Executive Summary
To obtain the most competitive foreign exchange (FX) rates in the money transfer industry, a company must generate substantial business volume. High volumes lead to better rates, and it is unrealistic for new entrants to expect rates on par with industry leaders without similar levels of transactions.
Achieving Optimal FX Rates in the Money Transfer Sector
Securing the best possible FX rate for a money transfer enterprise is intrinsically linked to the scale of the transactions handled by the business. Contrary to some expectations, premier rates are a result of significant transaction volumes and are not immediately accessible to new market entrants.
The Volume Factor
- Transaction volume is a critical determinant in negotiating FX rates.
- Banks and FX providers prioritize customers who can offer substantial and consistent business.
Market Entry and Rate Expectations
- Newcomers to the field should not anticipate receiving the most competitive interbank or industry-comparable rates at the outset.
- Early-stage negotiation leverage is limited regardless of negotiation acumen, as volume speaks louder than negotiation skills.
Volume Thresholds for Competitive Rates
- An example transaction volume, such as $10,000 daily, accumulates to $300,000 over a month. Such figures are considered relatively low in the competitive landscape and are unlikely to attract top-tier rates.
- It is only with significant volume growth that a money transfer company can begin to negotiate rates comparable to established competitors.
Historical Context for Industry Leaders
- It’s important to recognize that industry leaders like Western Union and Remitly once received less favorable rates when their volumes were lower.
- Reflecting on the rate evolution of these companies can provide a realistic perspective on rate progression associated with volume growth.
Realistic Strategies for New Entrants
- As a new entrant, it is vital to set achievable goals for FX rates and understand that competitiveness grows with the business.
- The initial focus should be on increasing transaction volume to improve rate negotiation in the future.
Concluding Insights
In the banking and financial services domain, especially for companies involved in money transfers, compliance, cryptocurrency, and money service businesses, the pursuit of competitive FX rates is directly aligned with transaction volume. New businesses should temper rate expectations with realistic growth strategies focusing on volume accumulation to eventually secure more favorable rates akin to established entities.
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This page was last updated on November 5, 2023.
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