Money Transfer Companies Are Starting to Worry as Blockchain Gains More Power

The money transfer industry is changing rapidly and as the popularity of blockchain grows, it might become completely unrecognizable. Money transfer companies, which are striving now, might disappear should crypto become stable. And while that’s still merely a possibility, some of these money transfer businesses seem to start preparations that will help them survive no matter what.

How Do Money Transfer Companies Work?

It wasn’t so long ago that banks were the main service provider for international money transfers with companies like Western Union and MoneyGram snaring a part of that huge market. These services were inefficient, in that the transfers took a long time and cost a great deal. Even today you might lose over 10% of the total transfer amount in various fees and currency exchange margins when sending money abroad via a bank.

It’s no wonder that bank transfers cost this much because banks cost a fortune to run. With the way they operate, the simply cannot afford to offer cheap transfers. But people desperately need those, and this is why money transfer companies are growing extremely fast today.

These companies appeared to fill this specific need, meaning to provide cheap and easy money transfers to the huge pool of migrant workers worldwide. They started with a focus on remittances, but today they are used for all kinds of financial operations.

Unlike banks, these companies perform transfers without actually moving the money from one country to another. Instead, the customer transfers the amount to the company’s account. Then, the company sends an equal amount (currency exchange margins considered) to the recipient account in a specified currency.

As no money has to move across the border and the need for human involvement is minimal, these companies have low overhead costs. This allows them to not only charge minimal fees but also use small currency exchange margins. That’s how cheap international money transfers of today are possible, and blockchain has the potential to change that further.

Money Transfer Companies Vs. Blockchain: What’s Best?

There are a lot of talks today about how blockchain can disrupt banking and the tremendous impact it can have on the finance industry as a whole. It’s easy to see why this technology has such huge potential because blockchain transfers are nearly instantaneous, secure, and cheap. They have a variety of other advantages, but these are the most important ones for an average person who needs to transfer money internationally.

Should this kind of money transfers become universally available, other methods that exist today will become obsolete.

There’s no other way to put it. If everyone can send money abroad fast and cheap, no one will use expensive bank transfers. Even money transfer companies that are popular today will lose customers because they will be more expensive overall.

But if blockchain is so good, why hasn’t it replaced banks yet?

The reason for that is the extreme volatility of cryptocurrencies. For all their advantages, the lack of stability makes them incredibly risky. This is why few businesses accept them and not many people have access to crypto.

However, the multiple benefits as well as the very existence of this technology, prove that crypto will continue to rise. Already there are talks and actions on the governmental level that aim to provide some oversight and stability for crypto. If those result in making it more stable, money transfer companies will become a thing of the past. 

The leaders of these companies seem to understand the threat. One look at the latest developments in the industry, like the revolutionary pricing change announced by a renowned money transfer company WorldFirst, proves that they are preparing. Simply put, they are making their rates lower and services more efficient in order to ensure that their customers don’t feel the need to explore the strange and uncertain world of crypto.

Can Money Transfer Companies Stay in Business?

A few years back, the average margin for money transfers was above 1%. This was good compared to other options, but this definitely wasn’t as good as it is now. The greatest change came in the form of TransferWise, a money transfer company that single-handedly revolutionized the industry.

In essence, TransferWise did something similar to what crypto is threatening to do today. It offered a transparent and reliable method of fast international money transfers that cost very little. TransferWise had the margins of 0.5% to 0.7% depending on the currency.

The impact of this was fast and brutal. TransferWise became one of the fastest-growing businesses in the last decade, and one of the most successful. This is definitely amazing for everyone who works there, but it’s the wider impact on the industry that matters more.

And that impact was huge as you can see from the fact that the majority of money transfer companies today are trying to get close to these margins. As such, the average margin has dropped quite a bit, all because one business was daring enough to make this change and stick to it.

Today, this situation might repeat itself through WorldFirst. After it was purchased by Ant Financial at the beginning of the year, WorldFirst went through several changes. Little is known about what exactly went down during that deal, but now we can see that WorldFirst is making waves in the money transfer industry. The reason is the company’s latest pricing change.

As of now, WorldFirst also offers fixed margins, which gives it the same advantage in the industry that TrabsferWise has. There are three pricing tiers, determined by the amount of money one needs to transfer in a year. The most important thing, however, is that these margins go from 0.5% down to 0.15%.

This means that WorldFirst currently offers a highly beneficial opportunity for anyone who needs to use this kind of service. Even if they fall into the most “expensive” tier, the margin of 0.5% is one of the lowest and the fact that it’s fixed means less risk for the customer.

There can be no doubt that the main reason behind the new pricing from WorldFirst is the need to stand out in the ultra-competitive market of international money transfers. That industry is getting insanely hot today, so having a competitive advantage is a must, especially for a company that’s going through the turbulence of the ownership changes.

However, part of that reason might be the fear of crypto and all that it represents. Blockchain is growing and this won’t change. Experts predict that it will keep growing and will play a prominent part in the money transfer industry within the next decade.

Without offering smallest possible margins, money transfer companies won’t be able to hold onto their clients when crypto becomes widely accepted. Therefore, this step by WorldFirst might be seen as a way to safeguard against the oncoming storm. And the previous experience with TransferWise shows that the industry as a whole will start adopting the same low pricing as competitiveness will make it inevitable.

The question here is whether it will be enough to keep money transfer companies in business after the rise of crypto. That’s hard to predict today, but one can be sure that these businesses will keep working on new methods of securing their future. Ant Financial will surely stand at the forefront of that fight because this giant might lose everything when blockchain makes a leap forward.