Financial startups conquer the money transfer market

Hi, 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 see how almost every banking service is represented by a separate FINTECH start-up. And, as a rule, such companies offer more favorable working conditions, faster sending of remittances, more modern cash flow management tools compared to traditional financial institutions. Our Wirex service is part of this fintech revolution. It combines several tools at once: convenient mobile banking, instant money transfers and multi-currency debit cards. Financial services are provided without banking intermediation. Wirex uses Blockchain technology, which makes it possible to achieve significant improvements in the current scheme of transferring funds abroad. Thanks to the BitGo Instant wallets technology used in our financial ecosystem, remittances in digital currencies can be made instantly, safely and without removing any additional or hidden fees.

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

The activities of non-bank players in the financial services market are causing major changes in virtually every segment of the market, leaving less and less opportunity for the major players. The overseas remittance industry is one such segment where traditional institutions suffer significant losses. In the UK, for example, the 20 largest non-bank money transfer services perform a total of 40 billion pounds of foreign exchange transactions, helping their customers save a total of more than 900 million pounds annually.
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Fintech players such as us and our competitors (in terms of remittances) TransferWise and World First began to put increasing pressure on banks, lowering commissions on remittances. Non-bank services charge an average of 0.9% for amounts not exceeding 10,000 pounds, which is 4 times less than the average bank commission. And in Wirex we have a commission of 0.75% in the case of currency conversion, and 0.25% if the transfer is carried out without conversion.

However, banks still have a significant advantage in terms of licensing. Strict regulatory requirements and fulfillment of conditions for obtaining licenses are common barriers for FINTECH start-ups wishing to enter foreign exchange markets and expand the list of countries available for remittance. Banks can also compete in cases where the transfer amount exceeds 500 thousand pounds in respect of guarantees and the size of commissions, which in such cases are reduced by 65% ​​compared with the transfer of 10 thousand pounds.

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


Source: World Bank, International Money Transfer Costs Report

The most interesting part of the data is related to the countries of the Big Twenty, the cost of sending money from which confidently keeps at the level of 7.46%, exactly corresponding to the figure in the previous quarter. Another useful observation based on the above data is that the Republic of South Africa remains the most expensive country of the G20 club in terms of sending money outside (16.59%). The mobile payment market in Africa has every chance of becoming the most active by 2020. However, at the moment the market for financial technologies in the region 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 remittances. More recently, we have seen remarkable examples of this impact: through the effective use of blockchain technologies, Stellar and Oradian have made financial services more accessible to most of the population of Nigeria. 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, Russia, in turn, heads the list of countries with the lowest (1.95%) average commission for transfer to other countries. Saudi Arabia follows with 5.05%.

The cost of sending money to the G20 countries included in the World Bank database as “host markets” has dropped 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 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 remittance segment is the reduction in the cost of sending funds to the Middle East and North Africa from 8.37% to 7.42%. South Asia is still the least expensive region for sending money (5.43%), and all sub-Saharan African countries are 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%.

Which money transfer channels are the least expensive today?

The cost of money transfer depends on the channel selected for this purpose. Commercial banks remain the most expensive channels, while the postal order, which cost an average of 5.88% - the least expensive. If we talk about banks, their services are almost twice as much, on average - 11.12%. Companies providing money transfer services, managed to reduce the cost of sending money to 6.24%.

The high bank transfer commission causes the cost of direct transfers between bank accounts, which is unprecedentedly high compared to other methods, which is 10.86%. However, in cases where a transfer is made within a bank or the receiving bank in another country is a partner of the sending bank, it is significantly reduced to 5.67%.

In general, the international money transfer market is changing for the better and a number of factors may be the cause. However, with a certain degree of confidence we can say that it was greatly influenced by technological advances 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 can be just that period when the cost of remittances will significantly decrease, since financial institutions have already begun to master innovative technologies in order to keep up with their colleagues and remain competitive.

The FINTECH revolution is no longer unstoppable. Who will be the winner, we will know with 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 surely tell about our products. We hope to see you soon on the Wirex blog and do not forget to order our map .