El Salvador Weekly: Half of Chivo Wallet Transactions Are Completed in Dollars

El Salvador’s Chivo digital wallet has largely failed as a digital wallet for cryptocurrency, but it just might succeed as a dollar debit app for unbanked citizens.

The Chivo Wallet is President Nayib Bukele’s $425 million experiment to convince many citizens to use bitcoin after it became legal tender in September. Less than 10% of Salvadorans used bitcoin after receiving their $30 sign-up incentive, according to a new report.

The National Bureau of Economic Research (NBER), a U.S.-based think tank, reported that while 20.6% of the country’s citizens continued to use the country’s Chivo digital wallet after receiving their sign-up bonus of $30 in bitcoin, just 9.3% have used it for bitcoin transactions since.

That means half of the remaining users of the Chivo Wallet are using it as a debit card for dollars. While that’s still small, it’s an interesting phenomenon in a country in which 70% of the population is unbanked, particularly as Chivo ATM withdrawals are fee-free. And Chivo comes with other benefits, like a $0.20 per gallon discount on gasoline purchases.

That suggests the digital wallet — which has had an enormous amount of bad press because of technical problems and hacks — might have a future in El Salvador.

Of the 70% unbanked, less than 20% use debit cards, with more than half relying solely on cash. Ninety percent do not use mobile banking, the NBER’s Laurent Belsie wrote in the report.

“A digital payment platform could be a way to make the economy more inclusive and accessible,” he said.

The poor and unbanked were, after all, a primary target of Bukele’s adoption of bitcoin alongside the United States dollar.

The Biggest Hurdle

However, there’s another problem, and one that is growing more widespread, according to reports. Few merchants accept Chivo, despite being legally required to do so. The number is about 20%, and anecdotally, more and more are dropping it as a waste of time.

A study by the Salvadoran Chamber of Commerce found that only 14% of the country’s merchants had made even one bitcoin transaction since Chivo’s introduction.

“Roughly 5% of all sales have been paid in bitcoin through Chivo Wallet, and just as most households using Chivo prefer to keep their money in cash rather than in bitcoin, 88% of firms convert their bitcoin into dollars,” Belsie said.

Servicios Financieros SA (Serfinsa), a new effort to increase merchant acceptance of the Chivo Wallet, “presented its payment ecosystem through a QR code called QuickPay, which allows businesses to receive money in dollars and bitcoin from the Chivo Wallet,” Diario El Salvador reported June 30.

The biggest problem, however, is that there is evidence that the people who could most benefit from the use of Chivo as what is effectively a debit card are not the ones taking advantage of it.

“However, a small group of consumers, most of whom are banked, educated, young and male, is very active on the app,” Belsie said, adding “this group was not the intended target of the bitcoin rollout.”

Nor is it gaining much traction in its other major intended use: remittances. The country reported that through May, $52 million in remittances was received by Chivo users. That’s only 3.9% of the total. But again, it’s not clear — or wasn’t made clear — how much of that group is sending their remittances in bitcoin.