The University of Nicosia has been pretty bullish on Bitcoin. But it's not just that the digital currency reduces international transfer costs; Bitcoin's rise also pressures traditional financial institutions to lower their fees more generally.
"The Silicon Valley-meets-banking thing that's about to happen, a bunch of surplus is going to get returned to consumers" and merchants, said Antonis Polemitis, director on the coordinating board at the University of Nicosia and managing partner at Ledra Capital.
The university, the largest in Cyprus, launched a Masters of Digital Currency degree program in November 2013. With that, the university also began accepting Bitcoin for tuition payments (between 20 and 30 students pay their tuition with Bitcoin). Then in April 2014, the university announced plans for a six-week online introductory course to digital currencies at no cost. And this January, the university began working with Align Commerce to facilitate business-to-business Bitcoin transactions between the U.S. and Cyprus.
By using Align to replace international wire transfers with Bitcoin, the transaction gets "a little bit less expensive than what we were paying with our bank," Polemitis said. "The spreads they're giving at the time they're sending the payment is on average 50 to 125 basis points less than what we were paying with our banks in the U.S. and Cyprus."
Bitcoin helps the University of Nicosia move funds from American students who study abroad at the institution. These students pay the university in U.S. dollars into the university's U.S. bank account, and the university with the help of Align Commerce sends those funds to its local bank account in Cyprus.
Align Commerce charges 1.9% spread on the foreign exchange midpoint, and uses the domestic payment systems to receive and send local currencies on the endpoints. For instance, the university sends money to Align via the ACH rails in the U.S. and then SEPA in the European Union. Align guarantees the exchange rate at the time the payment is sent.
The university has already sent half a dozen B2B payments via Bitcoin, and over the course of a year or two, the university could save tens of thousands of dollars through this system, Polemitis said.
While Align Commerce also uses the speed of transactions as a competitive advantage, Polemitis said speed wasn't a factor for the University of Nicosia. The university has relationships with money center banks in both the U.S. and Cyprus meaning that transactions are routed directly. And because Align uses the domestic payment rails on the endpoints, which sometimes take a bit longer, transactions aren't handled any faster.
But speed would probably be a benefit for small- to medium-sized businesses that use regional banks that send international wire transfers through a number of intermediaries, Polemitis said. For small businesses, international transfer fees are stiff, he said, since those merchants aren't doing a substantial amount of volume. This gives Align an opportunity to undercut those prices.
But many industry experts wonder if, as Bitcoin matures and regulation tightens, companies that operate in the digital currency will have to raise their fees to compensate for their compliance and risk mitigation expense. These factors may be enough to bring Bitcoin transfer fees in line with bank fees.
But Polemitis expects pricing to go in the other direction, with banks lowering their fees to better compete with Bitcoin companies.
"[Banks] need some type of external force prodding them," he said. "This is where the Bitcoin startups will be helpful, whether or not any particular one succeeds or fails." Polemitis predicts that in the next several years, banks will start acquiring Bitcoin startups.
"Five to 10 years from now going it's to be cheaper for everyone to send money around the planet," he said. "Payments is one area that's primarily an information product but [its] price has not dropped like other information products have."
Align Commerce is one of the many startups providing businesses with access to the Bitcoin protocol without exposure to the volatile cryptocurrency. Epiphyte Corp. also provides a similar architecture, but is positioning its service for banks.
"From the customer perspective it's just a rail; we don't see what's going on in the background," Polemitis said. "Nowhere in the process do we even see the word 'Bitcoin.'"
While Align Commerce currently only uses the Bitcoin blockchain, Marwan Forzley, CEO of Align Commerce said the company's infrastructure is cryptocurrency agnostic. But the cryptocurrency must be liquid on both sides, which only Bitcoin has at this point, Forzley said.
Align Commerce, which was founded in May last year, announced the public beta of its international payments platform this month. Forzley declined to disclose the number of business customers using Align Commerce. Polemitis has a personal small angel investment in Align Commerce.