The working relationship between fintech startups in the money transfer industry and banks presents a unique set of complications, as they are both competitors and allies. Though money transfer services and banks compete for customers, for money transfer services, banks are necessary for holding their own funds, and oftentimes personal bank accounts are at the beginning and receiving end of transfers processed through money transfer services. Banks, on the other hand, often have money transfer companies as large clients, and also sometimes use new technology provided by money transfer services.
Banks also serve as the largest liquidity providers in the international currency market, and are essential in ensuring that transfer companies have reliable, fast access to the currencies they need to execute transfers. Because of this, many transfer companies interact with banks on a daily basis in order to buy and sell currency, especially for smaller markets.
While many money transfer providers have targeted customers making frequent, low-to-medium value transfers (such as remitters, professionals, and expats), these services also need access to bank accounts themselves in order to store and clear funds. In this way, banks alternately profit from transfer services holding and moving large sums through their network, while in some cases facing direct competition for customers from the same companies. Many banks appear to have accepted they may lose price sensitive customers to these new services.
New Technology and Old Regulations
The age-old startup tale, regulations impeding on technology, certainly comes into play for startups focused on the money transfer industry. Because a customer’s money must be moved out of and into bank accounts in order to complete many transfers, many services have found their ability to quickly transfer funds can still be impeded by banking rules and regulations.
One of the main differentiating factors touted by dedicated money transfer companies is their ability to transfer funds in a shorter time frame than banks. Unfortunately, banks often have more complex internal processes and face additional regulations.
TrustPilot Reviews Reveal Banking Regulation Hurdle
The interdependency between banks and money transfer companies can impact the reputation of transfer companies, in some cases undermining the promises they make to consumers, as some startups have begun to discover. An assessment of one and two star reviews of Azimo on review website TrustPilot reflects how banking rules can affect customer satisfaction with transfer providers. While Azimo features an “Excellent” 9/10 rating on TrustPilot, many of their negative reviews share a similar theme – frustrations about Azimo’s transfer time estimates and the actual transfer time.
While in some cases transfers may be delayed due to issues in Know Your Customer (KYC) regulations and banks operating outside the SWIFT payment network, many of the transfer delays experienced by Azimo customers were related to bank rules and simple timing issues. For example, if a customer placed a transfer linked to their bank account on a Friday night, it often would not be processed by their bank until the following Monday, seemingly undermining the “fast and speedy” transfer times promised by Azimo. This slow transfer does not lie in the fault of Azimo, rather, it is a simple banking practice that impacts Azimo's ability to keep their customers happy.
Assessments of Transferwise and WorldRemit on TrustPilot revealed similar frustrations, mostly surrounding transfers taking longer than expected and the need for identity verification steps that slowed down the entire process. Such complexities are one of the many challenges of transferring money internationally when you control only one part of the global payment infrastructure.
As money transfer startups continue to evolve and further develop their business, we can expect to see solutions to the challenge of banking practices and regulations. You can learn more about this challenge, and other challenges facing the money transfer industry in FXcompared's 2016 Money Transfer Report
