Fintech: International Transfers Are Booming
Sending currency internationally has a new face. The industry which was once controlled by big banks is expanding thanks to small business.
Tech has a reputation for breaking down barriers, and nowhere is that more true than when it comes to sending money across borders. International banking has historically been very complicated, multi-layered and bound by regulations and fees that do not benefit the consumer. A so-called “captive audience” meant that banks could essentially do and charge whatever they wanted to send your money overseas, whether or not it was fair. But things have changed…
A New Dawn for Fintech
Today, increasingly more fintech startups, apps and creative workarounds are coming up with ways to sidestep banks entirely. This is changing the way people get paid, the way they work and the way people perceive the limits of international finance. It’s no surprise that so many fintech firms are eager to get in on the act, as the amount of money sent abroad is estimated to exceed $500 billion this year.
Easy As 1 2 3
The BBC notes that there have been three key ingredients that have allowed this marked disruption of the international money transfer scene. The first is most obvious: the internet. It allows these companies to offer their services to consumers without setting up a business with high overhead. The second is the so-called “financial plumbing” which “provided by the likes of Currency Cloud, gives smaller companies easy access to the colossal, mostly speculative, global foreign exchange markets that handle more than $5 trillion of transactions every day.” And the third is the massive growth of the app economy, which means that consumers are more comfortable than ever with the idea of sending and receiving money via their smartphone.
There are a number of contenders in this fintech space. Many of them are trying their hardest to take a big cut into the $80 billion dollar a year market that’s dominated by traditional services like Western Union. Here’s a look at the leaders in this space.
TransferWise
Co-founded by a former Skype employee, TransferWise is a leader in this space and has received backing from big investors like Peter Thiel. It uses a “peer to peer” system where money never leaves domestic borders. So the company is able to sidestep the major inconveniences of traditional transfers: fees and waiting periods. TransferWise has grown fast and supports 300 currency routes around the world. The only major downside when compared to traditional methods is that it doesn’t support cash-in-hand transfers for recipients like Western Union does. In other words, both sender and recipient have to have a bank account in order to use the service.
Blockchain and Bitcoin
Many people use bitcoin to send money seamlessly and untraceably around the world. Described by Quartz as “both a currency and a store of value,” anyone can download a bitcoin wallet and use it to send and receive bitcoins. The online currency can be purchased from a number of “exchanges” online, using a credit card or bank account from around the world.
While both the sender and recipient have to be a user in order to exchange bitcoins (unlike TransferWise, where a user can send to anyone with a bank account), it has gained popularity thanks to the fact that its status as a so-called “sovereign” currency. This means that it has a more stable value when compared to national currencies, which can be very volatile in the wake of political upheaval (case and point: the British pound after Brexit).
Azimo
Azimo is another fintech transfer system, but one that allows for cash payments. This gives it a competitive edge in some parts of the developing world, where receiving cash is still preferred to a bank account deposit. Azimo can’t use the same peer-to-peer model as TransferWise—which only works when there are relatively equal amounts of money flowing in both directions. This is not the case for remittances–its competitive edge comes from its very low fees per transactions and exchange rates when compared to banks.