Non-bank money transfer providers eating into UK bank profits

For decades, banks have generated healthy profits on FX by charging high fees and applying a significant margin off the interbank rate. However, according to data compiled by FXCompared, £40 billion of foreign exchange is now conducted by the top 20 UK non-bank money transfer providers every year.

With customers discovering that they can make significant savings when making transfers, banks should be worried; particularly as according to a panel of experts in the payments industry, the international B2B transfer market is under significant threat.

On the surface, banks may not be too concerned about this – after all, lower value transactions are by no means the ‘bread and butter’ for banks which have many other, more profitable revenue streams. International transfer fee levels are barely noticeable in high-value transactions – what is important is safety, security and timeliness, and banks may be able to keep hold of these types of transfers due to the fees being relatively negligible. It’s the lower value transactions – where cost-effectiveness, predictability and transparency are becoming equally important – that banks are beginning to lose market share.

Many FinTechs have so far capitalised on the B2C and P2P money transfer market. Yet the B2B market is estimated to be 10 times larger than the consumer space – presenting a huge opportunity for non-banks to steal more revenue from incumbents. With banks charging a far wider FX spread for SMEs than they do for large corporates, as well as significant fees for the transaction itself, the low-value international B2B payments space is wide open for innovation.

Transparency and technology are the driving forces

A lack of transparency is a major factor for consumers and businesses that want to move away from using banks to transfer money internationally.

Banks who offer “commission-free” transaction options can make between a 5-7% margin due to their loaded exchange rates, and UK banks charge an average of 3.6% on a £10,000 transaction, compared to an average of just 0.9% charged by non-bank providers. And businesses can expect to pay a lot more for a bank delivered transfer service as well as, typically, still needing to wait 1-2 business days for their payment to reach the recipient. Having to visit their branch, use telephone banking or a card reader to set up the payment online makes the whole process even slower and far less user-friendly than the service provided by the non-bank counterparts.

Money transfer providers can often make transfers significantly faster than banks as they are not weighed down by legacy infrastructures and use technology that has been designed to make the process as simple and as quick as possible for their users. However, there are barriers preventing non-banks from gaining even more market share. Expansion into other markets where non-banks come up against licensing issues and regulatory hurdles have proved formidable barriers to entry, which has meant the traditional banks have continued to dominate the landscape.

These barriers are not an issue for Banking Circle.

There is a better way to make international payments

There are a number of innovative FinTechs who have given consumers a way to make significant savings on B2C and P2P money transfers. But these savings are not limited to consumers alone. Businesses now also have the opportunity to take advantage of low FX rates, minimal fees and real-time international transfers with Banking Circle.

Banking Circle focuses exclusively on the B2B international payment sector providing a way for FinTechs to extend their value chain and expand into global markets by delivering a low-cost, real-time cross border payment solution to its Members and Merchant Members.

Get in touch

Email us at info@bankingcircle.com and one of our team will be in touch shortly.