Trends and questions for international payments in 2017

The international payment industry has grown and evolved tremendously in the last few years. An industry that was traditionally considered very archaic and monotonous has suddenly turned “sexy”, thanks to companies like Transferwise, Currencyfair, Azimo, and World Remit. These companies have managed to secure some serious funding very early on, and even more funding in later rounds. To date, they have raised more than $350m combined. Most importantly, these companies have not only taken investors by a storm, they have also managed to grow their businesses very quickly and have become serious competitors in the remittances space.

One defining moment for this industry was in September, in when Transferwise announced that it moves £800m in payments each month. These sorts of volumes put Transferwise at the top of the market in this sub-sector. It’s true that companies such as Western Union (NYSE: WU)  are still far ahead with as much as $250bn in international payments each year, but getting to as much as 4.5% of WU’s trading volume is still an impressive feat. You have to factor in the that Transferwise was established in late 2011 as fresh startup with a pre-seed investment of just over $68,000,  and WU was established 165 years ago and employees at least 7,000 people across the globe.

If you compare Transferwise volumes with companies in the exact same sub-niche (only bank payments – no cash pickup of funds) such as HiFX, Currencies Direct, or World First, you figure out they are already on the front line of in terms of popularity. The only similarly operating firm in the niche market that moves tremendously more than £10m each year is Moneycorp which has been in the market for 40 years now (and it also deals with travel money which Transferwise does not).

But how about profit? In an article about Transferwise, it was mentioned that its pre-tax loss also grew from £11m to £17m over the last 12 months of expansion. That means Transferwise still is not profitable. The real question is whether it can become profitable in the future.

Many industry experts argue that Transferwise’s model is just not built for profit making. Transferwise reports an average transaction size of merely £1,330 per transaction. Payment fees are merely 0.5% from most locales. So perhaps they charge less than what it costs them to move the money, secure it, and pay for labour.

This theory is unproven, though. No one knows what’s going on behind the financial curtain. The fact they reported a higher loss than last year could be due to their ever-increasing investment in marketing, which is pretty much the reason for their vast expansion in 2015 and 2016 (thus, it’s money well spent). As the firm is backed by power players such as Peter Thiel and Richard Branson, they could afford experimenting with different pricing models a little longer. The company is already hyped to be a Unicorn at its current state, and it is sensible to believe it will only be sold, or float on the stock market, when it becomes a “Mega Unicorn” (8-digit valuation).

However, 2017 will separate the wheat from the chaff for Transferwise’s competitors. As Transferwise’s hype grew, more and more companies started gathering in line waiting for the gravy train. The operative side of business isn’t complex at all, and the risk is minimized when there’s no credit facilitating or FX options in play. The regulative side is also not extremely complex if you focus on UK or Eurozone outbound payments. The only hurdle is getting clients to use your services over literally hundreds of other firms offering the exact same functionality and service.

Currencyfair is one noticeable competitor with a twist (they have a peer-to-peer marketplace, and you can get close to the real mid-market rate than with Transferwise, if you find a match to your transfer in real-time). The others are too small and too insignificant to mention. The only chance these small-time firms will last in the long run is through consolidation.

Consolidation was quite a hot trend in 2016 as well, as Global Reach Partners bought FC Exchange in October, and Euronet (HiFX) bought in July. I assume we will see more of those in the coming year. Standalone firms moving less than $1bn annually can’t compete with the prices of the bigger companies, and they are heavily reliant on their existing client book, as they can’t compete with the marketing efforts of larger firms.

One firm that has immense potential to do well in 2017 is newly launched by GAIN Capital. GAIN is a huge name in forex trading, one of few publicly traded companies with a market capitalization of more than $300m, which operates some of the most trustworthy brokerages on the net such as It has the liquidity and the professional knowledge to run something ten times more diverse than Transferwise (which only offer spot contracts and are inept for most businesses), and have enough capital to stand head-to-head in relation to marketing efforts. It would be very interesting to see if it can fulfill the market’s expectations and get a foot in the door during the next 12 months.

Alon Rajic is the managing director of Finofin ltd which owns, runs and operates financial comparison sites. In the international payments space, the firm manages MoneyTransferComparison, destined to help individuals and businesses find reliable service providers.

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