With over 8,000 machines globally, Bitcoin ATMs have become the go-to service for those in the cash-to-crypto market, which includes a significant
amount of the unbanked and underbanked. The surging demand from users who can’t or won’t use traditional onramps is propelling the industry through a period of hypergrowth.
Cryptocurrency and blockchain have produced countless industries to capitalize on the technology’s potential. While cryptocurrency is still mainly used as a speculative tool, fiat-to-crypto onramps have leveraged this interest to attract massive user bases.
Among the numerous onramp options, Bitcoin ATMs stands out. The fiat-to-crypto onramp industry is spearheaded by exchanges like Binance and Coinbase. Customers are able to purchase cryptocurrency with their bank accounts and debit/credit cards, and take advantage of numerous services, from derivative markets to educational programs.
Exchanges are some of the most powerful companies in the sector, but they also have a blind spot: they can’t serve customers who wish to pay in cash.
Bitcoin ATMs were created to fill this gap in the market. There is a growing group of individuals who wish to purchase cryptocurrency with cash, some of whom are the most vulnerable members of society. The cash-to-crypto market is hungry and Bitcoin ATM companies are working hard to install machines to meet the demand.
Looking back to move ahead
The first Bitcoin ATMs were clunky and often charged high fees. Instead of using Bitcoin ATMs, the cash-to-crypto market mainly transacted on P2P exchange sites like LocalBitcoins. However, in-person cash transactions were inconvenient and had the potential to be unsafe.
As Bitcoin ATMs became easier to use and available in more locations, the cash-to-crypto market migrated over. Bitcoin ATMs offered on-demand purchases, a simple customer experience, and a streamlined customer service process. As awareness and demand for cryptocurrency have skyrocketed over the last decade, the Bitcoin ATM industry’s growth has accelerated.
From 2015 to 2019, the number of ATMs worldwide has doubled or nearly doubled every single year. In 2019, the industry grew 54.8% with 2,248 ATMs placed. In the first five and a half months of 2020, another 1,935 ATMs were placed in 2020.
In 2017, an average of 91.6 ATMs were placed per month. In 2018, that number jumped to 169.8 ATMs per month. In 2019, an average of 187.3 ATMs were placed per month but 2020 has seen the Bitcoin ATM industry soar to new heights, with an average of 341.9 ATMs placed per month.
The U.S. has the most crypto ATMs by far, with 6,132 ATMs accounting for 74% of the global market. Europe has 1,158 ATMs, accounting for 14% of the global market and Canada has 740 ATMs, which is 8.9% of the global market.
Even if more and more individuals start adopting cryptocurrency, the market should be nowhere near saturation. Compared to the 470,135 cash ATMs in the U.S. and the 3.24 million cash ATMs across the globe, the number of Bitcoin ATMs is pretty minuscule. Furthermore, most markets outside of the U.S., Canada, and Europe are completely undeveloped. In Mexico, where 63% of the population is underbanked and 90% of consumer transactions rely on cash, there are just 10 Bitcoin ATMs.
Why do people use Bitcoin ATMs?
Bitcoin ATMs have gained an edge within specific demographics due to the onramp’s speed and ease-of-use. Customers don’t need to be tech-savvy to locate a machine, call a support representative and get through a transaction within five minutes.
Among Bitcoin ATM users, one group stands out. A significant portion of the user base is comprised of the underbanked and low-income communities who transact primarily in cash. These groups use these machines to transfer money, pay bills, invest, and more.
In their 2017 Global Findex Database Report, the World Bank estimated that there are 1.7 billion people around the world that remain unbanked–without an account at a financial institution or through a mobile money provider.
Even in developed nations, where most individuals have at least one bank account, there are significant populations of unbanked (those without a checking or savings account) and underbanked (those who have an account at an insured institution, but also obtained financial products or services outside the banking system).
According to the 2017 FDIC National Survey of Unbanked and Underbanked Households, approximately 6.5% of the U.S. households were unbanked and an additional 18.7% of U.S. households were underbanked.
The unbanked and underbanked struggle to access a variety of financial productsand services and are forced to turn to the often expensive, and in some cases, predatory, alternatives such as payday lenders, prepaid debit cards, check cashing services, installment loan operators and rent-to-own.
These individuals are bearing the full cost of financial exclusion. The unbanked and underbanked pay their bills, cash checks, and take out loans from providers that charge exorbitant fees and have the opportunity to take advantage of the situation.
Hoyes, Michalos & Associates Inc. annual study on bankruptcy and payday loans for 2019 showed that almost 40% of Canadian bankruptcies involve payday loans. The study shows that the average payday loan debtor has 3.5 outstanding payday loans, and that loan sizes are increasing. These individuals are trapped in a cycle of perpetual debt, and are a microcosm of the struggles low-income and underbanked individuals face when forced to use alternative financial services. While cryptocurrency and blockchain is not yet a panacea for the underbanked, there is huge potential there.
The social impact of Bitcoin ATMs
Cryptocurrency and blockchain technology allow for the creation of global decentralized databases that are cryptographically secure and allow for the
disintermediation of transactions between two parties, thereby lowering or even possibly eliminating transaction costs.
The technology is particularly disruptive within the financial service industry, where individuals like the unbanked and underbanked bear heavy costs for their financial exclusion. With blockchain and cryptocurrency, individuals are granted greater access, increased transparency, and lower fees.
For example, according to a Mintel research report, the unbanked represent the most likely group to be open to peer-to-peer lending (24% vs. 14% of consumers in Canada). Crypto and blockchain can help P2P lending platforms become safer, more transparent, and quicker to use. Decentralized technology can also reduce costs for both lenders and borrowers, by removing intermediaries, improving transaction monitoring, and assisting in bad loan recovery.
However, cryptocurrency’s current demographic does skew towards young, tech-savvy millennials who are often educated with backgrounds in tech or finance. Cryptocurrency, because of its steep learning curve, has had difficulty reaching outside its niche demographic. While 79% of individuals in the U.S. have heard of at least one type of cryptocurrency, only 6.2-14.4% of individuals hold it. There needs to be new options for those who can’t or won’t join the banking system. Cryptocurrency and blockchain have the potential to accelerate financial inclusion across the world.
Instead of having to pay Western Union up to 20% for a remittance payment, they could use Bitcoin at a fraction of the cost. Unfortunately, the infrastructure isn’t there yet for remittances.
Efforts to improve accessibility and education have to start now. Bitcoin ATMs are one part of the solution. These machines are on the frontlines of the financial revolution, making crypto visible and accessible to individuals who would otherwise overlook the complicated buying process. There needs to be training for support reps to not only help with customer transactions, but also to educate customers on the technology they’re using. Bitcoin ATM companies need to outreach to financial literacy organizations to develop crypto literacy education to increase adoption and accessibility at the grassroots level.
Giving people access is the first step to greater awareness and adoption. As more and more people join the crypto and blockchain movement, governments and financial institutions will be forced to respond to market demand. Going forward, the Bitcoin ATM industry will continue improving its services and add new ones to improve financial inclusion for all communities.
Source: ATM Marketplace