Technology has changed many aspects of our lives, from how we communicate to how we shop and bank. One area that has seen massive improvement thanks to technology is global money transfers. Transferring money internationally used to be very complicated, expensive, and slow. But, the rise of financial technology (FinTech) companies has helped transform cross-border payments, making them faster, cheaper, and more convenient.
The Problems with Traditional Global Money Transfers
Before the advent of FinTech services, sending money overseas via banks was the predominant option. But this came with several pain points:
High fees and poor exchange rates
Banks typically charge very high fees for international transfers. Exchange rates offered by banks are also often unfavorable compared to the mid-market rate. The foreign transaction fees, currency conversion fees, and incoming wire fees can easily add up to 7-12% of the transfer amount. This cuts heavily into the recipients’ sum.
Slow transfer speeds
With traditional wire transfers, it can take 3-5 business days for the money to reach the recipient’s account. This delay is very inconvenient, especially when trying to send money for urgent needs.
To send wire transfers via banks, both the sender and recipient need to have bank accounts. Many migrant workers sending remittances home may not have local bank accounts in their host country. Their beneficiaries back home may also not have bank accounts set up to receive wire transfers.
With bank transfers, it is difficult for senders to know upfront the total fees and exchange rates applied. The final amount received by the beneficiary is often lower than expected due to opaque charges. Senders have to go through tedious paperwork and bureaucracy to send money abroad via banks.
Limited operating hours
Banks tend to have restrictive cut-off times for wiring money. This forces senders to schedule transfers only during banking hours on weekdays. For urgent out-of-hours money transfers, banks are rarely an option.
How FinTechs Overcome These Challenges?
The global remittance market is huge – valued at over $600 billion in 2019 according to World Bank estimates. Recognizing the flaws of legacy money transfer methods, a new breed of financial technology firms has emerged to fix them. These include money transfer solutions like Wise (previously TransferWise), Remitly, WorldRemit and PayPal.
Here’s how FinTech innovators help facilitate cheaper, faster, and more convenient international money transfers:
By using online platforms and automation, FinTech companies save greatly on overhead costs compared to traditional brokers. These cost savings are passed on as consumer savings. FinTech transfer fees can be up to 10 times lower than bank fees.
Favorable exchange rates
FinTech services use mid-market exchange rates with minimal spreads or markdowns. This stretches the sender’s money further. Legacy providers apply exploitative foreign exchange conversions.
FinTech companies utilize the latest connectivity frameworks to settle cross-border payments faster. Money can be sent and received internationally in a matter of hours or minutes in some cases. Recipients get access to funds more rapidly for their essential needs.
FinTech apps allow senders to transfer money abroad from their smartphones. To receive money, beneficiaries simply need a bank account number or mobile wallet in their destination country. No lengthy registration process is required. This expands options for the underbanked.
FinTech platforms are upfront about their fees and exchange rates before transactions. Senders can enter the payout amount and instantly see the total cost. This helps them stay within budget and align recipient expectations.
As online services, FinTech providers enable fund transfers around the clock and on holidays. Remote settlements can be initiated anytime. This is critical for time-sensitive remittances.
Top FinTech Companies Improving Cross-Border Payments
Many pioneers are driving positive FinTech disruption in global remittances. Let’s look at some notable ones:
Wise (formerly TransferWise) is a widely used remittance platform founded in 2010. It serves over 10 million customers worldwide and handles over £5 billion in cross-border transfers every month.
Wise provides fast and inexpensive transfers to over 70 countries using mid-market exchange rates. Senders can make transfers via the web, mobile app, or in person at Wise’s local offices. Required documents are minimal. Recipients have multiple payout options including bank deposit and cash pick-up.
Remitly commenced operations in 2011 and processes over $6 billion annually in transfers across its network spanning 40+ corridors. Its mobile app and web platform interconnect immigrants in developed nations with families in emerging markets.
Remitly highlights include low-cost transfers, speedy processing within minutes, and top-class security. It accommodates cash and bank deposit pickups for recipients lacking accounts. Senders can easily track transfers from end to end.
WorldRemit is a UK-based remittance company that serves over 4 million customers and 150+ receiving nations. Since 2010, it has shifted over £100 billion in remittances.
The WorldRemit app and website allow cost-effective transfers in both popular corridors and remote underserved regions. Payments can be collected as bank deposits, cash pickups, mobile money, airtime top-up, or e-vouchers. Senders have flexibility in transfer amount, frequency, and delivery time.
Alongside its flagship payments system, PayPal facilitates fast digital remittances to 200+ markets with low fees and solid exchange rates. Account funding is convenient via bank, debit/credit card, or PayPal balance.
Recipients can withdraw PayPal transfers to local bank accounts or supported wallets. Senders can track status closely. PayPal uses top security, allowing safe remittances to family and friends globally.
Benefits of Digital Remittances for Migrants and Families
FinTech innovators have cultivated digital remittance or global money transfers ecosystems benefiting both migrant senders and family recipients immensely:
Cost savings- FinTech transfers incur fewer fees, unlocking more money for important uses like rent, education, healthcare, and nutrition.
Convenience – Digital remittances overcome location barriers. Migrants remotely send money home in minutes versus in-person agent visits.
Speed – Fast settlement gets emergency funds to the family faster during crises like illness or accidents.
Accessibility – Expanded options for the unbanked enable more inclusive money transfer access.
Transparency – Upfront pricing helps align sender and receiver expectations regarding transfer costs and amounts.
Security – Advanced identity, risk, and security protocols better safeguard funds against fraud during transit.
Flexibility – Online platforms allow customizable transfer amounts, frequencies, and delivery windows tailored to your needs.
Empowerment – Transfer flexibility fosters financial independence and stability for recipients to plan their spending.
The Future of Global Money Transfers is Digital
International money transfers form an integral lifeline for migrants supporting loved ones worldwide. FinTech innovation has modernized this experience for the better. By leveraging technology to offer simpler, cheaper, and faster transfers, FinTech disruptors have made cross-border remittances more equitable and accessible.
With digital transfers, recipients get more money while senders save time and stress. The ease of online remittances has also reduced dependency on informal hawala and cash courier systems with higher risks.
Going forward, FinTech solutions will continue revolutionizing global remittances by further expanding access and driving efficiencies through emerging technologies like blockchain and artificial intelligence.