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Relationships with banks will shape the future of the money transfer market

You’ve recently secured a new partnership with RBS for a Revolving Credit Facility. What does this deal mean for your organisation?

Nick Day

Nick Day

 The revolving credit facility with RBS is initially a three-year arrangement that will contribute towards our continued strategy of high growth. It is also the first deal of its kind to be secured in this particular sub-sector and so represents a significant moment for us and the money transfer market. For our company, it is a great vote of confidence in our model and will certainly help us with the planned growth for the business over the next three years.

Put simply, the new RCF will allow Small World FS to borrow up to £15 million worth of funds from RBS any time we need it – so with this buffer we can more seamlessly absorb the various fluctuations in cash passing through the business, particularly when we see seasonal cash flows spike and drop,for example, around Christmas.

There have been times when traditional banks and money service providers like yours would have been seen as competitors – are these times over? 

The balance of the industry is shifting between banks, FX brokers and money transfer operators. The market for consumer cross-border payments is estimated to be a huge $2.1 trillion, and growing. While banks still command a large share of this market, it is a shrinking majority and the trend shows that year-on-year a significant number of transactions are shifting away from banks towards specialist providers.

Having said this, financial institutions have a vital role to play in the future of cross-border payments. Between 2011 and 2014, over 700m people in the world became new bank account holders – pushing the number of ‘unbanked’ people across the world down to 2bn. The World Bank is now working towards the target that, by 2020,at least 1bn adults who currently aren’t part of the formal financial system will have access to a transaction account to store money. This will allow them to send and receive payments as the basic building block to manage their financial lives.

For the money transfer market, the large rise in bank account holders across the world means that demand for transfers directly into bank accounts will be on the rise. As a money transfer business, we can only guarantee swift and accurate transfers into bank accounts if we have a bespoke agreement with the receiving bank in place – otherwise transactions get lost in the abyss of the international inter-bank payments system.

With that in mind, although banks’ share of the market is falling, they will still be a crucial component in making transfers available to people across the world.As such, I wouldn’t say banks and money service providers are competitors, but rather, we complement each other in providing customers with the best service possible.

 What role does technology play in this trend? 

While a digital solution is vital for success, it is not enough on its own. Any money transfer business worth its salt will offer efficient technology, but this needs to be complemented with strong relationships with Financial Institutions. Without these relationships, you can have as sophisticated a digital system as you like, but you won’t be able to truly compete on any major scale, and become profitable. Too often companies overlook the fact that they are first and foremost a financial service – it’s important not forget the ‘Fin’ in Fintech.

 With all the technology on offer, why are relationships with banks necessary? 

Technology can only provide so many services and perform so many functions. Banks can provide services for the money transfer market that specialist businesses can’t – such as the revolving credit deal we secured with RBS. Many banks have resources that money transfer businesses wouldn’t have access to unless we partner with them, and reach in parts of the world that we need access to. For many people, their relationship with their bank, and their savings, are intensely personal and it’s important to understand and respect the relationship that is often built up over years. 

Many would say it is the technological aspect that makes the sector “ripe for disruption” – would you agree with that? 

I think this is quite an unrealistic claim. If you’re looking for a business that you can launch from your garage, the money transfer market is not for you. From my experience, success in this industry requires deep understanding of the market specifics and the robust regulatory requirements – and it takes a long time to gain this knowledge and overcome territory-specific hurdles. The market is intensely competitive, and all players are deploying new technology in a variety of ways to continually improve service offerings, and improve operational efficiency.

In regards to the technological aspect of the industry, focusing purely on this side will hold you back. Businesses like ours, that are propagating a truly multi-channel strategy, are out-performing the sector. There is, after all, no point in pursuing an innovation that customers don’t need or want. Small World offers more ways for customers to transfer money than any other operator; via mobile, telephone, online, app, direct to bank and in retail locations. Our emphasis on a multi-channel strategy has been recognised by’s money transfer awards 2017, where Small World won in 2 categories: fastest transfer and most convenient to use. It goes to show that an efficient digital solution, while important, is not the only requirement for an easy and convenient customer experience. 

Why is this? Well, despite the growth of digital technology, sometimes there is no digital solution. If the customer doesn’t have access to the internet, or a phone, we must ask ourselves what other options do they have to receive the money? This might be a bank account, a mobile money account, or a prepaid card – we can send money to all of them. Every local market is unique, and you must develop your proposition accordingly. 

What challenges does the money transfer market face and where do you see it in the next 5 years? 

The high levels of regulation and necessary compliance processes always have to be on your radar if you want to succeed in our sector. At the end of the day, I am almost certain that the world-wide network of different regulations will act as a barrier for many small Fintech start-ups looking to get a foothold in the industry and scale up their business.

The next five years will certainly see non-bank money transfer businesses gain an even greater market share compared to traditional banks. However, with the amount of ‘unbanked’ people in the world shrinking, we will see a greater emphasis on money transfer businesses and banks working together as partners in the transfer process to offer customers the best choice possible.

The future is looking good and we are ready for it.

Nick Day is founder and CEO of London-based money transfer business Small World FS. In 2016, Small World FS grew its transactions by 30% and the business doubled its profits, out-performing the sector.

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