The remittance industry has been an easy target for Fintech startups. Typically controlled by the banking networks and old school money movers like Western Union, the slow speed, exorbitant fees and foreign exchange spreads that they profited from for years have been the bane of not just international trade, but also individuals who want to move money across borders. The house lights are up, and the party is coming to an end; with neo-banks and streamlined players like TransferWise and Revolut showing everyday people how fast, and affordable money could be moved when you strip the system of all the middle-man participants.
But they too, are soon to feel change clipping at their heels. The world today is connected through smartphones, and social media apps dominate our screen space, whether it is a WhatsApp, Facebook, or a business-focused LinkedIn. They may not be ecosystems like WeChat is today, but they are not far away from having a money-centric approach to customer retention. They are ubiquitous, and it is that wide-cast net that makes them the greatest threat to the old guard of remittance, as well as to today’s shinny new.
The day a messenger enables instant, global, small-value, Peer-to-Peer transfers between their users, is the day that the remittance industry will see its sunset.
There are four fundamental reasons why the world of remittance as we know it today, and have known it for decades, is about to change forever:
- Instant – The expectation of the world is that everything should move at the speed of now. That goes for payments too. We see this happening in our day to day lives in local markets already, with stored value facilities like Nets in Singapore, or a digital wallet like GoPay in Indonesia being an easy alternative to cash and equally importantly, credit cards! That doesn’t mean credit will disappear. It just means the dominance of Visa/MasterCard/Amex are on their way out. A strong indicator of this is the flat credit card penetration in Africa and South America.
- Scalable – Being able to perform transactions across a billion app users is very powerful. As a startup today, you cannot compete with the multi-currency, multi-jurisdictional positioning of a global bank. But when the walls do come crashing down, as they will with forward-thinking regulators, there is nothing to stop an app with users on their side, to scale payments cross border as easily as they have scaled content.
- Low Cost – This is perhaps the greatest destroyer of them all. People will wait for their money transfers to arrive if the cost is low enough. Add low cost to instant payments, and nobody will consider using a traditional bank to transfer funds. Even the likes of PayPal and newer Fintechs charge in excess of 4%. This may sound great compared to a net of 10%+ from a bank, but that is still too high. When it touches 1-2%, that will be truly competitive. I would go so far as to say the cost may come down to near zero too, as tech companies use free payments as a sticky money feature to bring more users to their platforms.
- Interoperable – The ability for you to have your money available to you anywhere you want to spend is truly the future of payments. Whether you are looking at this through the lens of banks, credit card companies, fintechs, or closed loop e-wallets… it will all turn on its head. The lines between where you store your money, and where you spend it will blur completely in the next few short years. It will be unthinkable that once you load your Grab wallet in Singapore, that you cannot use those same funds on a Go-Jek ride in Jakarta, or withdraw it as cash through PayTM in India when you feel like doing a little charity.
Today we have examples that are few and far between of just how relevant social messengers and e-wallets will be to our future lives. WeChat is a small glimpse into how ubiquitous and second-nature mobile payments could be. When you scale this opportunity to everyone on the planet, we will look back at times past and realise just how evolved and disruptive an era we are truly living in, particularly in the world of payments.