Contribution of FinTech in International Money Transfer
International money transfer is a business that has been around for many years. It is a process by which customers send or receive cash from one country to another country using bank transfers, remittance channels (such as Western Union), or other means of electronic payments. The customer may be an individual, a firm, or an organization who wants to move their money from one country to another.
International money transfers are different from domestic money transfers, which occur within the same country’s banking system. Ideally, customers should make cross-border payments with the same ease and low cost as a local payment.
However, in many cases, international and domestic transfers are plagued by high fees, poor exchange rates, and long delays because of the complexity of cross-border transactions. Customers are often frustrated by how difficult it is to make international money transfers, and they are also concerned about the potential for fraud and theft.
The importance of FinTech in International money transfer
However, as technology and payment systems have developed, banks are facing new competitors. The rise of Fintech (financial technology) has started to disrupt the traditional banking sector giving birth to a newer breed of financial service providers – such as Paypal. At the moment, many companies offer some form of international money transfer.
However, most customers are still transferring their funds using traditional financial institutions such as banks or brokers simply because they don’t have access to state-of-the-art technology that can make their lives easier. Customers who use Fintech services for international money transfers often experience long delays and high fees while sending money abroad.
The international money transfer market is one of the fastest-growing segments in Fintech, and there are still wide opportunities for new innovative companies to grow in this segment. Customers are looking for a better way of sending money abroad with the help of technology innovations and lower costs. One of the issues that have long troubled customers is delays. This process may take days or even weeks, depending on the sender’s bank.
The international money transfer market is $150 billion growing at a steady rate of 6-7 percent annually, driven by an increase in international trade and expansion of global businesses. According to State Street Corporation (2017), every year, about 200 million people send money abroad; The total amount sent out in 2016 was $429 billion while the share of the total cross-border transfers amounted to only 3% compared to 70 percent by remitting organizations such as Western Union and MoneyGram.
The importance of FinTech startups in the International money transfer market
It is estimated that up to $200 billion are lost each year due to conversion charges. It means that as much as 7% of the total share of cross-border transfers is lost in such fees and penalties. The FinTech market has been growing rapidly due to increasing demand forms more efficient and low-cost services.
More than 2 billion adults worldwide have no access to formal financial services, many because they live in countries with weak banking infrastructures. Even though international money transfer is a highly regulated industry, it is seen as an attractive space for startups and existing financial service companies to provide better solutions for customers.
FinTech in international money transfers aims to reduce friction and improve access to global markets by providing innovative technologies based on artificial intelligence, machine learning, big data analytics, and other advanced technologies. Some companies offer cross-border payment services with reduced fees or even for free.
Technology innovation in the International money transfer market
One of the major benefits that FinTech offers is simplicity. Customers are often frustrated by how difficult it is to make international money transfers, and they are also concerned about the potential for fraud and theft.
However, today’s FinTech solutions are designed to make life easier and secure by eliminating that friction or cost of transfers between customers and their banks. The adoption of advanced technologies such as artificial intelligence (AI) and blockchain systems has led to a significant reduction in money transfer services and improved speed and security of money transfers.
Other new technologies like the internet of things (IoT) will also play a major role in simplifying and accelerating the international money transfer process by connecting all parties. Customers can track their funds from start to finish to better understand where their investments are at any given time. Startup companies are also working on making it easier for customers to send money online. Some use social media networks to provide geographical information and accurate location data, which helps customers create a connection between the sender or receiver.
The current issues in the international money transfer market
According to a recent survey by Thomson Reuters (2017), 53% of retail bank users say they want to switch banks because of the difficulty or hassle of making a cross-border payment. There is also concern about security, which has led to the stagnant growth in the sector.
For example, there are no limits on charges applied by banks involved in cross-border payments that can be as high as $20 or more for each transaction. Some countries have been imposing limits on the use of cash, and at the same time, banks are reluctant to keep too much physical cash available.
The future outlook for the international money transfer market
2021 will see a larger segment of the population have access to mobile phones, which means that FinTech startups could offer new solutions for cross-border payments. This year, more than 4 billion people worldwide will use smartphones and other types of mobile devices. That number is expected to increase up to 9 billion by 2020 and 15 billion by 2025.
The developing countries will probably benefit from FinTech innovations the most. Asian and African markets with less developed infrastructures for financial services are expected to continue growing at a fast pace in terms of transaction volume due to their relatively low penetration rates in this market. However, the availability of online banking services could also be driven by the demand for money transfer services.
International money transfer market forecast to grow at 11% CAGR during 2017-2021
The global FinTech market is expected to grow from USD 2 trillion in 2016 to USD 3.2 trillion by 2021, representing a compound annual growth rate (CAGR) of 11%. The report forecasts that the U.S., India, and China are set to continue as the top three markets for FinTech investment.
The International money transfer market is still in its early stages of adoption and innovation. There are many opportunities to reduce costs, improve security, and increase speed with the help of new technologies. The introduction of cryptocurrency (e.g., Bitcoin) has already made a big impact on cross-border money transfers by allowing faster, secure, and cheaper transactions. We can expect better technologies in the future.
Mobile applications will be the key driver for growth in this market as customers have already started to prefer mobile banking services over traditional PC-based systems. Mobile payments are growing steadily with the increased adoption of smartphone payment solutions and e-wallets, which make money transfer easier and more convenient.Have you been looking for more business opportunities? Well, PSP.Academy is the best place to find it! We have a team of experts who can help with marketing and advertising your company in order to get those new clients coming through the door – Register now to eminently propel and drive your prospect generation and conversion rates so they’ll be sky high before long!