Urbanization of Money Transfer:
Interruption in cross-border money transfers (undue payments)
Interruption. I have a love/hate relationship with the word. I like what it means and suggests, but I hate it when it’s got the wrong name. I go astray. I had to call
Over the past few months, I have been closely studying the business models of over 200 money transfer companies. From the giants to the new little ones of the neighborhood, to the Mom & Pop store, which tries to last a lifetime, and all the variations in between.
The money transfer ecosystem has some great business models. However, there are three models that stand out in particular. I will briefly mention two of them below.
• The Abra model, which is essentially a point-to-point money transfer model based on what I call the human ATM approach (Abra correctly calls this a cashier). You can click this link to find out how Abra works.
• The application is the other model. Uphold was called BitReserve. To really understand Uphold, I suggest you watch the video (see below) and read this amazing article on Medium: The Internet of Money Is Here
Both models are, without a doubt, very good. This brings me to the third model, which hasn’t been considered yet, but before we get into the third model (option?), I want to give some basic notes.
Points worth considering
Most small money transfer companies (read standalone) are brick and mortar stores with only one yard. Less than 1/5 of them have multiple stores, but most operate in a state (or territory) in which they are licensed (see the United States, for example).
Some points that can be summarized and applied to all:
• limited ability to invest in technology
• Economies of scale do not apply to them
• Limitation of human resources for new investments in technology, business development, and compliance
• Marketing is always a challenge
• Losing customers who turn to other suppliers who provide various bundling / unbundling services
• Limited time
• Limited pre-financing options
• Limited knowledge of online marketing and lead generation
• Connection to payment networks or innovative payment products
• Specialized in 1 to 3 types of diaspora, from which most cases come
• Excellent relationship with the community
• I would like to do more business, but I am busy with all kinds of resources
With these points in mind, the question is: why is the Uber model not being applied to the money transfer industry?
Uber for shipping
Uber is just an app. They don’t own cars, they don’t hire drivers, and they don’t pay insurance. Uber is the app connector. Contains a marketplace where people (i.e. customers) who want a trip and Uber drivers can combine and then make a transaction (i.e. travel + payment)
In every state, there is a money transfer company (certainly more than one in every big city), a small one (MTO family), or an average MTO. Now imagine putting them together in a branded app? Distributed MTOs that have never done business with each other can now be brought together under one umbrella.
The result? You now have a money transfer app for 50 states.
You cannot use the power of the network to integrate transactions from any state. Port them in a single application/dashboard to integrate the transaction, unilaterally increase the restrictions they have (multiple beneficiary countries), monitor the data recorded for all transactions, work with a SaaS compliance provider and provide the same for everyone ( keep in mind that scale advantages come into play here). No harm to existing businesses. The best of both worlds (online and offline).
Before you ask, what about the deal? Who is the customer? is allowed by current legislation? etc. The answers are all in favor of this model.
First, the platform or application is an ISO or any MTO you’ve signed up for. As the service does not collect money, it is not classified as a money transmitter or MSB.
Second, the app inserts the submission discussion into each MTO’s existing system. So no change there.
Third, how does the deal take place? So someone discusses a transaction from Chicago (Illinois) to Manila (Philippines) – through the app, how it works:
Well, here is a suggested path for execution:
• The application has been submitted to the Illinois MTO, whose license is being used.
• Payment (ACH) is made directly to the MTO account by a third party.
• OMT executes the transaction based on the price/exchange offered (before the request).
• Once the transaction is complete, they update the app.
Another way to do this is to assign an MTO or authorized payment network to the official backend network such as Earthport, Tipalti, or Currency Cloud.
I would be selfish and say it took me many weeks to figure it out, and it’s not too complicated. Easy to find out. the idea here is to take a broader view of a decentralized and fragmented market of individual MTOs and put them on one platform. While Uber is an excellent example, the idea mainly comes from reading this article about OYO Hotels in India and the world’s leading hotels, and the Airbnb association/network.
I am very convinced that this is possible. It takes a little hard work to lay the groundwork and ground rules for how all these MTOs are monitored, secured, integrated, integrated, customer support, and so on.