Financial startups conquer the money transfer market

    imageHi Geektimes! With this post we would like to start our blog, in which we will write about financial and technological innovations, Blockchain and payment services.

    Recently, we have seen how almost every banking service is represented by a separate fintech startup. Moreover, as a rule, such companies offer more favorable working conditions, faster sending of money transfers, more advanced cash flow management tools compared to traditional financial institutions. Our Wirex Serviceis part of this fintech revolution. It combines several tools at once: convenient mobile banking, instant money transfers and multicurrency debit cards. Financial services are provided without bank intermediation. Wirex uses Blockchain technology, which allows for significant improvements in the current scheme for transferring funds abroad. Thanks to the technology of BitGo Instant wallets used in our financial ecosystem, money transfers in digital currencies can be made instantly, safely and without any additional or hidden fees.

    In today's article based on the LTP report, we’ll tell you how startups influenced the structure of international money transfers, what advantages banks are ready to offer in this area, which countries offer the most favorable conditions for sending money abroad based on data from the World Bank.

    The activities of non-banking players in the financial services market are causing serious changes in almost every segment of it, leaving less and less opportunities for large players. The overseas money transfer industry is one of those segments where traditional institutions suffer significant losses. In the UK, for example, the 20 largest non-bank money transfer services total 40 billion pounds of foreign exchange transactions, helping their customers save a total of more than 900 million pounds annually.

    Fintech players such as ourselves and our competitors (in terms of money transfers) TransferWise and World First began to exert increasing pressure on banks, lowering fees on money transfers. Non-banking services charge an average of 0.9% for amounts not exceeding 10 thousand pounds, which is 4 times less than the average banking commission. And in Wirex, our commission is 0.75% if there is a currency conversion, and 0.25% if the transfer is made without conversion.

    However, banks still have a significant advantage in terms of licensing. Strict regulatory requirements and the fulfillment of conditions for obtaining licenses are common barriers for fintech startups who want to enter the foreign exchange markets and expand the list of countries available for money transfer. Banks can also compete in cases where the transfer amount exceeds 500 thousand pounds in respect of guarantees and fees, which in such cases become 65% less than the transfer of 10 thousand pounds.

    The tangible progress of financial technology could have had a significant impact on the international remittance pricing situation, as described in a World Bank report. The average international price of money transfers in the fourth quarter (December) of 2015 fell to 7.37%, compared with 7.52% in the previous quarter. Today, 80% of “country corridors” offer the possibility of transferring at an average cost of less than 10%, while 6 years ago the number of corridors providing the same commission was only 50%.

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    Source: World Bank, International Remittance Value Report

    The most interesting part of the data is related to the G20 countries, the cost of sending money from which is steadily kept at 7.46%, exactly corresponding to the indicator in the previous quarter. Another useful observation based on the data presented is that the Republic of South Africa remains the most expensive country in the G20 club in terms of sending money outside (16.59%). The mobile payments market in Africa has every chance of becoming the most active by 2020. Nevertheless, at the moment, the region’s market for financial technologies is in the process of active development and its positive impact has only begun to affect the situation with expanding access to financial services and cheap money transfers. More recently, we have observed remarkable examples of such effects:Stellar and Oradian made financial services more accessible to most of Nigeria's population. Without a doubt, Africa will still see its own boom in financial technology and the associated significant changes in the financial services industry. All this, ultimately, can lead to a decrease in the cost of remittances.

    If African states remain the most expensive countries for transferring money to other countries, then Russia, in turn, tops the list of countries with the lowest (1.95%) average commission for transferring to other countries. It is followed by Saudi Arabia with 5.05%.

    Cost of sending money to G20 countries included in the World Bank baseas “host markets,” it fell to 7.10%. Here, the most expensive countries for sending money are China (9.72%) and South Africa (8.89%). The markets of India and Mexico are the cheapest in terms of receiving funds sent from outside: the average commission rate for these countries is 5.95% and 4.75%, respectively.

    How has the cost of sending money to different regions?


    One of the most important results of 2015 in the segment of money transfers is the reduction in the cost of sending funds to the Middle East and North Africa from 8.37% to 7.42%. South Asia remains the least expensive region to send money (5.43%), and all sub-Saharan Africa is the most expensive (9.53%). In East Asia and the Pacific, the size of the commission was fixed at 7.97%, while in Latin America and the Caribbean there was a slight decrease to 6.04%.

    What are the least expensive channels for transferring money today?


    The cost of transferring money depends on the channel selected for these purposes. Commercial banks remain the most expensive channels, while postal orders, which average 5.88%, are the least expensive. If we talk about banks, then their services cost almost twice as much, on average - 11.12%. Money transfer companies managed to reduce the cost of sending money to 6.24%.

    The high bank commission for transfers determines the unprecedentedly high cost of direct transfers between bank accounts compared to other methods, which amounts to 10.86%. However, in cases where the transfer is made inside the bank or the recipient bank in another country is a partner of the sending bank, it decreases significantly - to 5.67%.

    In general, the international money transfer market is changing for the better and the reason for this may be a number of factors. However, with a certain degree of certainty, we can say that a great influence on him was provided by technological progress in the field of financial technologies and the recent blockchain fever, covering more and more market segments. It is also indicative of how many banks are now entering into some form of partnership with fintech companies. 2016 may be the period when the cost of remittances will decrease significantly, as financial institutions have already begun to master innovative technologies in order to keep up with their colleagues and maintain competitiveness.

    The fintech revolution cannot be stopped. Who will be the winner in it, we will learn over time. In the meantime, we will follow the news in the field of finance and technology and share with you the most interesting of them. In the following articles, we will definitely tell you about our products. We look forward to seeing you soon on the Wirex blog and don't forget to order our card .

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