Sending money from one country to another was not particularly easy until the turn of the last century, when people had to choose between banks and a handful of high street forex brokers. The arrival of various FinTech companies in this realm has made the older players sit up and take notice.
The Growth of FinTech
FinTech overseas money transfer companies such as TransferWise and Xoom started out with peer-to-peer (P2P) payments and are moving into the customer-to-customer (C2C) online transfer environment. PayPal, an old horse, has obviously noticed the FinTech effect, which goes to explain its U.S. $890 million acquisition of Xoom. TransferWise serves as another example in case. It is a unicorn – valued of over U.S $1 billion – that hit profitability within six years of getting started.
What sets Xoom apart from most of the other leading FinTech alternatives is its limited reach. While Xoom currently accepts customers only from the U.S., companies such as TransferWise, WorldFirst, OFX, and Currencies Direct accept customers from most countries the world over.
Making Transfers More Cost Effective
The Remittances Worldwide Prices (RPW) report shows that the global average total cost for sending U.S. $200 has decreased from close to 10% in 2008 to around 7.5% in 2015. A report released by Infosys suggests that this trend is set to continue, mainly because internet-based FinTech companies serve as even more cost effective alternatives, where costs average at around 5.3%. On the other hand, the average cost of sending money overseas through a bank still stands close to 11%.
The main reason FinTech companies have been able to bring costs down is because they have access to the speculative foreign exchange market, which was the privy of banks, high street forex brokers, and large businesses until not so long ago. Besides, most FinTech companies have made the most of the online marketplace and limited overhead costs. Consequently, they’re able to charge little to no fees.
Western Union and MoneyGram have decided to test run Ripple’s blockchain technology to make transfers simpler, quicker, safer, and more cost effective. Other start-ups such as Abra, Circle, and BitPesa are relying on blockchain to facilitate cross-border payments already. This technology, it appears, may disrupt the overseas money transfer market in not too distant a future.
Collaboration between FinTech companies from this field and telecom service providers might be particularly useful in areas where access to regular forms of banking remains a challenge. Through the use of mobile wallets, making or receiving a cross-border payment can be as simple as sending or receiving a text message.