Looking beyond technology towards direct bank relationships
Many see the money transfer sector as a market that is more than ripe for technological disruption. While it is true that customer demand for digital options to transfer money is on the rise, we need to understand what a truly customer-centric approach to channel strategy looks like. After all, we are aiming to reach as large a range of consumers across the globe as possible. The world-wide rise in financial inclusion and the subsequent changes in how people manage their money plays an integral part in finding the right balance when it comes to our channels.
Technology is necessary, but not sufficient in its own right
Operating with a singular and one-sided channel strategy is no longer a sustainable option in a world where consumers have grown accustomed to an increasingly customer-centric financial services sector. While digital solutions are an integral component for success in the cross-border payments industry, they are not enough to act on their own. A sustainable channel strategy must look beyond technology to deliver the widest range of choice for customers because offering more flexibility allows you to reach the largest possible amount of customers.
The right response to increasing financial inclusion
Despite the fact that money transfer businesses have traditionally been seen as competitors to the banking sector, a key focus for a sustainable and forward-looking strategy should be the development of strong relationships with financial institutions. This is because a growing banking sector across the world means that financial institutions will play an increasingly crucial role in letting people receive and access their money.
Between 2011 and 2014, over 700m people in the world received access to a bank account for the first time. While the current number of ‘unbanked’ people across the world is still estimated to be around 2bn, the World Bank and its partners are working towards reducing this number considerably by 2020: the target is to add another 1bn bank account holders by 2020. For markets like India and China, where currently almost a third of the world’s unbanked population is located, this rise in access to accounts is going to have a significant impact in the way that people handle their money and make use of financial services. In the money transfer sector, we can be certain that the demand for transfers directly into bank accounts will rise steadily over the next few years as a result.
Partnerships with banks as the way forward
Money transfer businesses which have a direct agreement in place with banks are best positioned to take full advantage of the rapidly increasing financial inclusion, because these relationships have an immediate impact on the user experience of our customers. Without a direct agreement in place, money that is transferred to banks disappears into the abyss of the international systems of inter-bank payments for several days. Usually, with a large number of middle-men in the picture, it is hard to predict exactly how long a transfer is going to take, or what amount of money will exactly arrive in the recipient’s bank account due to different exchange rates and fees applied by financial institutions along the way.
Developing direct relationships with banks makes transferring money overseas easier for the business as well as the customer. Money transfer businesses must consider taking advantage of the potential explosion in financial inclusion by going beyond a singular, technology-driven strategy, to a truly multi-channel approach that embraces technology, as well as alternative avenues that customers might use to transfer their money. By partnering with banks, money transfer businesses can complement their sophisticated digital solutions and make their channel strategy more sustainable. After all, we must remember that we are first and foremost a financial service – in other words, we must not forget the ‘Fin’ in FinTech.
Nick Day is founder and CEO of London-based money transfer business Small World FS
November 30, 2023
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