Most of us look around the world we see today and have a preconceived notion of where the big financial businesses are. Typically we look at Wall Street, The City of London, and countless other megacities with thriving investment banking and commodity exchanges as the beacons for all that is rich and powerful. But scratch that. The real big business is in small-value transfers, and it's a a mega ecosystem that is largely untapped.
Apps today are a significant focal point of life. Whether it's a social media app, news app or your precious LinkedIn network, we lean on apps that we use on a daily basis in the palms of our hands as our primary connection to the rest of the world. This has (generally) served us well in connecting the world of data, content and opinions that might matter to us. But the moment you try to send just a dollar between yourself and someone else in those apps, you realise that there's a big gapping hole in the middle that isn't as straightforward to fill as one might think.
The global remittance business (peer-to-peer over $100) according to the IMF is $600 Billion annually. That is huge, but, when you break down P2P transactions to a local country metric, barely 10% of transactions are over $100. There are exceptions of course. In the Philippines, the local remittance business is 2-3 times the size of the global inward remittance, but largely due to the nature of migrant workers there. sending money home to remote villages. But back on point, there is a small percentage of transactions over $100 within local markets. The overwhelming majority of some 90% of local peer-to-peer transfers are under $100. This is quite easy to comprehend. Living in a developed part of the world (all of us do, FYI), how many of ANY of your daily transactions are over $100? From your coffee, to your taxi, bus ride to work, to your lunch, your movie tickets, or a post work drink. Now ask yourself, when was the last time you actually sent someone over $100?
So 90% of transactions are under $100, yet the world of these transactions are mostly islands onto themselves. Can you transact financially as instantly and seamlessly as you can transact data and content? Why can't you send someone 50c or a dollar for your grandma's amazing pasta recipe? Or if you have a calculus question that needs solving, can't someone give you that quick answer and receive 10c for it?
Let's consider transactions online. Other than merchant-focused or e-commerce transactions, how often are you paying someone online directly for data or content? Most would answer none at all, and the primary reason for this is that the payment rails don't exist yet to enable this kind of small-value, high volume ecosystem. Today's rails are primarily merchant focused, and are too expensive for small-value transfers. This creates a tremendous roadblock to progress, particularly when considering the gig economy and the great potential that exists for micro entrepreneurs.
“Four dollars for gardening tips from a lady in New Zealand, three euros for an expert translation of a Japanese poem, and 80 pence for a virtual rendering of historic Fleet Street: these payments can be made with credit cards and other forms of e-money. But the charges are relatively high for small-value transactions, especially across borders.”
- Cristine Lagarde - International Monetary Fund (IMF)
The numbers are staggering and the world of small-value transactions between people around the world is an undiscovered territory. The untapped potential, using the most conservative of estimations, is well over $5 Trillion in size. Keeping in mind that just last year, China alone clocked over $9 Trillion in digital payments, and that still represents not even 20% of the total spends in the country. It is the new silk route that is quite literally waiting to be exposed. The world as we know it will change. The add revenue business as we know it, will change. There is not one single industry in the world that will go unaffected if the rails to accommodate small-value transactions are able to develop and create a truly borderless financial world.