What Could COVID-19 Mean for Money Transfer Providers?
A look into how money transfer companies operate, and how resilient they may be in the face of an enduring global pandemic.
The impact of the COVID-19 pandemic on businesses worldwide has been nothing but staggering, and not in a good way. No industry in the global economy is left untouched and a recession is imminent now. This means that money transfer companies are going to suffer through some major downtime. The question is whether they will be able to get through it and how they will have to change.
On the other hand, the pandemic has caused a major increase in the demand for fintech solutions. This means that money transfer companies with a wide range of additional services might get an opportunity to increase their customer base.
How Do Money Transfer Companies Make Money?
To understand the implications of the COVID-19 pandemic and its impact in the money transfer industry one needs to understand how that industry operates. Online money transfer platforms and brokers have been growing rapidly in number and popularity over the last few years. The reason for this is the increased rate of globalisation.
However, the growth of such businesses is also one of the reasons that make this rate of globalisation possible. These services made international money transfers affordable. This means that cross-border financial transactions became available for small businesses and investors.
Not so long ago, bank wire transfers and a few money transfer corporations (Western Union and MoneyGram) were the only options for transferring money abroad. The problem with them is that both charged high rates. They also use a high markup on foreign currency exchange rates.
Online money transfer platforms and brokers have been growing rapidly in number and popularity over the last few years.
Overall, a single transfer to or from abroad could cost up to, and sometimes even over, 10% of the amount. Small businesses with their tiny revenue couldn’t afford such transactions. Therefore, they were denied the opportunities offered by using cheaper services and materials delivered from abroad.
The situation is like this because those fees and markups are what banks use to make money. However, online money transfer companies are completely different. They do not transfer money physically across borders. Instead, the customer deposits the amount they need to the company’s account in their country. Then, the company transfers an equal amount to the recipient from its account in their country.
This approach allows businesses to minimise transfer costs. And money transfer companies that operate in such a manner make their profit from the volume of transfers they process. Therefore, it’s more beneficial for them to keep their fees as low as possible to attract more customers.
Impact of the COVID-19 Pandemic on Money Transfer Companies’ Customers
Unfortunately, due to the crisis caused by the pandemic, money transfer companies have fallen on some bad times. Even #1 companies like TransferWise struggle because of the reduced flow of transfers. These companies largely depend on small businesses, which are failing at an alarming rate.
It’s not a surprise because even big international corporations are struggling today. For example, the reduction in international travel, has already caused the near-collapse of Virgin Atlantic. With huge companies like this failing to survive, the majority of small businesses have no chance whatsoever.
The other major group of customers for money transfer companies is small property investors. Cheap transfers made it possible even for people without huge fortunes to purchase properties abroad. This rapidly developed into a major industry as easy international transportation made the tourism industry boom. However, with travel restrictions and lockdowns in many countries, the hospitality sector has been hit greatly. The reduction in buyer capability will also affect the real estate market all over the world.
COVID-19 Pandemic Repercussions for Small Businesses
Small businesses have been hit the hardest by this situation. Their main problem is the lack of free funds to tide them over through the lockdown. There are some lending programs from governments that should help these types of enterprises. However, those are hardly sufficient. They are also not available worldwide.
Because of the enforced hiatus, small businesses have reduced the volume of their international transfers. The situation should change for the better when the world gears back after lockdowns are lifted. However, this would be a slow process.
In the interim, money transfer companies will suffer the same fate as small businesses. Those among them that do not have the funds to get through the downturn will perish.
Future of the Real Estate Industry Post Coronavirus
The real estate market worldwide is pretty much frozen at the moment. It’s starting to reanimate in some places, but this process is even slower than the small business restoration.
The good news is that the housing market in many countries has been on the rise in recent years. On the other hand, the pandemic has severely decreased people’s ability to actually buy properties. This means that the current slowdown of the market will be followed by a bigger dip. The real estate industry will recover in time, but this won’t happen fast.
The good news is that the housing market in many countries has been on the rise in recent years.
Meanwhile, investors are sure to reduce their transfers. Again, money transfer companies will lose a major contributor to their cash flow, but offering assistance and hedging tools to the existing investors today can help tide them over.
Will Money Transfer Companies Recover after the Pandemic?
The situation for money transfer companies and brokers is grim today. However, there is no doubt that it will improve. Moreover, this industry should recover faster than some others. That’s because this type of service has been in great demand even before the pandemic. But after this world-shaking event, it will be even more needed.
As mentioned before, even big corporations now struggle to stay afloat. Therefore, they will be looking for every way to cut costs and boost their efficiency. International deals and cheap money transfers are both essential for succeeding in this.
Admittedly, governments are doing what they can to support businesses and therefore reduce the negative impact of the pandemic. However, their success is limited, and it’s only a few countries that can make any big difference for small businesses.
Therefore, money transfer companies will have to wait for a while until their customer traffic is restored. The ones that can make it will definitely grow rapidly. Also, businesses that expand to online banking on top of offering international transfers have a better chance. Those are already in high demand as the world is going digital even faster than before.
All in all, for all that it seems bad now, the situation for the money transfer industry is very promising.