The Role of Fintech in Disrupting Traditional Money Transfer Services

The response in recent years of many industries and sectors to increased digitization has affected how well they are performing. The move toward a more digital world has impacted many offline businesses such as physical storefront shops which have been losing out to large online retailers who are now their main competition.

This has also happened in the financial services sector, with traditional banks and financial institutions being largely unprepared for the new wave of competition from financial technology (fintech) companies. These companies have offered ways to send money internationally much more efficiently, with digital remittances increasing from $60.57bn globally in 2017 to a projected $319.10bn by 2029, according to Statista. This illustrates the scale of the growth involved in the sectors where fintech companies have embraced the challenges of the traditional banking system.

A Look at Established Money Transfer Solutions

Traditional money transfer services have often relied on the “wire transfer” method and have been problematic for several reasons. They tend to rely on having shops in different locations around the globe, so the recipient has to travel to their local store location to receive the payment. This can be difficult for people who have little access to transport.

High transaction fees are often charged, and this is largely due to infrastructure costs being passed on to the end user.

Another difficulty is that they have slow processing times, which means it can take several days for a payment to be released. A large part of this delay is that banks and financial institutions have a lot of red tape and must satisfy anti-money-laundering regulations, which don’t apply to many fintech ventures.

The Rise of Fintech

Digital banking has been one of the major innovations in fintech, and now, many people worldwide have a bank account that they can access digitally. Mobile phone apps or baking and money transfers have continued to increase the pace of change.

Fintech is essentially the field of financial technology and covers a large number of different innovations that are often used in conjunction with each other, such as cryptocurrencies, blockchain, peer-to-peer (P2P) payment systems and the ability to send money home digitally (digital remittances), as well as pre-paid financial technologies.

Mobile phone top-ups are a great example of pre-pre-paid fintech. They allow for mobile phones to be topped up with data from all around the world and the BOSS Revolution mobile reload app and website are an example of how to do this well.

Why Fintech Has Outpaced Traditional Banks in Money Transfers

There are many reasons why the growth in fintech has outpaced traditional money transfer methods such as banks. One of these is that the fintech solutions are more flexible and often have special offers to attract users, such as the opportunity to transfer money the first two times without a fee which is currently on offer from the BOSS Money App. Also, for 2 money transfers with the BOSS Revolution site or app, from December 20 – 25, there will be $0 fee with promo code JOY.

Lower Fees and Greater Transparency

The growth in fintech has allowed for lower fees. Fintech companies have no need to keep an established network of shopfront locations, so their running costs are much lower than many of the more traditional ways of transferring money internationally. This means they can pass on these savings to customers and help them to have a better experience when sending and receiving money.

Speed and Convenience

Instead of being forced to wait for days, now it is possible to transfer money in hours or even seconds, to almost anywhere in the world. This represents a life-changing opportunity for many as they no longer have to venture to distant locations to receive money.

Access for the Unbanked and Underbanked

Mobile phone top-ups and money transfers via apps can allow people who don’t have access to traditional banking methods to participate in the exchange of digital currency for goods and services. This is particularly important in developing nations where traditional banking infrastructure isn’t as widely available.

Global Reach and Cross-border Payments

Being able to make cross-border payments easily and quickly without the red-tape and obstacles that traditional banking has imposed has led to a rise in the global transfer of money from the wealthier countries to those in the developing world. This has had the effect of boosting their economies and helping people who live there to achieve a higher standard of living.

How Banks Respond to What Fintech Offers

Banks have been relatively slow to adapt to the fintech revolution but are coming around to upgrading the services they offer. They are now adopting real-time transfers, and looking into blockchain technologies to make their systems more secure.

The Future of Money Transfers: Fintech vs. Traditional Services

Fintech has been shaping the landscape when it comes to international money transfers over the last couple of decades and will continue to do so into the next. They are making technological leaps that are bringing costs down for everyone, while making the system more efficient. They are making the transactions much easier and more transparent, and this trend is set to continue.

The Potential for a Hybrid Model

As banks begin to embrace some of the advances in financial technology, there is potential for a hybrid of the traditional and the new. Existing financial institutions, which are essentially legacy providers, have always been backed by their respective governments if anything negative should happen. Being able to offer this assurance, while bringing down costs and making transfers more efficient at the same time would satisfy many people worldwide and some fintech companies are looking in this direction for partnerships going forward.

Conclusion

International money transfers have become a huge business and innovations by fintech startups have completely changed what the landscape looks like in this industry. Offering lower fees for consumers, faster transfers and more convenient methods have allowed fintech to rise to prominence quickly. If they can continue to embrace AI, blockchain and other innovations, this will continue into the future.