Banks still have a key role to play in the money transfer market

Nick Day is founder and CEO of London-based payment services business Small World FS. A recent HSBC and Tech City UK award named Small World among the top 50 private British companies with the fastest growing international footprint and sales.



The money transfer sector has undertaken an impressive transformation over the last few years, with the arrival of new and disruptive technology creating new ways for customers to send money.

Throughout this period much has been made of the technological advances, and the banks’ on-going loss of market share in the cross-border payments space, on the sending side of payment transactions – but little has been written about the receiving side.

Regardless of the rise of mobile wallets, or the ubiquity of smart phones even in the developing world, banks on the receiving side of the payments world have continued to grow in importance. With the increase of financial inclusion around the world, and continually stricter regulatory regimes, more sending customers now opt for their payments to go directly to a bank account rather than have it collected in cash. This has a direct impact for the strategy of payment service providers in building the right partner network for delivery of their customers’ money.


Financial inclusion is changing the face of money transfers 

The World Bank and its partners have been working hard towards reducing the number of “unbanked” people around the world. As a result, between 2011 and 2014, over 700 million people in the world received access to a bank account for the first time.

We can already see the impact of this on cross-border transfer flows, and the advantages this has brought to payment services firms like Small World FS that have built a competitive advantage in the market through the breadth of their instant direct-to-account capabilities. Small World’s data shows a 59% increase in the number of direct bank deposits it processed from the UK between 2014 and 2016 compared to a combined 39% growth for all other money receiving methods (such as cash pay-outs).

This is a worldwide trend: bank deposit transactions to South America rose by 81% compared to 34% growth for other pay-out options; at the same time, Asia experienced a 124% boost in demand for instant transfers into bank accounts, outgrowing by far the still very strong 48% increase in other pay-out transactions.

While the current number of ‘unbanked’ people across the world is still estimated to be around 2 billion, the World Bank is working towards reducing this number considerably by 2020: the target is to add another 1 billion bank account holders by 2020.

For markets like India and China, where currently almost one third of the world’s unbanked population is located, this rise in access to accounts is going to have a significant impact in the way that people handle their money and make use of financial services. In the money transfer sector, we can be certain that the demand for transfers directly into bank accounts will continue to rise steadily over the next few years.

While there is little doubt that demand for bank transfers will grow and the ‘unbanked’ population will shrink as technology extends its reach across the globe, the importance of choice for people in how they receive their money continues to be extremely important.

While there is great growth potential in the banking sector – with 2 billion people still without a bank account – it also means that there is still a need for a way of receiving their money via alternative means. A sustainable multi-channel strategy must focus not only on technology, but other services , such as cash pickup and delivery to mobile wallets, to deliver the widest range of choice for customers


Partnerships with banks as the way forward

The growing number of ‘banked’ people around the world therefore compels independent payment services firms to adapt to how customers manage their money. As a result, new players in the market need to move from a position of competition to a position of collaboration through the development of strong relationships with financial institutions as a sustainable and forward-looking strategy.

Payment services firms such as Small World that have a direct agreement in place with hundreds of banks are best positioned to take full advantage of rapidly increasing financial inclusion, because these relationships have an immediate impact on the user experience of customers. These direct relationships enable real-time settlement of funds through secure direct interfaces at a very low cost and offer a dramatically enhanced proposition relative to traditional bank payments through interbank clearing systems.

Money that is transferred through banks can disappear into the abyss of international, inter-bank payments systems for days on end – with no guarantee of the sum that will be deposited at the other end, in many cases owing to different exchange rates and fees applied by financial institutions along the way.

Partnerships with financial institutions around the world will continue to be a crucial factor in enabling payment services firms to bring technological innovation to their customers. The winners are likely to adopt a truly multi-channel approach that embraces technology, while retaining the convenience and choice that customers demand.

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