A Better Way to Compare International Money Transfer Apps
Several review websites have sprung up to compare international money transfer apps. They award a score to each app based on metrics like features, customer reviews, and markets served. Then they list the international money transfer apps that received the best scores. But I realized that these websites are actually comparing fintechs in several different niches. Placing all of these apps into the category of international money transfer apps may not be the best way to review them.
For example, if you search for a review of the best banks, review sites split banks into several different categories. Bankrate selected the best banks and ranked them by category. These categories include big banks, online banks, credit unions, and regional banks. As a result, the review site’s not comparing a major bank like Bank of America or Wells Fargo to your local credit union. The big bank and credit union will operate differently and have different strengths and weaknesses even if they each represent the best financial institution in their category.
A better way to compare the international money transfer apps is to split these fintech apps up into several categories and then select the best app in each category. It’s just like what consumer finance and review sites already do with banks. And a review like this would probably be more useful for people who want to use an international money transfer app for a specific purpose. If you want an app that provides every feature possible, banks themselves may be more competitive in that area even though they charge higher fees for money transfers than these specialized fintechs. So here are a few of the categories I would use to classify international money transfer apps.
Peer-to-peer international money transfer apps offer the lowest rates. The fintech platform matches transactions between its customers in two countries and then uses local banks in each country to send the payments. Thus, the platform never needs to exchange currency across international borders. It doesn’t have to buy currency from a bank or forex brokerage that charges fees or collects a spread to process these payments.
So many of these platforms offer the fair rate, or the mid-market rate, to their customers. The platform doesn’t need to collect a spread because it’s not exchanging money with another financial institution that collects a spread. These platforms often charge a small fee for processing each transfer, though. Peer-to-peer money transfer platforms include Wise, Midpoint, and CurrencyFair.
Some money transfer apps specialize in remittances. Their customers include people from developing countries who work in wealthy nations where wages are much higher. These workers often send money home to support their families. For a remittance provider, it’s critical that the platform supports the currency that the worker’s family will receive back in their home country. So these apps may support 100 or more currencies.
Remittance providers may also support payment methods that aren’t common in the United States but are used in Africa, the Middle East, or South America. For example, a remittance provider might convert a payment in US dollars into airtime minutes in Kenya or South Africa. Remittance apps also set up partnerships with local merchants so that a recipient can collect cash at a store or a bank. Sometimes, the app even has its own network of cash delivery agents who can drop off the money at the recipient’s house. Remittance providers include Western Union, MoneyGram, Ria Money Transfer, WorldRemit, and Azimo.
Forex brokers provide currency exchange services to a wide range of customers. They often serve businesses in addition to individuals and can process large transfers. They even provide currency exchange services to remittance apps. Some remittance apps don’t exchange currency themselves, they have partnerships with forex brokers. When this happens, the relationship between the remittance app and the forex broker is similar to the relationship between a neobank and its partner bank. The remittance startup creates a simple mobile app that connects to the forex broker’s payment processing system. Then, the forex broker exchanges currency for the app’s users.
Forex brokers usually collect a spread and don’t offer market rates to their customers. They exchange foreign currencies through banks that charge them a spread and fees as well. These brokers receive volume discounts from these banks but can’t trade at the market rate themselves. So they pass on the spreads to their end users and collect additional spreads on top of that. Many of these brokers claim that they don’t charge fees for exchanging currency, which is true, but they still collect a spread. OFX and XE are forex brokers.
These are just three categories of money transfer apps, and I didn’t cover all of the categories out there. For example, some platforms only process international money transfers for businesses. Other platforms provide business services like accounts receivable and accounts payable automation in addition to international money transfers. But I think this is enough to prove my point. It would be more useful to split money transfer apps into several categories before comparing them, and review sites already do this when they compare banks to each other.