From Euro đź’¶ to British Pound đź’·

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As a German citizen who has come to England to study, I am required to undertake money transfers from my German to my British bank account.

British universities charge relatively high tuition fees, so we are talking about considerate amounts of money. I am not reluctant to pay a high price for excellent education, but I do get annoyed by only looking at the info booklet sent to me by my home bank in order to get a notion of the respective transfer and exchange fees. Of course, it was easier for me to just google information and exchange rates but the whole process was such a time-consuming nuisance and the outcome wasn’t pleasant at all either. To be honest, I still do not understand the difference between OUR and SHARE.

Searching for alternatives, I stumbled upon London-based money transfer service “Transferwise” – a so-called Fintech.

Fintechs vs. Banking

The financial sector has been experiencing a severe wave of disruptions mostly due to digitalisation, the increased importance of smartphones and mobile convenience, and (as in my case) increased consumer discontent and expectations. Traditional banks have notoriously failed in offering innovative digital solutions concerning internet finance, online banking etc., and Fintechs however have succeeded in identifying those gaps in the marketplace and seized the opportunity to make money from those.

Fintechs are normally start-ups with few employees and therefore have flatter hierarchies. This allows them to change, innovate and rebuild at a higher pace and with less organisational barriers. Legacy banks are controlled by an inflexible regulatory framework and focus more on trust and security, risk management and strong capitalisation inhibiting themselves from quicker innovation and application of new technologies (Martin, 2018).

By providing common and simple interfaces on all mobile devices, especially smartphones, as well as computers, Fintechs have automatically accessed an uncanny wider audience as opposed to the physical distribution of banks.

Every year KPMG and H2 Ventures release the Fintech100 report that showcases statistics and the most successful Fintechs of the year. In 2017, 26 companies from the UK and EMEA were dominating in the “Emerging 50” who have raised over US$1B in 2018 altogether (KPMG, 2017 and 2018). Fintechs are especially fast growing in the UK although not restricted to it.

Fig. 1: Fintechs are not geographically restricted. Retrieved from: https://www.policybazaar.com/pdfs/fintech100-2018-report_final_web.pdf

Transferwise – Money without Borders

Coming back to the fintech of my choice, Transferwise has made use of the inefficiency that arised from the bothersome transactions between EU and UK bank accounts. Globalisation is not a new trend hence young, adult and old people alike travel for leisure or business reasons especially in the European Economic Area. Two Estonians, Kristo Käärmann and Taavet Hinrikus, faced my current problem in 2010 and decided to do something about it. This short video explains how Transferwise was born:

Over the past decades a growing tech-savvy customer base is growing nearly everywhere in the world (see fig. 1) and as such, expectations and consumer behaviour are changing at a fast pace as well. Being born a so-called “Millennial”, I grew up with ever-changing technology, the internet and mobile devices. Fintechs seize the opportunity of profiting from the people’s increased perception of their financial rights and their capability of searching the internet for better alternatives (Gibbs, 2017).

Eventually, it all comes down to the money you could save while undertaking transactions. Transferwise does not only manage to keep the exchange fees at a minimum, they also charge a VERY low price for their service. Being praised by users on the internet during the past 8 years and since the website seemed professional and trustworthy as well, I gave it a try. The company is now valued at more than US$1B underlining their incredible success story. As Taavet Hinrikus explains himself in the below video: “I don’t think consumers think about Fintech [as such], consumers care about a better experience. Cheaper, faster, more convenient.”

And he was right.

Fintechs do not primarily aim at disrupting existing businesses but have seized the opportunities from technology shifts to provide services in a more efficient way (Stanford-Clark, 2017). Although Fintechs sound all great, they are still facing a handful of challenges.

When I started using Transferwise I was taking a risk, as opposed to buying services from big banks who have built on their customers’ trust over generations. Banks have one main advantage over Fintechs which is their in-person services, i.e. “real staff” (Gibbs, 2017). The fear of defraud is therefore as good as non-existent. Collaborations with banks might be necessary to elevate an even stronger, better performing entity (Marous, 2018). Transferwise cannot establish an own bank in every country they operate in, hence collaborating with local banks is inevitable. Gaining trust without having a physical location of business or “real staff” might have been and still is the biggest challenge of Transferwise.

Big companies and banks, such as Barclays, Apple and Google, have decided to assist the UK government on establishing a Partnership to teach digital skills to citizens (UK, 2017). Fintechs grow and so do their staffs. As Jones calls it “the war for talent”, it is also one of their challenges to find right-minded, skilful people when facing giant Techfins (such as Amazon, Google and Facebook) and banks who are now starting to modernise (Jones, 2018).  

In summary, Transferwise has achieved in eating away one of the banking value chain, i.e. transactions across borders with two different currencies, and disrupting the banking industry. However, Fintechs have disrupted but not yet replaced banks as such.

References

Comments on fellow blogs:

The opportunities and challenges presented by operating in both digital and physical locations- Tesco
Digital vs Physical – or both?

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2 Comments

  1. Hi Cara,

    as a postgraduate student from Germany myself, I completely understand the issue you raise in your post!
    When I transferred the tuition and accommodation fee for my year in Exeter, I was once again shocked by the amount my German bank would charge me for those transactions and was going to charge me for every transaction and purchase I was going to make while living in the UK. And this in addition to the exchange rate.

    While I highly trust and value the security of my bank in Germany, I don’t understand the difficulties they seem to have with innovation and meeting changing customer needs. For such established institutions it shouldn’t be so difficult to implement technological changes such as including mobile phones, money transfer or (especially in Germany) the slow introduction of contactless payment.

    I very much agree with Taavet Hinrikus that consumers do mainly care about a better experience with a cheaper, faster and convenient service, given security is provided.

    I have decided to keep my German bank account while living in the UK and go back to paying cash, as this seemed to be the cheapest and easiest option for me. This is a disaster in this modern and convergent world, especially in Europe.

    Thank you for sharing the story of Transferwise and your experience with it. It is definitely a service I will try in the near future and one that will improve my life a lot!

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  2. Pingback: #tb What I learned from Digital Business Models – Reflecting on BEMM129 – Nina's Online Journey

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