Sending money overseas can be a very expensive exercise, and it’s particularly difficult for those with families in developing countries. Could this be about to change? TransferWise – from the founders of Skype – has launched a P2P transfer service for sending money abroad. By using TransferWise, they say, senders can save up to 90% of those charges. It’s an interesting model, and it may offer a path to lower transfer costs for the customers that microfinance organisations serve.
How does it work? Suppose someone in Britain wants to transfer money to a relative in India. The person in Britain will put that cash in TransferWise’s British account. The company’s algorithm then detects someone in India who wants to make a transfer in the opposite direction. The Indian deposits funds into TransferWise’s Indian account. The currency is changing hands internationally, but the money never crosses borders, it’s simply paid out of the relevant national account. This bypasses banking fees, thus circumventing transaction fees offers a significant advantage to cash-starved populations.
The company, founded in 2011, now operates in 22 currencies and has accomplished a total of $4.5 billion in transfers since its founding. With impressive backing, the company currently is valued at roughly $1 Billion.
TransferWise’s downsides include its potential use for money-laundering. But TransferWise replies that it is subject to the same identity rules as any commercial bank. Perhaps a bigger problem is scaling up in countries that have fewer immigrants than emigrants. For instance, there is likely a greater demand for converting Indian rupees into pounds than the demand in the opposite direction – in which case it may still require a bank to facilitate transactions.
Could inclusive financial institutions use the P2P transfer service model to ease the costs of sending money out of their respective countries? By applying the P2P model in a new way, TransferWise may ease the pain–or at least the cost–of money-wiring.