Historically, sending money abroad has been considered to be an arduous and expensive task, exemplified by never-ending chains of middlemen, manual paperwork, and hidden charges. Money transfer operators (MTO) can be defined as financial companies engaged in cross-border transfer of funds using either their internal system or access to another cross-border banking network. As a whole, international money transfer is a large and competitive industry.
We are witnessing exponential growth in the international money transfer market, with global cash flows creating lucrative opportunities not only for banks and traditional companies, but also financial technology firms. Developments in the industry over the past couple of years means that individuals and even small-to-mid-sized companies can now enjoy faster, cheaper, and value-added foreign money transfer services. Banks and governments have traditionally held a monopoly over institutional foreign exchange, but this is rapidly changing.
A few decades ago, making a cross-border payment was a bureaucratic obstacle course. Inexplicable charges at both ends and long transfer times were common. However, costs have been falling as a result of healthier competition and due to pressure from the G20 and United Nations to lower costs for senders. This has resulted in fees for transfers declining year-on-year since 2008. These bodies pay particular attention and effort to the remittance services market due to its popularity with low-wage workers and the role remittances play in economic development in emerging markets.
What is more, a new study by Juniper Research has found that the global domestic money transfer transaction value will exceed $3.5 trillion by 2024, up from $1.8 trillion in 2019. Data from the study suggests that both online and mobile channels are achieving strong growth, with fintech disruptors and market incumbents rapidly gaining traffic. Certainly, much of this growth will be at the expense of unofficial remittances, such as funds with travelling family members rather than established formal remittance channels.
Indeed, banks are facing the highest pressure to reduce fees, as they are the most expensive remittance providers, with an average cost (World Bank Q3 2017) of 11% compared to MTOs at 6.1%. Traditional providers are compelled to match the pace of MTOs and offer greater transparency and value to anyone needing to get money from A to B. It is clear that new players are eclipsing old, expensive ways of sending money overseas and this is increasing levels of competition. In particular, fintech start-ups are using fees as tangible differentiators to position against incumbents.
Mobile is a major catalyst for innovation in developing countries, which lack a trustworthy banking infrastructure. Juniper Research’s findings suggest that the mobile channel will account for 68% percent of transaction volume in 2024; up from 63 percent in 2019, with this dominance primarily due to the superior app-based experiences available on mobile, rising interoperability of mobile money solutions and competitive pricing form app-based disruptors.
Overall, MTOs dominate the market when it comes to remittances. Western Union, the largest MTO by dollar volume traded, has more than double the market share of its nearest competitor, UAE Exchange. The USA is the country that sends the most money, India receives the most money and China has the most even balance between sending and receiving. As the international money transfer industry develops and shows signs of maturing, players who once won customers purely on a price for a single payment are now having to expand their offerings to compete with one another.
In conclusion, more and more people are depending on the remittances of their relatives abroad. Over the past five years, competition in the money transfer space has intensified as more fintech start-ups, as well as bigger corporate players enter the field. As open banking pushes for greater transparency when moving funds across borders and makes switching to a new provider easier, big banks are no longer firmly in control.