The five biggest challenges the international money transfer industry is facing in 2019 would break down something like this:
Globally significant events
If one puts the technology and the emerging world of FinTech to one side; in many ways the overseas money transfer industry will always be most affected by major world events and the modern day industry is no different.
Global political and economic factors affect not only the FX industry, but also the remittance industry. Events such as Brexit, an escalation in the US China trade war, developments in war zones like Syria, changes to the global supply of oil, or countries experiencing political turmoil such as Sudan or France often dictate global exchange rates and this is unlikely ever to change. Likewise remittance flows are influenced by political and socio economic events such as the migrant crisis in Europe, or going back further, 9/11 in the US. These kinds of events are so fundamental in their importance that coping with their effect on the international money transfer markets must always be considered the industry’s biggest challenge.
It’s an open secret that new technology is radically changing the way that transfers are made. Because banks are more used to dealing with Business-to-Business international money exchanges that cater for larger volume transactions than when an individual wants to send money to an individual, they do not offer either a fair fee or provide access to the bank-to-bank lending rates they use for their core FX services. For banks, the task of sending money abroad on behalf of individual customers is labor intensive, and far from a priority.
FinTech startups are challenging the notion that money transfer should be done through a bank or a recognized money transfer operator (MTO) like Western Union or MoneyGram. Using disruptive technology like peer-to-peer matching, or by accessing the interbank rate, or automating procedures such as Anti Money Laundering checks and Know Your Customer checks, and making all of these best-in-class services available literally at your fingertips via a smartphone app, today’s FinTech firms are pushing the envelope to try to undercut the ‘incumbents’ prices.
FinTech startups in the money transfer space are raising capital to take on the incumbent big banks and MTOs, and increase their share of a market worth in excess of $500 billion, becoming billion-dollar-valued companies in the process.
But, we are also seeing the incumbents fight back. Despite initially being at a disadvantage when it came to implementing new technology, some banks and MTOs are reinventing the way they do international money transfer. In fact, competition is now so intense that it’s the customer who is ultimately winning the most, with firms desperate to find ways to reduce fees and offer better exchange rates, rather than lose out on business altogether.
The blockchain can potentially be used to process international payments at record speeds, whilst its secure structure promises to reduce instances of fraud, and offers levels of “permission vs permission less” privacy. Depending on how it is used, customers may not necessarily even need to know when a blockchain solution is being used. Some MTOs are looking at converting the sender’s fiat currency into a cryptocurrency, most likely bitcoin, before exchanging it again into the recipients desired fiat currency. Others are working with firms like Ripple, or R3, to develop end-to-end payments processing technology to rival the likes of SWIFT. This (potentially) superior, and cheaper to operate underlying technology will help drive down transfer fees and possibly remove them altogether, without necessarily disturbing the user experience.
Mobile finance apps are becoming ubiquitous across the world. Mobile banking is of huge importance, for example, in Africa, where smartphone penetration is high and growing exponentially, a generation of “unbanked” African citizens is finally able to digitalize their assets and gain exposure to financial products and services.
Globally, the majority of people now have mobile technology to hand 24/7, making it an exceptionally powerful medium for sending money. From mobile wallet apps, to QR codes, to WhatsApp messages and SnapCash, it has never been easier to send small amounts to money to friends and family. Studies have even concluded that sending and receiving mobile money can have an empowering effect, inspiring social harmony and bringing disparate families and communities closer together.
In China, however, apps like Tencent-owned WeChat are used by literally billions of people to micro-manage many different aspects of their lives — including their finances. From insurance, to credit, to micro-loans, mobile is often the preferred option. Ant Financial is another Chinese micro-finance provider whose tentacles reach across the whole of Asia and into Africa and the Middle East.
When it comes to money transfer, mobile technology is tailor-made for making, monitoring, and confirming receipt of transactions. For international migrants, business people, expats, or indeed anybody who finds themselves in need of cash quickly when abroad, a mobile money transfer app offers a fast, flexible and convenient way to manage their money on the move. Firms are being challenged to deliver a compelling mobile strategy, or face extinction.
Changes to legislation give money transfer operators an unparalleled opportunity to offer customers a fuller suite of services from one central hub, opening up all kinds of possibilities for a firm that is prepared to listen to its customers.Where customers have one point of access for all of their financial affairs, whoever controls that hub is in prime position to recommend useful and complementary products and services, such as insurance, credit cards, loans or long term investing. Customers will be thankful that they can use details stored in one place; a passport ID, family members’ details, to purchase or apply for a range of different services.