How Transferring Money Abroad Transformed over the Years
Transferring money has a surprisingly rich history, dating all the way back to the 19th century. It might seem like a fairly recent phenomenon that resulted from the rise of computers, the Internet, and people traveling and working all over the world, but this is certainly not the case.
In fact, the methods of transferring money haven’t developed as much as you’d expect, given the vast change in volumes of money that is now being transferred.
Western Union pioneered the wire transfer, an electronic way to send money from one person to another. Western Union completed their first transcontinental telegraph line in 1861, almost 160 years ago. It was only ten years later in 1871 when Western Union started its telegraph network based on money transfer services.
As a measure of how successful this was, the American Finance Company was one of the first companies listed on the New York Stock Exchange. By 1977, over $2.5 million was being transferred each year using the telegraphic transfer service. Compared to today’s standards, it was a very expensive and time-consuming way to send money. The sender would have to give money to their bank or telegraph office, and the clerk would send a message (note) to the recipient. This note would state how much the bank or telegraph office should pay the recipient, and this imbalance of money would then need to be restored by sending the money over.
The ’90s and noughties were huge for banks regarding money transfers. The technology was as secure and fast as it had ever been, and the demand for electronic money transfers meant that fees would come down in price and the service would improve vastly. UK companies like Moneycorp, OFX (previously UKForex) and Currencies Direct came to fruition during the ’90s which was the first sign of strong alternatives for SMEs in the UK.
Small companies were therefore taking advantage of the choices for currency exchange, much more than private citizens. This was because it was still not a completely efficient or instant process. Hedges and transaction times meant that high amounts could be quite effectively converted, but in low volumes. UKForex for example was still regulated in a traditional way by the Financial Conduct Authority as it was deemed an authorized payment institution. This was to ensure the system wasn’t abused through money laundering and to secure some of the deposit amounts that clients made – although this still remains a grey area.
It was throughout the ‘2000s when these corporate currency transfer operations became more accessible to private clients as they became better equipped to deal with higher volumes of transactions. In fact, this development in technology was concluded when Western Union discontinued its telegram service in 2006/07, and Currencies Direct opened up its office in North America.
Perhaps the most revolutionary change came from PayPal’s appearance in 1998 which in the year 2000 merged with Elon Musk’s co-founded company called X.com, an email payment company. Elon Musk, being a pioneer for using email as a payment method, has always pushed technological boundaries for the convenience of the public.
PayPal was bought out by eBay in 2002 for $1.5bn and quickly became one of the most used methods of payment and transferring money. It was offering money transfers at a fraction of the cost of banks, but at the more accessible convenience of companies like UKForex. It opened up the doors for secure, e-commerce payment platforms that were accessible with an email address and password – easier than typing in your bank details every time. PayPal however wasn’t a complete replacement for currency transfers as most people associated it with e-commerce, and its currency margins were nothing too special.
Fintech, Money Transfers and Apps
The landscape of the money transfer industry today is vastly different from even 5 years ago. Online money transfers over the Internet have become incredibly efficient, and this time it’s for everyone. The fintech industry is booming. With the increasing nomadic lifestyles of the public, companies have finally created the technology to keep up with it. The noughties were a time where the global economy boomed and became ever more interconnected, but the corporations were the only ones reaping the benefits of money transfers, perhaps with the exception of PayPal.
Today, there are companies like Revolut and TransferWise who can offer a borderless debit card that can be used in tens if not hundreds of countries, just like different currencies. And at what cost? A very small, or in some cases 0% transaction fee, and a currency rate that resembles the true market rate.
The emergence of these remote-feeling, transparent fintech companies is arguably a result of the 2008 crash. A crash that shook the world, a crash that was built on lies, bad debt, high stakes gambling, and moral hazards. Basically, a lack of transparency. No one knew if their deposits were secure, no one knew the contents of the collateralized debt obligation that they were purchasing, no one knew if the mortgage applicants were in a position where they could repay their debt.
Another reason for this push for transparency since 2008 is the rise in online reviews. Online reviews are becoming the basis of most businesses’ reputations. In 2007, no one would have thought about checking online forums to make sure their mortgage company was safe. Today, people won’t even stay at a hotel for one night before seeing the aggregate score of over 10,000 reviews on TripAdvisor.
As more and more transfer companies come into existence, they realize they have to fiercely compete for the best online reviews because this is where so many sales come from. It is the ultimate form of transparency. Any tricks will eventually come back to haunt them.
With transfer times taking under a day, transaction fees becoming minimal, the future looks very bright. Over the next few years, we can expect and fight for accessibility with further improvements in apps and even easier ways to split a bill.