By Kate Sands from 6XDMEDIA.
Rates of global money transfers, also known as remittances, have grown five-fold over the last two decades and they show no signs of slowing down. Fintech is making it easier than ever before to transfer money internationally, and businesses and individuals alike are making the most of it. Let’s take a look at three important links between fintech and global money transfers.
1. Fintech has made global money transfers more accessible
Electronic money transfers first began in the 19th century when telegraph wires were widely installed across the USA, with Western Union launching Wire Transfer in 1872. Through the 20th century the rate of electronic wire transfers grew, but it wasn’t until the 1980s when the internet came into play that it triggered a major revolution in global remittances.
PayPal led the way in using the internet to make quick money transfers, and it swiftly changed the face of the industry as the banking sector followed suit. Consumers didn’t have to visit a bank to arrange money transfers. They could send money to friends and family members anywhere in the world using their computer at home. The invention and evolution of smartphones and apps has boosted accessibility even further. Now, people can arrange transfers in a matter of seconds using their phones and in many cases these transfers are instantaneous.
2. Fintech is reducing fees on global money transfers
Since fintech makes digital money transfers quicker and simpler, it costs companies less to process the transactions and many are happy to pass these savings on to consumers. Some digital money transfer providers don’t charge fees for transactions to certain countries. They also don’t hit consumers with hidden fees for cancellations and amendments, costs that were common with wire transfers and remain common with some banks.
Another benefit of fintech is that it makes it easier to obtain favourable exchange rates so that consumers aren’t paying high rates for currency conversion. Currently, consumers pay an average of 6% of the total amount sent in fees and currency conversions. One of the UN’s Sustainable Development Goals is to reduce migrant remittance costs to less than 3% by 2030 in order to reduce global inequality. As fintech continues to innovate, it will play a vital role in achieving this goal.
3. Fintech growth is making the remittance market more competitive
As fintech has become ever-more sophisticated and made global money transfers more accessible and affordable, it has created a more competitive remittance market. There’s been a surge in new fintech businesses offering innovative digital money transfer services, which means consumers have more choice in service providers than ever before.
Western Union is the biggest player in the global money transfer industry having been in the game for more than 170 years, but it’s now facing stiff competition. Its market capitalisation fell from $11 billion in 2020 to $4 billion in 2023. The rise in competition looks set to drive fintech innovation even further as businesses strive to bring the most convenient and affordable remittance services to the market as swiftly as possible.
Fintech is driving change in the global money transfer industry
As fintech rapidly evolves, it’s set to revolutionize the remittance industry, making global money transfers more convenient and affordable. Advanced technologies like blockchain, AI, and digital wallets are streamlining remittances, reducing costs and time delays associated with traditional methods. This is especially crucial in a globalized world where the demand for seamless cross-border transactions is on the rise.
Fintech’s innovations are not only enhancing user convenience but also expanding accessibility in underserved regions. By simplifying the process of sending money internationally, fintech is redefining the remittance landscape, making it more inclusive and affordable, thus fostering greater global financial connectivity.