The cost of cross border money transfers has remained consistently higher in Asia as compared to the west. Traditional banks have been charging disproportionately high fees to customers for international remittances and payments. Some of this disparity is owed to inefficient systems, and the rest to plain old greed. Fintech players with new and disruptive technologies have proven that it is possible to bring down the cost of remittances to near zero. These path-breaking firms have now set their sights on Asia.
Asia is home to 60% of the world’s population. A significant percentage of it lives in developing nations. The largest share of the world’s remittances is sent to Asian countries. Other than a very few exceptions such as Singapore, Asian economies have lower per capita incomes than developed countries. A large proportion of the world’s agricultural and industrial output is produced in Asia. Asian firms are at the center of vital global supply chains. Many of Asia’s small, medium and large scale businesses are primarily export-oriented. High costs of international money transfers undermine the competitiveness of Asian firms. The Asian region can really benefit from more cost-effective international transfers.
Global payments revenues grew to $1.9 trillion in 2017. The Asia-Pacific region dominated this revenue pool with transfers worth $945 billion. The lion’s share of international money transfers was in business-to-business (B2B) transactions. Asia is comprised of several massive and export-oriented economies including China, the ROK and India. Global remittance costs have remained largely stagnant at above 6% for many years. This represents an income in the range of $59 billion per year for Asian banks from international money transfers alone! Understandably banks have not been proactive in adopting technologies which can reduce transfer costs. In recent years new age fintech firms have been rapidly taking customers away from banks. They are doing so by offering more efficient and cost-effective transfer methods. Only when faced with this new threat have banks reluctantly started replacing some of their inefficient systems.
Rarely does anyone move bagfuls of money across borders anymore. The vast majority of international transactions are digital. When a US firm pays for a million dollar piece of industrial equipment from China, the bank simply changes two digital bank account records. There is no good reason why something that simple should cost as much as $65,000. Some new age technologies can potentially reduce the cost of such transaction to almost zero. These include digital currencies and algorithm-based balance of currencies across borders. Small and agile fintech firms are also reducing transfer costs. By eliminating legacy processes, minimizing manual checks and doing away with middlemen, they are now routinely doing what seemed impossible not long ago.
The e-commerce story
Online commerce is growing explosively in Asia. E-tailers have found creative new ways to attract users in markets that are strongly influenced by price and convenience. Prime among these is the ability to make quick, secure and easy mobile payments. Alipay has almost 900 million users. It has overtaken PayPal despite a narrower geographical spread. Amazon is gaining users at the rate of nearly a million per month. Google pay has 25 million subscribers and growing fast. WeChat has more than a billion active users which are all potential customers of WeChat Pay. A range of e-commerce companies and even traditional banks now offer e-wallets. Buying online is significantly cheaper than going to a store, for many of our needs. The unifying trend in all of these sweeping changes is the drive to be customer centric. A service which can make things easier and cheaper for customers wins in Asia.
The e-commerce revolution in Asia has been profoundly successful. The next domain ripe for an innovative transformation is international money transfers. A number of banks in Europe allow customers to have balances in multiple currencies simultaneously. Having a multi-currency card eliminates the need for international travelers to carry or exchange currency for all but the largest expenses. Some virtual and physical banks in parts of Asia now offer the same feature. Others are falling over each other to partner with innovative tech firms and offer competitive exchange rates to business clients. If past trends are anything to go by, exchange rates in Asia are set to plummet within a decade.