Opinion| Why the rulebooks on money transfer are being ripped up!

By Mike Laven, CEO, The Currency Cloud

If ‘FinTech’ is one of technology’s hottest sectors today, then international payments must surely be the hottest niche, at least if we’re judging by level of investor activity. This year in London alone, remittance players WorldRemit and Azimo scooped $40m and $10m in Series A rounds respectively, peer-to-peer hedging firm Kantox took €6.5m, while my own firm The Currency Cloud has just raised $10m in a Series B.

So why are tech entrepreneurs rushing to innovate in international payments, money transfer and foreign exchange? Well, one interpretation is that the retail international payments market is finally beginning to follow the lead of the capital markets.

Foreign exchange is the largest market in the world – north of £5tn in transactions are made every day. The vast majority of these transactions (around 80% depending on who you consult) are the result of institutional trading – i.e. activity from banks, funds and the like – while only 20% is retail money transfer i.e. actual cross-border payments made by individuals and businesses.

FX is now hugely tradable in the capital markets. Technology innovations such as algo trading have forced volumes up while margins have dwindled to almost nothing. The only way to make decent profits in FX is to trade massive volumes on minimal profits per lot. Technology has also resulted in total transparency on pricing.

The same is now beginning to happen in retail money transfer. The retail market is arguably the last refuge of massive profit margins for banks. Financial institutions and other traditional players in the market, such as Western Union, charge businesses and consumers enormous fees, while keeping pricing relatively opaque.

Capitalising on tech trends such as cloud computing, big data and mobile, tech entrepreneurs have taken a look at the antiquated systems and inefficient business models of traditional money transfer and innovated to provide speed, transparency and lower costs for end users. In short, the sorts of services we should expect in the 21st century.

A lot of this innovation is happening in London, given it is the world’s capital for financial services, but it has the potential to help people and businesses all over the world. A fairer money transfer market will democratise international trade, ensure some of the poorest communities in the world are better off and level the playing field for small businesses against corporates. These are some of the reasons why we should all be thankful for innovation in money transfer.

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