Nonbank market players in the financial services industry are already disrupting the cross-border money transfer industry in the US with a variety of innovative solutions outdating traditional players. The same trend can be observed now in another world’s innovation hub – UK, where the top 20 nonbank money transfer providers are in account for over £40 billion of foreign exchange per year, saving customers over £900 million annually, based on FXcompared’s estimates.
FXcompared, a platform that allows users to choose the most attractive rates and the most suitable company to transfer money with, launched the FXcompared International Money Transfer Index (IMTI) – the industry’s most comprehensive index for monitoring the cost of using banks to send money abroad as stated on the official website. IMTI aggregates data for mid-range transactions between £1000-£10,000 from all major banks in the UK, the US, Canada and Australia.
Daniel Webber, FXcompared’s Managing Director, commented on the value of the data and IMTI saying, “The FXcompared IMTI will provide greater transparency for a fast-changing, growing industry that is experiencing big technology shifts as nonbank providers become more prominent. As the international money transfer market continues to change, this type of data will support the market’s development and help banks, nonbank providers and customers better understand the industry and make more informed decisions about moving money overseas.”
The results indicated an increased pressure of nonbank players like TransferWise and World First on banks in terms of fees for the transfer service. Nonbank providers charge an average 0.9% on a £10,000, which is four times more than an average for banks. One edge that banks seem to have so far is the power of their licenses. Strict regulations and licensing can be a common barrier for FinTech startups to enter foreign markets and broaden the list of countries money could be sent to. Banks also may be a competition when it comes to transfers reaching £500,000 and more both in terms of trust and fees decreasing 65% compared to fees for £10,000 transfers.
However, there is still an impressive difference in the monetary value of nonbank service providers that can ensure for UK customers £9,910 out of £10,000 transferred internationally compared to just £9,640 worth of their foreign currency when using a bank.
With UK banks slowly getting into the fire, the situation now is even more challenging for the US and Australian banks, where customers receive even lower value from their international transfers made through banks with Australian banks charging the most.
TransferWise and World First are not the only nonbank service providers shrinking the space for banks. Western Union and MoneyGram are controlling two-third of outgoing international transfers in UK. Although those companies are on the side of nonbank service providers, their fees are closer to banks, which created a scandalous situation at the end of the last year in the UK based on the “rip-off” charges.