1. I
If your business is required to make even a small number of
international payments to contractors or employees, you are all too
aware of the delays and fees involved. One of the greatest benefits
Bitcoin brings to the table for businesses like yours is the
elimination of these issues.
Using Bitcoin for interna-
tional payments, your
payroll process becomes
streamlined to a degree that
will make you wonder how
you ever did it any other way.
The delays, bank transfer
fees and miscellaneous
charges you’ve experienced
using traditional payment
transmission methods will
disappear forever.
Uber, the Internet
rideshare company, offers a prime example of how Bitcoin can
simplify the payroll process. Uber has two choices to pay their con-
tractors. They can either incorporate and build banking relation-
ships in every country, working with non-user-friendly interfaces
and old, low quality APIs, or they can go through several slow and
costly integrations of multiple platforms. Either way, the contractors
are left with no choice but to accept high FOREX costs and slow,
unreliable transfer times. According to the World Bank, the
average of cost of sending funds across borders is 8 percent, and the
average time for transfer completion is three to five days, with
workers shouldering the bulk of these costs.
But why does it take so long for wages to be transferred and
exactly how much is lost to intermediaries?
Here’s a step-by-step break-
down of a simplified interna-
tional contractor transaction:
1. Client initiates the interna-
tional bank transfer from
their bank account and
pays a $45 flat fee.
2. Their bank forwards the
funds next business day to a
large correspondent bank
with the resources to
maintain international
correspondent banking
relationships.
3. The large correspondent bank removes $25 from the total amount.
4. The large correspondent bank sends back $7.50 to the client’s bank
for initiating the transfer.
5. The large correspondent bank forwards the funds next business day
to their large multinational correspondent bank with a presence in
Brazil and the capital to facilitate a foreign exchange.
6. The large multinational correspondent bank exchanges the USD to
BRL and takes 7.5 percent in the spread between the interbank rate
and the retail exchange rate.
by JONATHAN CHESTER
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2. 7. The large multinational correspondent bank forwards the funds next
business day to the contractor’s local bank account.
8. The contractor receives the international bank transfer into their bank
account three business days later and pays a $15 fee.
These costs and delays are a result of the current financial
system’s reliance on sending funds through a system called the
correspondent banking infrastructure. Banks do not actually have
direct relationships with the banks receiving the funds on the other
side. Instead, funds flow through a series of correspondent banks,
where one bank somewhere in the middle will make the conversion
from one currency to the next. While many people tend to focus on
the flat fees levied on both sender and receiver, the main cost
burden is accrued through the currency conversion, where the
spread is often over 8 percent.
Unlike the simplified version of the correspondent banking system
provided above, the real process is actually very opaque. The sender
and receiver typically do not know how many banks are within the
chain of correspondent banks, and there are currently no good
mechanisms for tracking funds. So banks cannot provide an exact
date for when funds will arrive at their destination. In fact, many
wires end up getting lost in the process, often delaying international
payments by one or two weeks. For the receivers, this creates the stress
of not only not knowing when the funds will hit their accounts, but
also not knowing where the funds are or even whether the funds will
ever reach their destinations. For the sender, this typically results in
increased customer support costs and less time to hold onto the
working capital used to pay employees and contractors.
This is clearly not an ideal situation for any of the participants
other than the intermediary banking institutions who are generating
additional revenues. So what would an international payroll solution
look like if it used Bitcoin and the blockchain?
Here is the step-by-step breakdown of the new blockchain-based
international contractor transaction above:
1. Client initiates domestic bank transfer for a vastly reduced or zero
flat fee.
2. Domestic bank forwards funds to Bitcoin Payroll & Payments
company’s domestic bank next business day.
3. Bitcoin Payroll & Payments company facilitates near instant
international blockchain transaction.
4. Bitcoin Payroll & Payments company takes a nominal fee depending
on the service.
5. Contractor receives domestic bank transfer from Bitcoin Payroll
& Payments company’s domestic bank in the receiving country,
forwarded one business day later, and pays vastly reduced or
zero flat fee.
This means that Bitcoin payroll and payments companies now
have full control over the entire payments process. Fees and transfer
times can be dramatically reduced by removing intermediaries
and directly accessing all the players involved. In many
circumstances, employers receive better rates than the interbank
rates, saving them money, and the employees and contractors have
access to their local funds next day. And unlike the current financial
system, both the employers and their workers can actually track the
funds, providing insight into when the funds will arrive and assurance
that the funds will actually reach their destinations.
It is obvious why both individuals and corporations are looking
to Bitcoin for a better payroll solution. Some people are using pure
“Bitcoin payroll” systems, while others are working with systems
that leverage Bitcoin as an intermediary step. There is even a service
that allows employees and contractors to receive their wages
through Bitcoin without requiring their employer to sign up.
Market research carried out by Bitwage, one international
payroll services provider, suggests that even among the Bitcoin
community, many people don’t know that they can receive a
chosen percentage of their paychecks in Bitcoin even when their
employer has not signed up for a Bitcoin payroll service.
It is surely only a matter of time before more employers and
employees transition away from antiquated traditional payment
systems to the vastly superior solution that Bitcoin provides.
In the near future, the everyday pain of international payroll
payments will be a thing of the past.
Jonathan Chester is founder and Chief Operating Officer of Bitwage, the leading international Bitcoin payroll company in
both volume and users. He has been featured in Entrepreneur magazine and has spoken at various blockchain and payment
conferences around the United States, including Transact15 and Inside Bitcoins NYC.
Jonathan Chester
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