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April 18, 2015
The fintech sector could quite possibly be one of the hottest new venture capitalist markets. A dearth in technology innovations in the financial industry has left the field open for a new breed of companies. In the last 5 years or so we’ve seen a number of startups focused on using technology to improve the way money moves, spring into multi-million dollar companies practically overnight.
Fintech stands for financial tech and refers to any companies that are revolutionizing the way financial organizations do business through the use of new technologies. In short, they are making moving money quicker, easier and cheaper whether for the purposes of payment processing, money transfers, stock trading, loan services, peer 2 peer payments, etc. Since e-Trade shook up the world of online stock trading, there have been little real innovations in the financial tech field, but that’s finally changing.
International money transfers is 529bn a year market that, until recently, has been nearly monopolized by the large banking institutions. A whole new kind of company is taking center stage though now; money transfer firms. Seeing the obvious opportunity for growth, a number of technology-based money transfer firms have taken a huge slice of the pie forcing the large banks to either start innovating themselves or face eventually being pushed out of the market.
Money has been flowing in the international money transfer market since 2008, but recent VC funding rounds have shown an astonishing vigor supporting the industry.
TransferWise, a London-based money transfer company, recently received $58m in VC funding, putting their value at an estimated $1bn. This recent round of funding was led by Andreesen Horowitz, a leading American VC firm. In previous funding rounds, TransferWise received backing from Sir Richard Branson, IA Ventures, Seecamp, Peter Thiel and more, who all see the potential for returns in an overly complacent market being disrupted by new players and technology.
WorldRemit is another startup that has recently seen tremendous VC interest. Founded in 2010, this young company just secured $100m in their recent funding round putting their value at $500m. Silicon Valley venture capital firm Technology Crossovers Venture handled their VC funding rounds which even saw previous backer Accel reinvesting.
There are other money transfer firms creating waves as well. Azimo, founded in 2012, recently closed a $10m VC funding round led by Greycroft Partners and The Cloud Currency, named in Forbes Top 15 Fintech Startups to Watch, received their own $10m cash injection from venture capitalists. They are currently approaching $500m in payments a month.
Money transfer firm Remitly, focused on mobile device remittances, secured $5.5 m in funding while FastCash, a Singapore-based global payment platform raised over $17m.
The international money transfer market has unlimited potential for growth. A 2010 report by the global consultancy McKinsey showed approximately 2.5bn people around the world who don’t have access to traditional banking systems. In addition to this untapped market, the exorbitant fees charged by banks coupled with the poor exchange rates given, have consumers looking for alternative methods. Using one of these new money transfer firms, people can expect to save 4 percent to 5 percent over what they can get from their banks. They are also able to undercut traditional money movers like Western Union as they don’t have the added costs associated with brick and mortar stores.
Reduced costs and nimbler technologies are changing the landscape of a market that has grown complacent from a lack of competition. Banks aren’t reacting quickly enough and may soon be pushed out of the market completely as more and more people take notice of the new way to handle money remittances. Some chief executives like Bill Downe of the Bank of Montreal and Bharat Masrani of TD Bank have even gone so far as to highlight the issue to shareholders.
While there may appear to be some gloom and doom in the future of banks and Western Union unless they change their ways, this is great news for consumers who are being presented with a host of new options for sending money.