The last year has thrown the money transfer market into a state of flux. Online companies are challenging the near-monopoly held by a few firms and banks, putting the consumer back in control of their money with a greater focus on transparency.
High street banks and companies such as Western Union and MoneyGram have dominated the money transfer market for years, while charging hefty fees.
The existing fee structure is a problem for those sending remittances to friends and family abroad, especially migrant workers.
According to a 2014 World Bank report, the average transfer fee is around 8 per cent. But in some remittance corridors in Africa, the fee is over 20 per cent.
“Forcing migrant workers to pay as much as $50 to send $200 is wrong, especially when they are sending salaries they have earned in the hope of supporting their families back home,” the World Bank said in a report.
“There is a social cause here,” agreed Rajesh Agrawal, founder and CEO of money transfer company Xendpay.
Agrawal’s company claims to offer a competitive exchange rate by tacking consumer transfers onto the larger sums of money sent by corporations on its sister platform RationalFX. Customers are also asked to ‘pay what you like’ for the service.
“Nearly $500 billion is transferred abroad each year, 80 per cent of which goes to emerging markets. If transfer costs were brought down, an extra $40 billion would go to developing countries.”
“These days, with technology as it is, the actual cost of money transfer can be very small,” Agrawal added.
“But traditionally any money transfer company makes money from two things: the mark-up when changing money from one currency to another, and the fees charged for transferring it,” he said.
A lack of competition and transparency in the industry has meant migrant workers and holiday-makers alike have had no choice but to pay high fees.
But several online money transfer businesses such as Xendpay, Azimo, Transferwise and WorldRemit are disrupting the industry, offering a welcome alternative for those transferring money abroad.
Azimo predominantly serves migrant workers in the service industries, sending money back to Poland, Africa, Latin America and the Far East.
More than $500 billion dollars are sent in remittance worldwide every year, according to online money transfer company Azimo’s co-founder and head of operations Marta Krupinska. In 2016, remittances will rise to $700 billion, she added at last month’s The Future of Fintech is Now event.
“The world migrant population is growing, and so is the remittance market. But nternet and mobile are everywhere. There are as many active mobile phones as there are people on the planet.”
Using an internet platform that connects the customer directly to the low cost transfer network, Azimo is currently serving 5 billion people in 198 countries. More importantly, the company offers several different pay-out options for those receiving transfers.
“There are 7 billion people in the world and only 2 billion have bank accounts,” Krupinska said. “Which makes it crucial for us to offer multiple payout methods.”
Azimo sends money to bank accounts, cash pickup, and mobile, an avenue to financial inclusion has seen huge growth in Africa. The company also allows users to send money via social media.
“When we are speaking to our families back home they will often send us a Facebook message asking for help to buy a new fridge,” Krupinska added. “It’s great to be able to use the same channels to actually transfer the money back home.”
The success of such companies has come as the reputation of traditional banks fails. Several international banks have faced charges relating to currency market manipulation. This month, the New York Department of Financial Services decided to investigate whether Barclays or Deutsche Bank used algorithms to manipulate foreign exchange rates.
“At the end of the day,” Krupinska said, “it’s all about trust.”
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