How will money transfer between countries look in five years? (Half-way point analysis)

A couple of years ago, I answered a question on Quora. The question states How would money transferring between countries look in five years? I thought it would be a good exercise to revisit the prediction at the half-way point and see how well I have faired.

So here below are the inline comments on the answer:

  • TRANSACTION & SETTLEMENT TIMES: The biggest change you would see is the ability to make the end-to-end transaction as near to real-time as possible for the two parties between which money is being remitted. The second factor is the near real-time settlement between the two financial institutions that were doing the remittance (i.e. Sender’s Bank and Beneficiary’s Bank).

So this is coming to be true already. Bitcoin remittances (or Rebittance as they are affectionately called) are becoming a reality where they tend to offer near real-time money transfer services. Instant transfers are also being offered by players like Xoom and Remitly for a slightly lower exchange rate (higher-fees).

 

  • ANTI-MONEY LAUNDERING: Money laundering would be more difficult (as more correlated reporting and systems integration of various financial institutions will make it so)

So this is coming to be true already. I recently wrote an article on how various financial regulators are making it difficult for money transfers to operate by denying them access to banking. All this to mitigate money laundering. Further more, many banks are existing relationships with MSBs and are demanding more stringent visibility into the transactions. While crime will always be one step ahead of the game, the ability to launder money is being is now becoming a challenge for criminal organizations. As the world moves towards a more cashless society, it will be more difficult to launder funds without being detected.

 

  • KNOW YOUR CUSTOMER: The KYC would be inherently more advance. By more advance, I imply that the KYC system would be able to tap into periphery system to verify what as already been submitted. Eg: A credit card KYC may query your bank account for address verification / name match.

This is transitioning towards true. One of the game changers is going to be social signals and social networks being used for identification. As there is no global standard for identity verification, logins using LinkedInFacebook, etc. are now becoming more and more popular. It won’t be long when social network signals will be used to identify you very accurately. 

 

  • MOBILE: Money would be more mobile than it is today, and you guessed it – it would reside in/on your phone. Your phone would be in some crude sense a financial instrument. Expect to see a sharp rise in QR Codes. No more lengthy forms to fill out for money transfer/payments.

True (with the exception of QR codes). I think no further explanation is need on this prediction.

 

  • SUSPICIOUS ACTIVITY REPORTING: SAR checks are currently performed in the US and in different countries (under various different nomenclature / taxonomy). To nib the money laundering bud, and to better have a more accurate visibility on suspicious transactions, it is my belief that SAR checks (albeit performed) would most likely also be cross-referenced across the border.

This prediction hasn’t come true. Today’s blacklist checks are not singular anymore. Money transfer operations are now extending their checklists to include checks for other territories now and the lists are now growing. Information sharing amongst the various FMU (Financial Monitoring Units) is increasing and cooperation towards development of a more easy / transparent manner to query a person’s transaction history. There is immense pressure on developing nations like India, Pakistan, Bangladesh, Vietnam, and power centers like Dubai and Hong Kong to open their transactions databases and export reporting to other countries. I see a lot of resistance there, but who knows, eventually this may happen. Will see how it goes.

 

  • FINANCIAL ROUTERS/ROUTING: More companies will prop up providing financial routing services. Take money from your PayPal and credit it to your ATM card. Take money from ATM card to credit to your Visa card, Take money from your Bank and credit the money to Micro-Wallet payment company. For example, if you want to transfer money from your Prepaid VISA card to PayPal (and they are not connected), you will be able to do so. Or if you are traveling overseas and you buy a Deutsche Telekom SIM card (that does payments as well) and you want to transfer $50 to it from your Bank, you will be able to do so.

Partially True. Multi-channel and multi-payment gateways are slowly taking shape. Companies like Payoneer, Skrill, et. al. have taken lead on this. Being able to bring omni-channel accounts and route transactions between them. I’m confident that in another 2.5 years time, we will see a mushrooming industry for financial routing. 

 

  • MONEY EXCHANGE COMPANIES: You traditional money exchange companies with walk-in customers will eventually consolidate and business for walk-in clients will diminish drastically.

Barring WU, Ria and MoneyGram, this has already started happening. Cash transactions are being discouraged. More and more players have opted to opt-out of OTC (over the counter) cash pay-outs/pay-ins. So this prediction is definitely taking shape as true.

 

  • INTERNATIONAL PAYMENTS (CROSS-BORDER): International payments would become much more easier (as KYC, AML check would be a whole lot better). The Person-to-Person element would become more common and speedier, economical and reliable.

Partially True. Thanks to companies like Payoneer, Skrill, Earthport, Tipalti, Xoom, TransferWise, et. al. expect cross-border payments to become more frictionless.

 

  • EXCHANGE RATE: You would get a whole lot more competitive exchange rate on your international transactions (I believe less than 1% exchange parity between Interbank and Open-Market rate).

True. Self-explanatory. The remittance prices are being driven down by innovation, new entrants and needless to say Bitcoin.

 

  • MICRO-PAYMENTS: Yes, the world will finally have a micropayment setup. One that allows micro-payments in multiple currencies.

Partially True. Micro-payment, small value payments, micro-remittances (Alan Safahi coined this term), are all slowly coming. With companies like ChangeTip, small tips (couple of cents) is very much possible today. Small value transfer across borders is already happening with Bitcoins. Soon enough you will be seeing traditional players offering the ability to send across small amounts, in near real-time. Expect micro-payments to be the norm in 2.5 years. 

 

  • VIRTUAL CURRENCIES / CREDITS: More and more companies will start to offer exchange and settlement of virtual currencies and credits that may be specific to a social network, gaming network, etc. Even Bitcoins. This could also be part and parcel of the Financial Routers.

Partially True. As more Bitcoin merchant processors come online, this is happening. Now Bitcoin can be traded, exchanged, cashed out and spent on so many fronts. It still hasn’t reached critical mass in my opinion, but its getting there. 2.5 years down the road, it will be all over the place.

 

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