What Trans­fer­Wise could mean for mov­ing money

▶ As the money trans­fer ser­vice an­nounces its im­mi­nent ar­rival, Nada El Sawy looks at the ef­fect it could have

The National - News - - FRONT PAGE -

With ex­pa­tri­ates mak­ing up al­most 90 per cent of the coun­try’s pop­u­la­tion, it is no won­der the UAE is one of the top senders of re­mit­tances glob­ally.

Trans­fer­Wise, the global low-cost on­line money trans­fer ser­vice founded in the UK, is cap­i­tal­is­ing on this lu­cra­tive mar­ket by ex­pand­ing to the Mid­dle East after re­ceiv­ing a li­cence this week from the Abu Dhabi Global Mar­ket Fi­nan­cial Ser­vices Reg­u­la­tory Au­thor­ity. It is ex­pected to be avail­able early next year.

“The Mid­dle East was al­ways on our map be­cause of the sig­nif­i­cant vol­umes that flow here, but also the costs of send­ing money,” Matt Bri­ers, chief fi­nan­cial of­fi­cer of Trans­fer­Wise, tells The Na­tional.

The high costs, in­con­ve­nience and time wasted are a few of the pain points that come with in­ter­na­tional money trans­fers. The UAE has ex­pe­ri­enced in­creased fo­cus on these is­sues with the re­cent ex­plo­sion of Fin­Tech com­pa­nies in the pay­ments and re­mit­tances space. In­dus­try an­a­lysts say Trans­fer­Wise’s en­try in the re­gion could mean good news for cus­tomers.

“Trans­fer­Wise brings a par­a­digm shift to the money trans­fer ser­vice in the coun­try and in the re­gion be­cause it solves very im­por­tant pain points that the cus­tomer has been fac­ing,” says Mirna Sleiman, founder and chief ex­ec­u­tive of Fin­Tech Galaxy, a vir­tual ac­cel­er­a­tor in the Mena re­gion.

She says the move will also al­low lo­cal Fin­Techs to “pig­gy­back on this new de­vel­op­ment” by ei­ther of­fer­ing their own dig­i­tal ser­vices or po­ten­tially part­ner­ing with Trans­fer­Wise.

A to­tal of Dh169.2 bil­lion was sent from the UAE last year, the Cen­tral Bank’s 2018 an­nual re­port shows. Global re­mit­tances to­talled $689bn (Dh2.5 tril­lion) in 2018, ac­cord­ing to World Bank fig­ures. The UAE and Saudi Ara­bia were the sec­ond and third top re­mit­tance coun­tries after the US in 2017.

The global av­er­age cost for send­ing money in the sec­ond quar­ter of this year was 6.84 per cent and the av­er­age from the Mid­dle East and North Africa was 6.91 per cent, ac­cord­ing to a June World Bank re­port. That is more than dou­ble the United Na­tions Sus­tain­able De­vel­op­ment Goal tar­get of de­creas­ing the cost to 3 per cent by 2030.

“The av­er­age cost and length of time it can take to trans­fer money across bor­ders is a sig­nif­i­cant chal­leng,” says Jack­son Mueller, as­so­ciate di­rec­tor of the Fin­Tech pro­gramme at the Milken In­sti­tute Cen­tre for Fi­nan­cial Mar­kets in Wash­ing­ton.

“Trans­fer­Wise, along with other pay­ments providers, are look­ing to ad­dress these chal­lenges head-on – that can lead to more money in peo­ple’s pock­ets and greater ac­cess to fi­nance.”

Here we ex­am­ine the ef­fec­tTrans­fer­Wise will have on the UAE’s re­mit­tance in­dus­try:

How ex­pen­sive are money trans­fers from the UAE?

The World Bank pub­lishes com­par­isons of the cost of send­ing money us­ing dif­fer­ent meth­ods on its web­site with the goal of “mak­ing mar­kets more trans­par­ent”. It in­cludes 12 des­ti­na­tions or “cor­ri­dors” from the UAE, in­clud­ing top re­ceivers In­dia, Pak­istan and the Philip­pines.

For ex­am­ple, from UAE to In­dia, the cost as of May to send Dh735 – equiv­a­lent to $200 – var­ied from Dh1.47 with Ko­tak Click­2Remit, a ser­vice for cus­tomers of In­dia’s Ko­tak Bank, to Dh37.71 with WorldRemit, a global on­line trans­fer ser­vice. Lo­cal ex­change houses, such as UAE Ex­change, Al Far­dan and Western Union, charged around Dh20.

A trans­fer of Dh735 to Pak­istan also var­ied widely, from Dh5.73 with GCC Ex­change to a Dh89.08 with Dubai Is­lamic Bank. Other ex­change houses ranged from Dh13 to Dh24. Trans­fer­Wise was founded in the UK in 2011 by Es­to­ni­ans Taavet Hin­rikus, Skype’s first em­ployee, and fi­nan­cial con­sul­tant Kristo Kaar­mann. Mr Taavet was paid in eu­ros, but needed pounds, and Mr Kaar­mann was paid in pounds, but needed eu­ros to pay his mort­gage back in Es­to­nia.

They made a pri­vate ar­range­ment to put the cur­ren­cies needed di­rectly into each other’s bank ac­counts, and the idea be­hind Trans­fer­Wise was born.

The plat­form is now used by 6 mil­lion cus­tomers world­wide, pro­cess­ing more than $5bn in cus­tomer pay­ments ev­ery month. The ser­vice is avail­able in more than 1,600 cur­rency routes and 49 cur­ren­cies, with money trans­fers up to eight times cheaper than the banks in its big­gest mar­kets.

“Wher­ever pos­si­ble we will pay money out from lo­cal liq­uid­ity that we have … whereas with a bank, a bank would send this through a cor­re­spon­dent bank­ing net­work that would ac­tu­ally go through many banks along the way. [That means] a huge amount of cap­i­tal tied up and a lot of man­ual pro­cesses,” says Mr Bri­ers. “The typ­i­cal bank costs around £30 (Dh142) to make a trans­fer in­ter­na­tion­ally. Trans­fer­Wise is do­ing it for about a tenth of the cost.”

How does Trans­fer­Wise do it cheaper?

In­stead of mark­ing up the cur­rency ex­change rate, Trans­fer­Wise uses the mid-mar­ket rate and charges an up­front fee. The mid-mar­ket rate is the mid­point be­tween de­mand and sup­ply for a cur­rency, so it is the rate you will find on in­de­pen­dent sources such as Google and xe.com.

For ex­am­ple, trans­fer­ring £1,000 from the UK to eu­ros would cost £3.95 at the mid-mar­ket rate of 1.15480, so the re­cip­i­ent would get €1,150.24 (Dh4,698). Trans­fer­Wise also pub­lishes com­par­isons to ma­jor banks on its app and web­site.

Trans­fer­Wise can of­fer lower-cost trans­fers be­cause of the au­to­mated process and be­cause, un­like banks, it is not sub­si­dis­ing other prod­ucts. About 20 per cent of the money that leaves the UK is now on Trans­fer­Wise, says Mr Bri­ers.

“Peo­ple join us be­cause the prod­uct is much cheaper, but ac­tu­ally a big wow fac­tor is also the speed,” says Mr Bri­ers. About a quar­ter of trans­fers are in­stant, mean­ing they are done in less than 20 sec­onds.

There is some am­bi­gu­ity on how Trans­fer­Wise, which has a money ser­vices Provider” li­cence from ADGM, will op­er­ate. “This is an in­dus­try that has been man­aged and reg­u­lated by the cen­tral bank. When you’re an off­shore com­pany, when you’re based in the DIFC and the ADGM, you’re not al­lowed to do trans­ac­tions with UAE dirhams on main­land,” says Ms Sleiman.

Where else in the re­gion will Trans­fer­Wise be avail­able?

Trans­fer­Wise has ex­pressed its in­ten­tion to ex­pand else­where in the re­gion with Abu Dhabi its Mid­dle East hub. Tim Har­ley, head of Mid­dle East ex­pan­sion for Trans­fer­Wise, said Saudi Ara­bia and Bahrain are be­ing lined up next.

What other Fin­Tech money trans­fer op­tions ex­ist in the UAE?

Lo­cal start-ups such as Now Money and De­narii Cash are al­ready dis­rupt­ing the mar­ket.

Now Money of­fers “the un­banked” the abil­ity to make money trans­fers through its app by al­low­ing em­ploy­ers to de­posit money into an em­ployee’s Now Money ac­count.

“There are 5 mil­lion peo­ple in the coun­try that don’t have a bank ac­count,” says Ian Dil­lon, founder of Now Money. “The first thing you need to use Trans­fer­Wise is a bank ac­count and we serve the un­banked cus­tomers.”

De­narii Cash plans to al­low users to send money from the UAE to the Philip­pines with zero fees. Now in a test­ing phase, the com­pany charges an up­front fee of $2.50 for amounts over Dh1,000, but zero fees for amounts be­low that. “We don’t make money from the ex­change rate, so it is the mid-mar­ket price,” says Jon San­til­lan, founder of De­narii Cash.

Trans­fer­Wise’s en­try into the mar­ket “shakes up the re­mit­tance in­dus­try over­all in the coun­try”, says Mr San­til­lan. “Big com­pa­nies will start think­ing about not go­ing into si­los and work­ing with other start-ups to be able to com­pete.”

A to­tal of Dh169.2 bil­lion was sent from the UAE last year, ac­cord­ing to Cen­tral Bank data Pawan Singh / The Na­tional

Matt Bri­ers, chief fi­nan­cial of­fi­cer at Trans­fer­Wise

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