Cash Remittances

I needed to transfer $700 to South Africa each month for a couple of months. I used my current bank (think large, monolithic, retail focused institution) and the transfer cost was painful. $35 for a wire transfer, another $6 for a reason I didn't quite understand, not a great exchange rate and I received a charge on the receiving end as well. All managed through a complicated web based interface.

Due to inertia I ended up doing the same thing for the next couple of months. 

For the first transfer I had to provide further information to meet South African Reserve Bank reporting requirements . It took a while to sort out and my bank was of no use. In theory they tried but I got no further information from them. I resolved it with my receiving bank in South Africa. I then had to go through the same process with the receiving bank every time I transferred funds.

Transferring funds involved logging in to my account, filling out a wire transfer full of SWIFT codes and other numbers and hoping I had entered it all correctly.

Finally I'd had enough and wised-up. I used an alternative service via a Fintech and had a very different experience. The Fintech had a $23 transfer cost, better exchange rate, no mystery $6 charge and also far better service. The South African Reserve Bank reporting obligations were resolved in a day and an agreement put in place valid for the calendar year.

The Fintech transfer mechanism was app based. I used facial recognition on my iPhone, three clicks and an amount entry. It took 30 seconds.

Then I tried an experiment

I have an account with my bank in both the US and UK. A transfer between these accounts is simply an internal transfer between the two accounts and an fx conversion. I transferred $1000 from the US to the UK and it converted to GBP 741.20

I then transferred via the Fintech from my US account to my UK account. $1000 equals GBP 744.20

Where did my three dollars go?

It cost me a cup of coffee more to transfer within my own bank by debiting one account and crediting another than to send the money via an external third party.

So why tell you this?

My bank will no longer get the $35 I was giving them each month. I am sure that won't do too much damage by itself but the moment you take all remittances, everywhere, that is a large chunk of cash. Around $700 billion if you listen to the World Bank.

I have been wondering about the future of the large banks. The answer is clear:

If you are a large bank relying on inertia to protect your profit margins then stop.

The Fintech delivery of mobile products optimized for customer experience is a highly persuasive product. If you partner with Fintechs, adopt a more customer-centric service model, use your existing trust based relationship underpinned by secure cost effective technology you can take market share from your slower competitors.

Which means you can give the cup of coffee back to me.

______________________________

Andrew Foster is a Wall Street Executive with a background in large scale program delivery across London and New York. He specializes in building effective data teams in complex organizations. Andrew has a passion for mentoring, building employee resource groups and advising on how to work effectively in global teams.

This blog post represents personal views and does not necessarily represent the views of current or prior employers. Any advice provided should be acted on at your discretion and with acceptance of your own risk.