed markets are no longer the sole primary target with the exchange now looking to expand into underserved areas that suffer from currency devaluations and financial inclusions hurdles. “Use cases in developed markets will be different to those in emerging markets as the US and Europe have a fairly well-developed financial system. Our mission is to build out the ecosystem so that we can move away from the narrative of crypto only being a speculative investment. We need to move the technology into the Utility Phase” Dan Romero stated.
While Mr Romero was hesitant to specify any countries due to a long-winded process, as seen by an already educated and robust Japanese regulatory framework, the exchange has actioned securing the right banking partnerships and government approvals. “What you’ll see in 2019 and beyond is a big push to dramatically expand the number of countries offering an easy on-ramp into crypto. We are actively exploring countries in Latin America, Africa and South East Asia.”
“People speak about remittances as a use case for crypto but the reality is that in emerging markets the access for fiat on and off ramps is very low” Mr Romero said. And Coinbase has laid out certain considerations and opportune measures that should be accounted for when looking at potential markets – regulatory stance, currency volatility, banking infrastructure, age demographics and smartphone usage.
For 2018, the three regions represented $240Bn annual money inflows and over half the world’s remittance corridors. But with over 300 money transfer operators (MTO) and transaction costs declining across the board, competition will not be sparse. Though fees currently stand at an average of 9%, this has been in decline for the past decade as more players entered the market. From developed countries, the average is even lower at 6%.
But regional differences do make a case for cheaper transaction costs as smaller corridors continue to see remarkably high fees (see table).
Cryptocurrencies advantage of instant transfers has taken a back seat as MTOs are quickly gaining speed in that area with nearly half of the corridors offering settlement within the hour and over 75% offering payment on the same or next day (see chart).
While network coverage for MTOs has become a near non-issue, accessibility hurdles for senders have yet to be overcome by traditional brick and mortar operators with only 38% of corridors offering the ability to transfer money online to these regions. The number is even more stark for mobile money transfers accounting for less than 1% of available remittance corridors – the main user group target for Coinbase.
The average cost of transactions in Sub-Saharan Africa remain quite high with MTO exclusivity clauses in place raising the mark-up with no alternative options. And countries in both South East Asia and Latin America have witnessed the ongoing weakening of their local currency (see charts).
Still, volatility is also going to be a hurdle that would require the immediate need to convert back into fiat – ultimately a key purpose of an exchange.
“We haven’t operated in these emerging markets to see how the behavior develops, but you’ll likely see less disposable income being used for investment purposes. Our first priority for us is to educate people about crypto. We’ll have to tailor our approach to address the specific questions and needs that are unique to each region that we operate in. We have to focus on building trust in markets where Coinbase isn’t yet a household name, because everyone is one click away from moving their Bitcoin somewhere else” Mr Romero concluded.