Until very recently, if you wanted to transfer money internationally as a US resident, you had few options. Most Americans still use banks to make global payments, while the rest of the world uses international money transfer companies. Now, these services are catering to the United States as well.
What are international money transfer companies and how do they operate? Should you use one of these services to transfer your money? Here’s what you need to know.
What are International Money Transfer Companies?
International money transfer services are private fintech companies that provide a cheap and efficient way to send and receive money to and from different countries. Many of them came into being over the past two decades or so, in order to fill a gap in the market. With globalization, these services have only become more useful since then.
International money transfer companies give you a way to send money around the world without using banks. Traditionally, banks have charged high fees and provided unfavorable exchange rates for international transfers. They are also slow and offer very little functionality.
While banks use the outdated SWIFT network for international transfers, money transfer companies use a variety of methods to avoid this. By doing so, they circumvent fees charged by banks on both the sending and receiving side. Transfers arrive more quickly into the recipient’s bank account.
Although you may not have heard of them until now, international money transfer companies have been used by people living in the UK since the 1990s. Most money transfer companies set up shop in London, not only a financial hub but also a melting pot of people of different nationalities.
There was a huge audience in the UK. For decades, migrant workers have found employment in the UK and sent remittances home to their families. These workers benefited greatly from cheaper transfers, as more of their income made it home.
Expats also benefited from money transfer companies. They could now bring money into the UK without having to pay high fees. If they wanted to put their UK income in savings accounts in their country of origin, they could now do so with the benefit of good exchange rates.
These individuals provided a huge target audience for money transfer companies – allowing them to rely on scale. However, it was the bigger fish that began to provide a more consistent income.
Globalization has meant that a large number of businesses now have branches around the globe. Big businesses deal with huge amounts of money, moving funds between branches whenever necessary, and even doing so in order to pay employees. Small businesses may not transfer anywhere near as much money, but they carry out far bigger transactions than individuals do on a regular basis.
There is another sector that money transfer companies targeted in the UK. These are citizens who buy homes abroad and foreign nationals who buy homes in the UK. They pay big deposits and monthly payments (and some buy their homes outright in cash).
Because they had such a large pool to target, the UK was the perfect starting point. Since then, many of the best international money transfer companies have opened headquarters in the UK. The following are the five biggest.
The UK’s Biggest Money Transfer Companies
Wise (formerly TransferWise): Wise was started by two Estonian friends in 2010. These were individuals who were earning money in foreign currency and saw their income diminish due to fees and exchange rates. They opened TransferWise as a small startup in London, and it took off. Since then, they have become the biggest money transfer company in the UK. In 2021, they saw revenues soar, with over $340 million in the six months prior to the end of September.
MoneyCorp: While MoneyCorp is some way behind Wise in terms of revenue (reaching $139 million in 2019), they are still one of the biggest money transfer companies in the UK (and the world).
WorldRemit: Initially focused on remittances for migrant workers, WorldRemit has become one of the biggest money transfer services in the UK. They are currently said to be raising funds at a $5 billion valuation.
Currencies Direct: Operating since 1995, Currencies Direct is a big name in the money transfer industry. They have a large client base, as can be seen by their thousands of positive reviews and their $99 million in revenue.
Global Reach: Global Reach is a popular and efficient money transfer company that trades over $7.5 billion annually. They see a significant revenue of about $50 million a year.
WorldFirst: As of February 2021, WorldFirst is specifically geared towards businesses and does not cater to individual clients. They are still one of the biggest money transfer companies in the UK, with $44 million in revenue.
Currency Solutions: While they are beloved by their loyal customers, Currency Solutions still caters to a somewhat niche audience. Their revenue comes to around $25 million a year.
Key Currency: With a revenue of just $4.03 million, Key Currency is not yet one of the big names in the industry. However, they are seen as one of the exciting up-and-comers, having only been founded in 2016.
Expanding Beyond the UK
The best international money transfer companies began to expand beyond the UK, while similar companies outside their borders opened up. This expansion began in the EU where, at the time, British companies could onboard clients without applying for a special license. Many British expats began to use these services, as well as non-English people living or working outside of the UK.
A number of big companies, including CurrencyFair and TransferMate, were founded in Ireland. Other companies moved their headquarters out of London, including Azimo which moved to the Netherlands.
The next country to headquarter a large amount of money transfer companies was Australia. They quickly became the second-most-popular region for the industry. Seeing as there is a large British diaspora in Australia (over a million expats), this is not all that surprising. OFX is the biggest money transfer company to come out of Australia in recent years, having recently listed on the Australian Stock Exchange.
Entering the US
It took some time before the best money transfer companies started taking America seriously as a new frontier. The first big companies to expand into the US with local offices were Australia’s OFX and Canada’s XE. Then, in 2016, Wise entered the US, and this has changed the face of the industry entirely. They began to focus heavily on US clients, exploding their revenue in the process while filling a serious gap in the market.
Not long after, Azimo and WorldRemit took the opportunity to focus on the US. They gained large client bases, with loyal customers happy to finally have options for their international money transfers. CurrenciesDirect and MoneyCorp followed suit. However, it took until 2019 for MoneyCorp and 2020 for CurrenciesDirect to accept clients from all states.
Why did it take so long for money transfer companies to enter the US? The average American will never send or receive money through one of these companies. Many Americans will never leave the state they are born in, let alone the country. There is nothing that unusual about this, as the US is far bigger than most other countries.
The reality, however, is that there are more foreign-born people living in the US than anywhere else – over 52 million. This has led to America hosting the largest number of remittance workers than anywhere else in the world. In 2017, these workers were responsible for $148 billion leaving the country!
In addition to foreign workers in America, there are millions of American expats living around the world. Expats living elsewhere temporarily without immigrating financially have to regularly bring money out of the US. They send and receive money all the time, and have been losing out due to the old systems used by big banks.
The US also has the highest number of millionaires in the world. Millionaires are most likely to have investments and properties abroad. They’re also generally savvy enough to search for cost-effective ways of taking care of these investments.
The money transfer industry has therefore belatedly come to learn that America is a huge market. By focusing on the US, they are growing their client bases significantly. The international money transfer industry has grown remarkably over the past decade, and the coming few years are likely to take it to new heights. As Americans become more aware of how expensive it is to transfer money through the banks, we can expect a major adoption of new ways of transacting.