This presentation is based on a combination of research for Melotic, for SKBI in Singapore and for the "Blockchain Global Impact" Stanford conference held in March 2015. The question that led to the market research was, "Can blockchains positively impact areas such as remittances?" References and citations can be found in the notes of each slide.

1. By the numbers: understanding value
transfers to and from China
Can blockchains positively impact areas
such as remittances?

2. Before we get to remittances...
.... we must first look at what is happening
domestically.
Until recently, some foreigners thought Chinese
internet activity solely related to:
● instant messaging (QQ)
● online gaming (WoW gold farming)
● counterfeit wares/pirated content (PPS now part of
iQiyi)

3. However that is a dated view as local
Internet-based companies have pushed into
the domestic financial industry
● These tech based companies have moved into fintech verticals such as
direct banking and mobile payments
● As of March 2015, seven of the world’s 20 most valuable startups are
Chinese-based

4. Tencent financial services
● January 2014 - Launched “Licaitong” (a
MMF) with China Asset Management Co
o As of January 2015 has over 10 million users and
fund has grown to over 100 billion RMB ($15b USD)
● July 2014 - Tencent received regulatory
approval to set up WeBank in Shenzhen
● January 2015 - WeBank launched and first
loan for 35,000 RMB went to a truck driver

5. In June 2014 WeChat also added...
… one-click
payment and
money transfer
between users

6. During five hour TV gala on Chinese
New Year’s Eve (2015)
● A total of 1.01 billion “red envelopes” were
exchanged on WeChat
● WeChat gave away $80 million USD
provided by corporate sponsors in the form
of virtual hongbao
● Viewers shook their phones 11 billion times

7. Some people accidentally broke
TV’s by feverishly shaking phones

8. Internet usage in China
● Through Q4 2014 - WeChat had 500 million
monthly active users, up from 335 million in
Q3 2013
 Note: Tenpay (also from Tencent) has over 200 million registered
users
For comparison, as of December 2014:
● 649 million Internet users in China
● 557 million mobile Internet users
o 1.29 billion mobile phone users
o Students are largest demographic (~25%)

9. Alibaba financial services
● June 2013 - Launched “Yu'ebao” (a MMF)
with Tianhong Asset Management Co
● By end of Q3 2014 - user base increased to
149 million, jumping 20% in one quarter
● Peaked during July and AUM has declined
(along with rates)
● As of December 2014 - Yu’ebao had around
~579 billion RMB ($92 billion) in assets

10. Alibaba cont’d
● As of Q3 2014, Alipay Wallet
 Had 190 million active users
 Delivering 45 million daily transactions and
> 50% of that coming directly from Alipay
daily transactions
● In its prospectus: Alibaba had 279 million
customers using its platforms (Taobao,
Tmall, Alibaba)
● In 2013, gross merchandise volume (GMV)
reached $248 billion on all Alibaba sites

11. Other domestic activity
● In 2014, domestic search engine leader
Baidu, and the largest appliance retailer,
Suning, applied for banking licenses
● In October 2013 Baidu launched “Baifa” with
China Asset Management Co
● In January 2014, Suning launched “Lingqian
Bao” with GF Fund Management Co
o Note: all of these products are primarily based on
interbank lending & negotiated deposits

12. What about P2P/WMP lending?
Due to loose or no credit ratings, growth in debt
could be problematic in long-run:
● Over 1,400 lending platforms in China
● 275 of the P2P platforms went bankrupt or
had difficulty repaying money in 2014
o Up from 76 a year earlier
● PBOC will seek to regulate Internet finance
while allowing it room to grow

13. Restrictions faced by new entrants
In March 2014 new regulations:
● Made it harder for customers to shift funds to
online rivals
● Banks imposed transfer limits (not from
regulators)
● Banned new types of payments such as QR
codes (but still in use, unclear hurdle)
● Halted the launch of virtual credit cards

14. Still a long way to go
"If you look at Alibaba's wealth management
service, the amount of deposits in there is
something like $300 billion, which is less than 1
percent of ICBC's deposit base. These online
initiatives have made unbelievable progress in
a short amount of time, but they have a long
while to go compared with China's
megabanks.”
● Jim Antos, bank analyst at Mizuho Securities Asia

15. Can’t forget China UnionPay (CUP)
● Founded in 2002 as a monopoly (SOE), globally 2nd
largest by volume (after Visa & ahead of Mastercard)
● As of Nov 2014, there have been more than 4.5 billion
CUP cards issued worldwide
● In all of 2014, CUP cardholders spent 41 trillion RMB
(~$6.54 trillion)
● Pushing abroad: can be used in over 140 countries, 13
million overseas merchants and 1.2 million ATM
machines accept UnionPay
● Pushing into NFC / mobile payments (partnered with
Apple, China Telecom, China Mobile)

16. What does any of this have to do
with remittances and blockchains?

17. In terms of domestic payments...
...Bitcoin as it exists today, will unlikely compete
with either existing incumbents or large web
companies in the near future.
● Not competitive or convenient to use compared with
WeChat, UnionPay or an ATM managed by ICBC
● Very little “circular flow of income” due to a lack of
merchant or institutional adoption
● Domestic payments are also incredibly cheap & real-time
with the banks as well
o Alipay handled up to 2.85 million transactions per
minute on Single’s Day (11-11)

18. So what can some of this tech be
used for then?

19. Informal value transfer system
● Local form of hawala is called Fei ch’ien
● (飞钱 or "flying money")
 Not very popular anymore, most use ICBC
● Internal, domestic remittances:
o Rural migrants sent home nearly $30 billion in 2005
o Depending on province, most of this can and is now
processed in less than an 30 minutes through
existing banking system
● Banks in different provinces, even if same bank, may use different systems
(i.e., withdrawing RMB from ICBC in Beijing costs money if your account was
originally opened at a different ICBC location such as in Shanghai)
 Prior to mobile platforms, typically done via ATM

20. International remittances to China
(inbound) reached $60 billion in 2013

21. Two (possible) blockchain
advantages
● By by-passing a few correspondent banks,
there may be less delay between cash-in
and cash-out in some corridors
o This cannot be known a priori due to KYC/AML
o Has to be on a case-by-case basis -- and because
there may be fewer banks used, there could also be
less aggregate fees required
 (Note: fees to miners may change)
 Ignoring licensing/permits requirements is
myopic long-term

22. In an ideal world
● No one would need to cash out from one
currency to another
o We do not live in an ideal world
● Next best possibility is simply “netting” value
on a daily basis with trusted parties (e.g.,
hawala)
o Can be done simply via secured instant messaging

23. Bitcoin specific “rebittance” companies:
● Abra (still pre-Beta)
● Rebit (Satoshi Citadel in the Philippines)
● Coins.ph / Coins.co.th
● ArtaBit in Indonesia
● BitPesa in UK targeting Africa
● Bitspark.io in Hong Kong
● BeamRemit.com (Ghana)
● HelloBit (Mexico, PH)
● BitX (“Falcon” in multiple jurisdictions)
● Volabit (Mexico)
● Satoshi Tango (Argentina)
● Sendbitcoin.mx / Mexbt.com (Mexico)
● Coinee through Skyhook, Bitstamp and Coins.ph

24. “Regarding regulations, what do the
real experts say?”

25. Is Bitcoin transmission regulated?
“Later, on March 4, 2013, I met up with [the Bitcoin
community in NY] again, and there happened to be some
journalists there — because bitcoin was gathering steam
then, becoming worth more, and people knew it had been
used by the drugs market.
I told them that bitcoin was already regulated from the
financial crime prevention point of view, and that like any
money-sending it quite likely was subject to licenses and
compliance program. A week later, FinCEN confirmed I
was right.”

26. “Grey areas” for startups?
“One common argument you hear is how [a Bitcoin startup] are compliant with
all the rules and regulation (just failing to mention, they may be compliant, but
still unlicensed). However, it does raise one very important question. If an
startup is compliant with all the rules and regulation and does not have a
license, does it matter?
From a transaction point of view, the answer is No! It does not matter. All the
data points collected, the checks and balances done are the same and yield
the same transaction parameters. The data does not change if the entity is
licensed or not. So, does it really matter?
Needless to say, the answer lies with the regulator. What is of interest is if such
grey transaction could spell trouble down the line or not, both for the startup, its
investors and the transaction partners who may be licensed in one geography.”
- Faisal Khan, MTO/MTL expert

27. Not operating in a vacuum

28. Non-blockchain MTOs
● Currency Cloud
● CurrencyFair
● peerTransfer
● Remitly
● Pangea Payments
● TransferWise
● Western Union
● MoneyGram
● WorldRemit
● Xoom
● Azimo
● Ria Money Transfer
● Transfast
● Moneydart
● USForex

29. Problem: not every MTO can send to
all corridors (yet)
For instance, while it has low fees
TransferWise cannot send to China (yet)

30. According to World Bank, Nov 2014
● Sending money from Singapore to China, cheapest is 6.23% (BKK Forex)
● Sending money from South Korea to China, cheapest is 4.07% (Citibank)
● Sending money from New Zealand to China, cheapest is 4.56% (exchange4free)
● Sending money from Japan to China, cheapest is 6.2% (SBI remit)
● Sending money from Italy to China, cheapest is 8.57% (Western Union)
● Sending money from France to China, cheapest is 6.37% (Western Union)
● Sending money from Germany to China, cheapest is 2.49% (Azimo)
● Sending money from Canada to China, cheapest is 4.86% (MoneyTT)
● Sending money from Australia to China, cheapest is 1.43% (Citibank)
● Sending money from United States to China, cheapest is 4.33% (Sique Money Transfer)
● Sending money from UK to China, cheapest is 5.08% (Western Union)

31. The reality is that MTO / remittances
in general is currently a relatively
competitive industry globally.

32. What are the logistics of a blockchain-
based remittance solution?
Despite lots of talk and lamentations, there is
no Bitcoin industry standard or blueprint (yet)
for how this actually works beyond ignoring
compliance costs and ignoring the issue of how
to cheaply, legally cash in or out (e.g., the
“round-trip”)

33. How are unbanked individuals
supposed to acquire bitcoin?
● In many jurisdictions, in order to use most VC-funded
bitcoin exchanges, a user must link their bank account to
the exchange and go through KYC.
● But if a user does not have an ID or a bank account in the
first place, a user cannot do this.
● For emerging markets, local geography not fit for mining:
o Uncompetitive hashrate / non-existent infrastructure
o High energy prices / climate too warm
● >55% of adults in West Africa earn <$1 a day
● How to solve “last mile” of transmission? (37coins?)

34. Is P2P blockchain-remittance competitive?
● By the time you factor in the cash in/out network and KYC/AML, margins
are typically less than 5%
● Proof of concept, bottom-up financial model that can break down the costs
each step of the way
 Demonstrate where any crypto can actually make a large enough impact that it can
be competitive
● M-Pesa / Orange Money can transfer money instantly within cooperating
jurisdictions
 Challenge typically involves differences in cross-border tariffs

35. What about ATMs?
● All Bitcoin ATM providers currently charge a fee /
markup above spot price
o Why? Because these owners also have costs such as amortization of
the ATM, rent, electricity, insurance, etc.
● Fees typically ranges from 5-8% one-way, could be
double for round-trip
o Consequently, compared to traditional remitter could be more
expensive to use BATMs end-to-end
● Bitcoin ATMs increasingly require extensive doxxing,
see “Tested: We Buy a Bitcoin!”
o (e.g., national ID, face scan, hand scan, mobile #)
o As of March 2015, approximately 365 active installed BATMs globally

36. User acquisition costs
● Some Bitcoin-related verticals have low user
acquisition costs due to “free” publicity
● Costs will likely increase due to competition
● Suggested bids feature on Google Adwords:
● “Send money” is $6.08
● “Remittance” is $5.74
● “Transfer money” is $9.76

37. What about Bitcoin usage in China?
● Merchant adoption is currently non-existent
due to regulatory uncertainty and lack of
support from Alibaba and other merchant
platforms
● Estimated 100,000 “bitcoiners” but most
(still) interact solely through exchanges as
speculators
● Some large mining farms mine at a loss for a
variety of reasons

38. The future
 Blockchain-based solutions are being piloted in China
through specific partnerships
 Competitive landscape will change domestically and
internationally over the next year
 As of late-March 2015 on AngelList:
• 1,691 payment startups
• 1,000 mobile payment startups
• 115 P2P money transfer startups

39. Conclusions
● Listening to “Bitleaders” without experience
on matters of international trade & finance is
probably ill-advised
● Cartoonish generalizations do not account
for market dynamics that are different in
every jurisdiction and corridor
● Virtual currencies may play a competitive
role but someone has to roll-up sleeves

40. Contact
email: tim@melotic.com
follow: @ofnumbers
visit: Melotic.com / OfNumbers.com