Why are U.S. Money Transfer Companies Afraid of New Markets?

Trending

Stories

Tidio Live Chat Software - Add Tidio live chat software to your website in minutes. Contact visitors and turn them into happy customers. Enhance their experience and boost your sales. Get it for Free

TransferWise, a London-based peer-to-peer money transfer service, just started accepting clients from India. This is big news for the U.S. money transfer industry, which has, with the exception of TransferWise, remained stubbornly uninterested in the Indian market.

Established money transfer companies like TransferWise have historically avoided the outbound remittance market to prioritize the inbound market, where consumers send money to their home countries.

Also Read

However, TransferWise’s recent announcement could signal a sea change in the money transfer market. As the first mover in India, TransferWise is poised to tap into the country’s $14-15 billion outbound remittance market. The long-term prospects are even better. India’s outbound remittance market is on track to grow to $28 billion by 2023 and is expected to overtake the U.S. remittance market, which is currently at $68 billion, by 2027.

So, why are so many U.S money transfer service providers still refusing to capitalize on the opportunity offered by developing and mixed economies? We’ve sketched our five possible explanations.

Elegant Themes - The most popular WordPress theme in the world and the ultimate WordPress Page Builder. Get a 30-day money-back guarantee. Get it for Free

Table of Contents

1. It’s a Matter of Legacy

Some of the biggest U.S. money transfer companies, including Western Union and MoneyGram, have been around for decades. In that time, they’ve built up a network of physical branches and agents consolidated around key target markets. On the

public relations front, they have a strong brand and impressive customer loyalty. As such, it’s not surprising that they’re reluctant to do business with a new outbound market, especially if said market is located in a developing economy and/or dynamic regulatory landscape.

What’s more, a lot of U.S. money transfer companies are still run by their founders. They have a strong sense of ownership of their legacy, and, in some cases, they may be more risk-averse than their newer counterparts in the global financial services industry. Even in more recently established firms, legacy management can still have a strong-arming effect on business strategy, stifling innovation and slowing the company’s ability to adapt to market changes.

2. It’s an Aversion to Fragmented Markets

Money transfer is a highly fragmented and competitive space. There are an estimated 450 money transfer players globally, with a handful of the biggest players controlling over 70% of the market.

Fulfilling the needs of a fragmented market is a challenge. It requires a higher level of agility and flexibility than legacy players are comfortable with. This is especially true for the outbound market, where consumers are sensitive to high fees and responsive to more competitive money transfer services.

In a mixed economy like India, institutional fragmentation is even more pronounced. Given that the market is dominated by a handful of regional firms competing against hundreds of provincial money transfer services. New entrants will invariably find it difficult to manage a consistent brand and customer experience.

3. It’s a Technology Barrier

International money transfer services are also struggling to keep up with the rapid pace of development in fintech, cloud banking, and other digital technologies. Many are still using antiquated technology, like paper-based operations and outdated back-office systems.

Breaching this barrier requires strong customer-facing technology, a streamlined process, and a network of well-equipped agents and middlemen to handle digital payments. In a country like India, the technological challenges are even greater. The market lacks a single point of payment. Rather, it’s a patchwork of regional, national, and provincial money transfer services with no single dominant platform.

4. It’s a Matter of Regulation

The money transfer service is a high maintenance industry. It requires a lot of documentation and high levels of KYC compliance. Different countries can have vastly different regulatory requirements. As a result, outbound money transfer companies can expect an arduous onboarding process as they adapt to the unique regulatory landscape of each country.

For example, TransferWise is operating with a high efficiency level in the U.K. and Switzerland. Where it can use the existing banking system to execute and record transfers. In India, however, they’ve had to partner with local banks and financial institutions to establish a stable and secure network for their outbound remittance services.

5. It’s About the Money

Money transfer is a high-margin business. It’s not a loss-leader but legacy players are more focused on profitability than growth. It’s much easier to lose money than to make it. That’s the reason why money transfer has been a low-growth industry for decades. It’s also why it’s so hard for new entrants to break through the legacy players’ barriers.

It’s a chicken-and-egg scenario. New entrants need to win the market to grow. But it’s a labor-intensive process and it takes a lot of capital to invest in marketing and advertising. And the outbound market is notoriously difficult to penetrate. In short, it’s a high-risk, high-reward business that requires a lot of commitment to break even.

The Bottom Line

TransferWise’s announcement is a positive sign that the traditional money transfer industry is finally starting to pay attention to opportunities abroad. With India’s outbound remittance market growing rapidly, the U.S. money transfer industry will have to adapt if it wants to remain competitive.

iThemes WordPress Hosting

Stay updated

Subscribe to our newsletter and never miss an update on the latest tech, gaming, startup, how to guide, deals and more.

Latest

Stories

Grow Your Business

Place your brand in front of tech-savvy audience. Partner with us to build brand awareness, increase website traffic, generate qualified leads, and grow your business.

- Advertisement -

Grow Your Business

Get these business solutions, tools and services to help your business grow.
Elementor

Elementor -Join 5,000,000+ Professionals Who Build Better Sites With Elementor. Build your website with 100% visual design that loads faster and speeds up the process of building them.

WP Rocket

WP Rocket - Speed up your website with the most powerful caching plugin in the world. The website speed increase means better SEO ranking, user experience, and conversation. It’s a fact that Google loves a fast site.

Kinsta

Kinsta - If you are looking for WordPress managed hosting, Kinsta is in the leading front. Kinsta provides WordPress hosting for a small or large business that helps take care of all your needs regarding your website with cutting-edge technology.

OptinMonster

OptinMonster - Instantly boost leads and grow revenue with the #1 most powerful conversion optimization toolkit in the world. 700,000+ websites are using OptinMonster to turn their traffic into leads, subscribers, and sales.

Related

- Advertisement -
Tesla Records Double Net Profit in 2022 India to Produce Upcoming iPhones: Trade Minister Japanese Professor Developed A Power Semiconductor made of Diamond Google Releases New Product for India’s Merchants Indian EV Startup Unveil Two AutoBalancing Electric Scooters OPPO Find X6 Pro Images Render via Weibo Sony Develops New Tech to Reduce Noise of Image Sensors Tesla’s S & Y Models Earn Best-in-Class Cars of 2022
India Approved $320m to Promote Homegrown Payments Network Twitter Roll Out TikTok-like ‘For You’ Timeline on iOS Nothing Phone Enters US with Beta Membership Program Finally! Apple’s VR Headset Coming this Spring Harvard Scientists Develop New Cell Therapy to Kill, and Prevent Brain Cancer HTC Vive XR Elite VR/AR Headset Now Selling for $1099