So the Diaspora Remittance market is worth a billion dollars per year? Big guys in the market include Western Union, Mukuru and a host of other players, Econet is a recent entry into the lucrative market.
Now to our question: Is there room for more entrants in the field of money transfers? The answer from ZBIN is YES there is room for more entrance in the sector-one needs to look at the concept of Peer to Peer Money Transfers. A better option that reduces transfer costs drastically. So how does Peer to Peer P2P work?
Answer
Some call it the “peer to peer marketplace”, others prefer the rather neat phrase “collaborative consumption”. However you define it, it’s slowly but surely reinventing the way we live today. One of the best known is Airbnb and its rivals, which let you rent out rooms in your home to travellers, cutting hotels out of the equation. And then there’s WhipCar, a peer-to-peer network where you …can let others hire your car. The major advantage of this business model is that it tends to be cheaper than the traditional alternatives. And when it comes to financial services, the savings can be frankly massive. So how are companies managing to apply peer-to-peer thinking to money transfer and currency exchange?
First of all, it’s useful to consider how things are traditionally done. Let’s say you live in the UK and want to send a cash gift of £300 to your mum, who’s retired to Spain. The obvious way to do it is through your bank, who’ll charge a transaction fee and also hit you with an exchange rate that’s been skewed to give them a greater profit. Let’s say the total charge comes to 5% of the amount you’re sending. It’s all part and parcel of a system which sees your pounds actually leaving your account and being shunted to an account in Spain, where it’s converted to euros. Hence the expense of it all.
The way to slash costs is to minimise the amount of actual movement. Keep the various currencies in their own country, and bank fees almost vanish. So let’s return to the example of your mum, impatiently awaiting that £300 you promised, and do it through a peer-to-peer company like TransferWise.
Instead of instructing your bank to send the cash to Spain, you send it to their UK-based account instead, which means the money stays in one country. Meanwhile, they send the corresponding amount of euros from their eurozone bank account to your mum’s in Spain. In other words, your pounds haven’t literally been converted to euros, making the whole process up to 85% cheaper for you.
So where have the euros come from? Well that’s the peer-to-peer, or collaborative, aspect of all of this. They were paid in by a user in the eurozone who was looking to convert their euros to pounds – that’s the cash your mum receives. It’s all done swiftly and automatically, minimising fuss on your part, and meaning you don’t have to worry about trusting people you don’t know (which has been an occasional criticism of the collaborative model).
It’s swift, simple and so much cheaper than banks and currency brokers that it may well change how you send money, forever.
We are therefore encouraging our members to do more research on the area especially the setting up and registrations of P2P Money Transfer Service Companies. More information on this topic to be shared in our online newsletter.
