Financial technology, or fintech, is playing a major role in making financial services quicker, more efficient and cheaper. As a result, the money transfer industry is evolving and changing. Thanks to fintech, mobile payment applications are a commonplace now. A vast majority of people is conducting most of their financial transactions digitally, right from getting loans and investing to making payments and money transfers. With this kind of technology available at our finger tips, it is quite possible brick-and-mortar banks will become superfluous and redundant. It can be said without a doubt that fintech is a disruptor that is transforming the money transfer industry for the better.
Traditional Money Transfer Industry
Traditionally, money has been transferred through banks, informal channels or remittance service providers like Western Union.
Previously, bank account transfers used to be complex, money being channeled through several banks before it reached the recipient. Informal channels like hawala have risks involved and there was no guarantee that the money would reach the intended recipient as money does not really cross borders, but makes it way to the recipient based unwritten laws of honour and trust. And, private remittance channels like MoneyGram and Western Union required high cost for remittance and recipients needed to have a local bank account and proper identification documents before they could get the money.
The older money transfer industry was inefficient and this resulted in slow transfers and transactions and high cost for transfers. Compared to then and now, the remittance industry has undergone a major change. Fintechs now offer consumers a more attractive and convenient way to transfer money without burning a hole in their pockets. Innovation and technology has helped to overcome the issues that have long been plaguing the traditional money transfer industry.
Disrupting Traditional Remittance Channels
Just a few years ago, consumers did not trust digital transfers. However, that has changed and nearly six per cent of all remittances are sent digitally. The money transfer industry appears to have got a shot in the arm, and many financial experts reckon that in the next five years, most remittances will be carried out digitally.
Fintechs have been successful in using their digital systems to reduce operational costs and also to reach out to their target audience. Fintechs in India, like Paytm, Freecharge, and Mobikwik, are using mobile apps and e-wallets to make it easier for consumers to send money to anyone. When it comes to international transfers, there are FinTech’s which are leading the fray with their cutting-edge technologies and efficiencies.
A vast majority of fintechs have managed to establish their distribution network, and this has reduced the number of transactions undertaken via the traditional money transfer industry. It has also incentivized users to adopt technologies offered by fintechs even though they are closed national systems and often have to partner with international players to make international money transfer a reality.
Technology to the Rescue
The traditional money transfer industry has many inefficiencies that fintechs are addressing with their cutting-edge technologies. It is anticipated that as regulations and technologies evolve to accommodate fintechs, the digital money transfer industry will become more efficient while encouraging competition, offering attractive pricing structure to consumers and ensuring interoperability.
Most fintechs agree that they are building a layer of trust with their customers and once that trust develops, these financial technology companies can offer many more services than just disrupting and improving the remittance industry. Fintech realize that they have to move beyond the money transfer industry and offer value added services like investment services, insurance, and mortgage loans. While the traditional money transfer industry copes with its outdated legacy systems, fintechs are using technology and digitization to breakdown industry monopolies and modernize the way the digital money transfer industry functions.
As consumers become more tech-savvy, the traditional money transfer system is paving way for the digital remittance industry. It is also allowing those who have been financially excluded until now to join the mainstream population and enjoy the benefits of being able to send and receive money with a click of a button.