A sign advertises the money transfer service Western Union on January 11, 2018 in Berlin, Germany. Much of the German financial services, consumer goods and foodstuffs economy is dominated by nationwide chains and brands

About 1.6 million Canadian households sent at least $500 to their family and friends living abroad, for an average of $1,823 per household. (Sean Gallup/Getty Images)

World | Trends

International money transfers: cost up to 10 times less than before

250 million people worldwide send more than US$600 billion abroad each year. The related fees were quite high until just recently. But financial technology has brought them down by 90 per cent.

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Ismail Ahmed, a young Somalian man studying in London, thought it was unfair that international money transfers were so expensive. Knowing that humanitarian reasons (the purchase of food or medication, educational assistance, local investments) are often behind these transfers only added to his frustration.

The World Bank estimates that officially recorded remittances to low- and middle-income countries reached US$466 billion in 2017, an increase of 8.5 per cent over US$429 billion in 2016. When flows to high-income countries are included, global remittances totalled US$613 billion, up 7 per cent from 2016. A record US$642 billion is expected in 2018.

But fees still average 7.1 per cent, or close to US$43 billion globally.

In Canada, “1.6 million Canadian households sent at least $500 to their family and friends living abroad” in 2016, for an average of $1,823 per household. According to Statistics Canada, the fees were 9 per cent in 2014. But that number depends on the financial institution. To send CA$200 to India, for example, RBC charges $19.94, whereas TD Bank charges $34.72.

But people like Ahmed are changing the game. Thanks to the platform WorldRemit, which he designed, he has reduced these fees by a factor of 7 (for example, it costs CA$2.99 for the same remittance to India).

How? Since people are increasingly turning to mobile wallets (over traditional bank accounts), his business opened accounts in 50 countries, and remittances to any of the 125 countries on its list are instantly available without intermediaries. Launched with $200,000 in 2010, his business had US$220 million in financing in 2017 (including $40 million in a venture capital round) and is aiming for 10 million customers by 2020.

The future will be bustling, with financial technology firms springing up in Canada (Remitbee and QicSEND) and other parts of the world (Azimo, Revolut, Circle Pay and Ditto). Some, like Abra, are using Bitcoin to bypass the banking system. The big players have taken notice: Skype now allows fund transfers to 22 countries. In 2015, PayPal bought Xoom, a money transfer service provider, for US$900 million.

The shake-up is prompting a response from Western Union and MoneyGram. In partnership with Ripple, MoneyGram is currently testing the cryptocurrency XRP for speedier money transfers.

It’s never too late, but habits are changing fast. TransferWise, launched in 2011, is already playing to win. The firm—valued at US$1.6 billion—raised US$280 million in a venture capital round last fall. It handles one and a half billion transfers every month. Here too, exasperation was the mother of invention. “We built TransferWise out of personal frustration,” said Kristo Kaarmann, CEO and co-founder of TransferWise, at last summer’s launch of a Borderless account in Canada.

This new type of account (which will offer a debit card in 2019) is like “having access to a local bank account in any country, without ever having to set foot there. (…) Customers can also keep money in 27 different currencies, transferring between these currencies instantly.”