Over the past decade, there has been huge changes in financial environment and especially in the field of money transfer to foreign countries. The market was initially largely controlled by banks and a small number of money transfer companies but it has been drastically opened up by the invasion of fintechs.
In doing this new entrants are deploying new technologies that enable them to provide faster cheaper and convenient services to their customers across the world. This paper aims at discussing how fintechs have revolutionized the market of international remittances in the USA with the focus being on the openness of the market and the problem of reducing the cost of remittances.
Enhancing accessibility through digital platforms
Bridging the gap for the unbanked
Fintechs have also played the role of providing equal financial services access to the previously incapacitated group of clients by banking industries. In the context of international remittances, this implies letting more people use exclusive services, especially those without bank accounts.
A vast majority of the fintech firms have integrated their platforms with simple mobile applications, through which Form can be transferred from one country to another, through a few clicks. This is especially so to migrant workers who perform their jobs in the USA, though they have their families in their home countries and they have to remit some amount of money to their kin.
Leveraging mobile technology
Mobile technology is the key in this process as it becomes a primary innovation tool. Due to Smartphone and internet connectivity, the Fintechs can extend their services to undeserved & less reachable areas. Due to this, physical branches have become a luxury that many cannot afford, hence the rise of these online lenders.
Progressively, firms such as TransferWise (currently operating under the name Wise) and Remitly effectively created apps through which they facilitate cross-border payments without involving a bank account. These services also include the status of transactions through easy and quick update, which increases the level of transparency and credibility.
Another novelties that enhance the accessibility are the aspects of the integration of digital wallets. A few of the applications of digital wallets include; When one issues digital money they are able to use the e-money for products and services as well as make cross-border payments.
Besides, it makes it easier to complete the operation and presents a safer option compared to using cash. Thus, fintechs help more people engage in the global economy either when they are geographically located far away or financially insufficient.
Reducing costs and increasing efficiency
Competitive pricing models
Another mobile money opportunity that is more pronounced in the case of fintechs addressing the international remittance market is related to costs. The most common and conventional methods such as, international bank transfers and Money Transfer Operators entail relatively high costs as well as unfavourable exchange rates that decrease the total deposited amount that reaches the intended beneficiary.
Thereby, traditional banks have higher costs in comparison to fintechs that use innovative business models. They are able to increase relative revenue amounts by several folds through eliminating intermediaries and relying on the p2p networks, which allows providing noticeably lower fees and more favorable exchange rates.
Automation and blockchain technology
Laying off employees is not common, rather one of the well understood ways of cutting down operational cost is through automation . Fintechs employs automatic means of completing the transaction, which apart from increasing the rate of transacting also decreases the rate of erroneous transactions. This efficiency leads to cost savings that are evident from the consumers’ side of things.
Moreover, some players of the chapter are already working to leverage the technology of blockchain to increase the performance and reliability of fintech solutions. Reviewing the data it is stated that the usage of blockchain with its decentralized ledger system entails less time and cost on cross-border operations.
For instance, Ripple is a protocol for payment that is based on the distributed ledger technology known as the blockchain; it allows for sending transactions as quick as possible, and it charges very little fees for those services.
This is completely different from conventional procedures; where the transfers usually take several days and to add to it, the costs are high. Through such technologies, fintechs are able to make the breech and in the process drive down the cost and increase the accessibility of international remittances to their customers.
Navigating regulatory challenges
Adapting to a complex landscape
Fintechs have co-signed many advantages in the international remittance market, but they have serious problems in regulation. Banking sector is governed by the different laws across the world and managing them is sometimes a challenge even when dealing with two different financial institutions.
Ensuring compliance and security
AML and KYC norms are one of the significant issues limiting the growth of fintechs around the world due to the increasing cases of fraud. The following regulations are meant to guard against such unlawful business practices as money laundering and financing of terrorism.
Financial and technology firms should use credible methods to avoid finding themselves on the wrong side of the fence. This process often entails the gathering and confirmation of users’ personal data, which is sometimes quite a difficult task, especially if the target nation’s populace has restricted accessibility to formal identification documents.
To tackling such issues many financial technology firms undertook extensive awareness in the field of security and compliance solutions. For instance, AI and ML in preventing suspecting activities and developing intelligent compliance control mechanisms.
For example, the Companies such as Revolut and Payoneer have advanced means in checking on their transactions and observing various legalities of the global market. Besides preventing them from falling foul of large fines and legal complications it also strengthens the bond of trust with the customers.
However, the same environment has its opportunities for the fintechs to seize and that is what this paper look at in detail. That demonstrates that engaging with the regulators and showing up at trade associations enables the fintechs to influence direction of the future financial regulations.