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March 12, 2015
The international money transfer market has been thrown into a tizzy over the last couple of years. While traditionally the big banks have had what could be called a monopoly on the majority of overseas money transfers, this is finally beginning to change. Private money transfer companies are coming to the fore as a better and cost effective alternative.
Adding a touch of transparency to the international money transfer industry, these private foreign exchange firms are offering lower rates and quicker transfers than the big banks. This is having huge effect on one of the least represented demographics in the governmental and financial sectors; migrant workers.
For a longer than most can remember, migrant workers have left developing countries and come to places like America, the U.K. and Australia for the chance at a better life. The majority of them send large portions of their salary to families members back in their home countries, but according to a World Bank Report, they are being charged an average of 8% for the service.
The ratio of fees to money transferred is generally higher for smaller amounts making this a costly problem for migrant workers who regularly send small amounts of money weekly. Not only do the big banks make money on the expensive fees charged, they often give poor exchange rates too.
There are a number of new players on the scene leveling the playing field and helping migrants keep more of their money when sending it to friends or family members overseas. Companies like US Forex, WorldFirst, Transferwise, and Xoom are emerging as cheaper ways to send money abroad. Not only do they charge lower fees, but they give better exchange rates too. They are becoming the best way to regularly send small amounts of money internationally.
It’s not just migrant workers who can benefit from these emerging companies, but expats and holiday travelers as well. Instead of using their credit or debit cards and receiving 3% or higher fees, they can initiate a cash money transfer online from their home banks to a number of convenient pick up locations. It eliminates the need to choose between carrying large sums of cash or using credit and debit cards.
It’s not just the migrant workers and their families who can benefit from cheaper overseas money transfers, but whole economies too. The Pew Research Center has found that annual flow of remittances has nearly tripled since 2000 reaching a grand total of almost $500 billion. Along with foreign direct investment, migrant remittances are one of the most significant sources of money flowing into developing countries. Lower fees for sending money overseas translates into more money boosting the economies of developing nations.
The emergence of these foreign exchange firms is coming at just the right time; a period when the reputations of large banks are coming into question because of their deceptive actions. Recently international banks like Barclays and Deutsche Bank have been investigated for using algorithms to manipulate exchange rates. It will be interesting to see, how the banks respond as more people learn of cheaper ways to send money overseas.