Background

Hi everyone, my name is Spencer Applebaum and I am currently the Vice President of the Miami University Blockchain Club. This summer I interned for Bitspark, a blockchain remittance company based in Hong Kong. The company was incorporated in Hong Kong in 2014 by George Harrap and Maxine Ryan, and was originally established as a Bitcoin and Altcoin exchange. However, after seeing the potential Bitcoin could have on remittances, Bitspark decided to pivot and target their services to remittance industry stakeholders.

Bitspark’s cloud-based remittance platform and Sendy App

Remittance Industry Problem

A remittance is a money transfer from a foreign worker to an individual in his/her home country. As it currently stands, the remittance business is a $600 billion industry and growing. Due to the lack of banking in the developing world, a foreign worker who wants to send money will visit a “Money Transfer Shop” (MTO) and deposit cash. The MTO which is a brick and mortar corner store collects the cash and “sends” the money to a destination country. Because of their lack of financial capacity, many MTOs must outsource money transfer licensing and software systems to third party providers. In most countries MTOs have limited options for remittance software providers, i.e. Western Union or Moneygram.

The way MTOs make money is by charging fees to the remittance sender. This can either be a standard fee or varied fee depending on the dollar amount of the remittance. Because MTOs have limited options for remittance providers, the provider can charge the MTO exorbitant fees to use their software. In most of Bitspark’s operational countries MTOs pay out 80% of the fees they charge customers. For example, if a money transfer shop charges a $5 fee for a remittance, it only pockets $1 of it, the balance of $4 goes to the software provider.

MTOs also face operational overhead costs for running these systems. When using a traditional provider, the MTO must pay installation and maintenance fees to run their platforms. So not only are MTOs earning ⅕ of their commissions, but they also have to pay maintenance fees, wages, and expensive overhead costs associated with the provider’s system.

Bitspark’s Solution

Bitspark identified the need for a better option for MTOs in developing countries with little to no banking infrastructure. Bitspark’s solution was a free cloud-based platform that enables MTOs to send, manage and receive remittances, manage customer due diligence and receive detailed business analytics. Any MTO can sign up for free with Bitspark and use the platform. Bitspark’s web-based product offers 3 distinct advantages for MTOs:

1. Bitspark charges a 50% fee to MTOs as opposed to the 80% average fee that other software providers generally charge. This means shops earn 2.5x more per commission.

2. Bitspark is based in the cloud and therefore the MTO requires only a device connected to the internet, thereby eliminating MTO operational costs such as maintenance and installation fees for physical software.

3. Bitspark’s database stores each customer’s KYC/AML information from the time of account creation, allowing a customer to pick up money and top up in 15 seconds.

Bitspark’s Value Proposition for Money Transfer Operators

Bitspark’s original focus was the money transfer corridor between Hong Kong and the Philippines. Many Filipino women migrate to Hong Kong and work as foreign domestic workers in order to provide for their families back home. As a result, they need a remittance option that is cheap and easy to use. To aid them, Bitspark developed a cash-in cash-out remittance platform leveraging Bitcoin and Blockchain technology. Important to note, NO Bitspark sender or agent needs any technical Bitcoin knowledge to use the platform. Over time Bitspark has expanded to 7 different destination countries including Pakistan, Vietnam, Nigeria, Ghana, Indonesia, Malaysia and Hong Kong.

Sendy

In early 2017, Bitspark introduced Sendy, a mobile app for senders and receivers. It acts as a fully functioning mobile wallet and app users can locate MTOs, top up their balance and send money all within the app. It enables users to send money through over 100,000+ cash pickup destinations in the Philippines, Indonesia and Vietnam. Sendy users can also become top up agents and earn a profit by topping up other senders’ accounts. The launch of Sendy was important as it allowed Bitspark’s existing MTOs to remain relevant as Bitspark was seeing a large movement to sending money with mobile devices.

These two platforms, Bitspark.io and Sendy, allow MTOs to operate their cash-in cash-out remittance business without paying exorbitant fees as well as reducing their overheads.

Bitspark 2.0: Project Zephyr

There has been a constant challenge in the remittance industry with the idea of banks “de-risking”. De-risking means that banks are shutting down MTO’s bank accounts because of concerns about risks in banking clients directly exposed to Anti Money Laundering (AML) and Know Your Customer (KYC) regulations particularly in the involvement of cash. As a result, MTOs can no longer operate and run their business.

Switch to BitShares

The first development in Bitspark 2.0 is the switch from Bitcoin’s Blockchain to BitShares. Bitspark believes that the BitShares Blockchain is a better alternative when it comes to the remittance industry for several reasons.

First, Bitcoin’s fees are unpredictable. It is irresponsible and reckless to tell a customer that one day their fee on a $100 remittance could be $0.50 and the next day $3.00. Because of this, Bitcoin remittance companies must have sufficient up-front capital to prefund large amounts of money with their liquidity providers and lock in rates. With Bitshares, the transaction fees are negligible and the testnet has proven that BitShares can scale to 100,000 transactions per second. As a result, Bitspark now has the ability to send individual transactions across the globe for a trivial cost instead of drawing down liquidity providers’ balances each time money is sent. This frees up capital (cough cough ICO money) to use for alternative expenses, such as sales and marketing.

Bitshares

Overview of BitShares taken from twitter → @bitshares

Second, Bitspark has transitioned to BitShares because of the ability to create fiat pegged cryptocurrency. Many developing countries rely on remittances and a big issue is MTOs have no way to settle in the local currency. MTOs have to use the one or two local gatekeepers to convert to and from USD in their local currency, which adds significant unneeded conversion costs. BitShares allows you to create a pegged cryptocurrency which tracks the price of the local currency you are trading in, so long as you have sufficient (2x) BTS to lock in as collateral. You can trade it on the Bitshares DEX, their decentralized exchange, meaning there is no risk of bank account closure or forfeiture of funds. It is also trustless as the money is backed by a smart contract on the blockchain, available for everyone to see. Thus, there is no need to convert to USD and MTOs in developing countries will now be able to settle in their native currency.

What Bitspark is aiming to do is create a network of MTOs and senders who transact with each other, bypassing the entire banking system in the process. If a sender needs a digital balance in Sendy to send money overseas and an MTO needs cash to pay, for example, utility expenses, they can trade with each other. The Sendy user may pay the MTO cash ¥100 and receive BitCNY ¥101, earning a profit in the process (vice versa). This creates an incentive for the users to transact and creates competition for MTOs who are in need of either a digital balance or cash balance.

Zephyr Token Sale

Bitspark’s newest development is the Initital Coin Offering of the Zephyr Token, a reward token for incentivizing economically beneficial transactions on Bitspark’s remittance network. What this means is when someone sends money, receives money, refers new users or liquidates an MTO’s balance on Bitspark’s network he/she will receive Zephyr as a reward. This is important because never before have people earned money for sending and receiving money, it has always been the other way around. Project Zephyr’s eventual strategy is to roll out 180+ fiat pegged cryptocurrencies to Bitspark’s established web platform via the BitShares Blockchain, eliminating banks from the remittance industry entirely.

Check out Bitspark’s Project Zephyr White Paper here

Bitspark has committed to using 25% of transaction fees to buy back Zephyr on the DEX. Fees stem from Sendy topups and Sendy money payments, and are set by Bitspark or a top up agent. The buyback’s aim is to increase buying pressure and lead to an increase in value of the coin. This ensures that as more transactions occur on the network, there will be constant positive price pressure and more liquidity, incentivizing even more transactions which creates a positive feedback loop for the token’s value.

Bitspark has partnered with the United Nations Development Programme to pilot the Zephyr Project in Tajikistan. Tajikistan is a country whose GDP is 30% reliant on remittances, mostly from foreign workers in Russia. Due to Tajik’s poorly functioning MTO network, the opportunity is perfect for Bitspark to introduce its new pegged cryptocurrency remittance network. After Tajikistan, the plan is to deploy pegged cryptocurrencies to all Bitspark countries, and then to every country in the world!

Summary

As you can hopefully see, this summer was very exciting for me! It was truly an honor to be apart of Bitspark’s ICO of the Zephyr Token and work with George and Maxine. I hope it will be a project that improves financial inclusion in many different countries around the globe, and aid in the financial stability of the world’s 2 billion unbanked people. If you have any questions, feel free to reach out to me at [email protected] and keep a look out for future posts from me here on Steemit!

Cheers,
Spencer Applebaum