Category Archives: Money Transfer

The History and Future of the Telegraphic Transfer

The word telegraphic transfer is a nostalgic term in banking and finance because it refers to a time when sending money in any way electronic was unusual. In the early history of banking all bookkeeping was done manually, money transfers were done in cash or cheque and transactions were accounted for on paper ledgers. Then came electricity, cable communication and telegraphic transfers were born.

Telegraphic transfer is when one party remits to another electronically. It was first done using cables and now get used to identify any electronic funds transfer. In many parts of the world, it is said as a form sarcasm toward the reminiscence of aristocratic society, as a sort of snub. Prior to the internet, transferring money electronically was reserved to the elite in large important transactions but today more and more people are accessing it. Electronic payments still being relatively new, we have yet to witness the bulk of it historical societal change. Money was electronic and now is digitizing.

The first idea of electronic money came in 1880 when renown American scientist Edward Bellamy suggested accounting for transactions on a card but technology was not yet mature enough to support the application. It wasn’t until Diners Club International issued the first universal payment card that the movement developed steam. In 1957 came Americard (better known as Visa), then in 1966 came Master Charge (known as MasterCard) and in 1968 came the Electronic Data Interchange (EDI) which allowed for what is known today as EFT (Electronic Funds Transfer).  Up until the mid 1990s, the developed world gradually transitioned over to electronic payment systems. Pop culture started depicting electronic payments as more mainstream and mass adoption to root.

1981 sparked the official beginning of the digital revolution with the first use of internet protocol. Large financial institutions at this time started implementing digital payment networks and international settlement became faster. This is when securitization began, the cabal of large institutions started not only digitizing money but investments and all forms of economic value. In turning these formally illiquid values transactable, the established financial community increased trade and became more interwoven but this did not stop the digitizing of assets.

Despite large regular financial market panics, money has continued to move faster and faster while markets digitized. Long gone are the days of physical stock exchanges and trading is mostly done on computer and often through the use of algorithm (within developed centres). The Internet being peer to peer, one would think that markets would have decentralized with increasing use but we are yet to see this on a large scale. Even today, much of the worlds exchange of money and securities is done on proprietary networks that are centrally owned. Innovations in payment networks has been made and the technology is now existent to start decentralizing financial markets.

Transaction authentication has long been the primary obstacle to removing third parties to individual transactions. By the very nature of a financial exchange you need to confirm that an exchange of value has been made and in early times this was done with a unique and hard to replicate physical token (a currency). When electronic ledgers appeared, a settling agent and clearing house was required to confirm that a unit of trade was not spent twice and was in fact transferred.

Since the introduction of HasCash in 1997 and the latter expansion into Bitcoin in 2009, encryption has successfully solved this issue. No longer do you need any witness to you transactions as they are automatically accounted for in a public ledger and authenticated by the entire network using cryptology. This has sprung a entirely new sub sector within finance that revolves around peer to peer trade based on encryption as enthenticators to trust. Entire markets such as Coinffein have sprung up to exchange digital currencies without a third party.

Many insiders today, are referring to the underlining technology of Bitcoin (the blockchain) in the same light as Linux was viewed. Many suggest that it has the potential to impact financial markets in the very way that many aspects of the Linux OS has impacted electronics. The Linux architecture is present in some way, shape or form in just about every computerized devise and has been built upon to serve a wide variety applications in just about every industry. Linux changed computers forever because it was a base an architecture that could be improved upon. The blockchain shares that commonality with Linux.

Telegraphic transfers are simply electronic transfers. To know where we are going it’s important to know where we have been. We have come from a place exclusive use to a more and more open economy. I would anticipate this continue and the only logical directory would be to have a larger number of people take more control over their units of trade and thus their measurement of wealth. The exchange of value is becoming more peer to peer and this has the potential to empower money people. We are currently witnessing a turning point in our economic history and spotting the opportunity is often half the battle.

How to Save Money on your Foreign Remittance

Sending money overseas is getting cheaper. There’s no question that for many migrant workers that there are new ways to send money back home, but in order to save people will need to start changing their financial habits. Part of what has traditionally restricted people to send money around the world with ease is that the traditional banking system is not standardised across the world. Yes, it is pretty standard across many western and developed economies but many less developed and rural regions of the world do not have the same rules to transacting. To understand this, it’s firstly important to understand what the role of banking is.

A bank is an agent who settles a transaction. Accounting for your balances is simply a by-product of settling your transactions but has become standard in the industrialized world. The primary role of a bank is to authenticate the monetary trade between to parties and exists in more primitive forms throughout the world. Within traditional western banking, the settlement of transactions and account registration go hand in hand but in many less developed regions, account registration is not so formalized. Take an individual money changer in a less economically developed or rural of the world.

Informal money exchanges are the norm across many countries and account access is achieved through a third party exchanges or money brokers. These are people who less formally exchange money but operate in the field. They will send money abroad converting cash to credit under their won accounts.  This inherently conflicts with western KYC and anti-money laundering/terrorist financing regulation because of its less formal nature. It also ends up increasing overall rates for the end user. Money brokers in less developed regions have have professional networks across the world but the way that their western counter-parties interact with traditional institutions is problematic. Their entire business model can’t comply with traditional regulation by its inherent nature of informal dealings. This is only one of several opportunities that lie for operators within the field. Political relations have also been an obstacle for agents remitting internationally but is less of a controllable factor for money exchange businesses.

The way that foreign remittance is currently getting cheaper is through the improved access to global financial markets whether formal or informal by end users. People only need access to the internet to have access to a financial markets to trade Dollars for Euro or even M-Pesa for Bitcoin. SMS technologies are even now evolving to include payment services which is granting access to using sophisticated devices. This is huge for two thirds of the world because they can now access global financial markets cheaply.

What this means for much of the world is they will now have access to financial services because the new types of institutions are setting up using digital currencies. These are for the most part, currencies that are designed to be crowd sourced meaning anyone can transact in them without needing any outside authority. This is  a less formalized process which is better suitable for less formal economies, countries or regions. A the moment, the bulk or the infrastructure is needed for intermediaries (agents or brokers) between the digital economy and the formal financial system, but it is coming.

For people who do currently do have access to banking in first world nations, sending money abroad has also changed. We now have companies like Payonner and CurrencyFair who are specializing in foreign remittance and have cut cost significantly for end users by not having physical branches. CurerncyFair is an internet company designed for the new online world. They focus on providing excellent rates for remittance within more developed countries. This has lowered cost significantly by focusing large efforts in developed economies with online payments. Payonner on the other hand is a little different than traditional money exchange. With them, you basically send money anywhere that has postal service and ATMs. They will send pre-paid MasterCars anywhere in the world and it can be refilled. It’s like sending a cheque to your family back home and they can actually cash it then use it whenever you refill it. For sending money to less developed areas, Payonner can be a good option because the intermediary can literally be a bank machine or point of sale (POS).

What I’m suggesting, is that to save money when remitting payments back home, understand that the entire industry is blossoming and becoming more competitive. New type of financial institutions are starting up worldwide to meet your need, regardless what they are. No longer does your remittance have to be a side operation of your bank because you can deal with a wider variety specialist that can connect to world markets.  Understand your needs and the most suitable company will save you the most money sending foreign remittance.

Bitcoins $430 Billion Remittance Opportunity

The rise to prominence of bitcoin has produced a lot of talk around the world for its supposed potential to transform the global remittance industry. This is no small feat, having a potential of $430 billion in global trade. Given that this online currency is almost as easy to implement as sending mail is, it’s hard to believe that only fringe attention has been given. There has been tremendous talk of it’s growing potential,  however, despite all the promise, the platform for the use of bitcoin and other digital currencies is yet to be adopted on a wide international scale.

Looking at the figures

Looking at the Philippines as example, a country that receives the third highest amount of remittances in the world. The figures are quite interesting. In 2013, the Philippines received $26 billion worth in remittances. In 2014, the figure rose to $27.5 billion. At the moment, the annual growth of the remittance industry in the country is between 1 and 2 billion dollars annually. Behind Philippines comes Mexico, which enjoyed a $23 billion windfall in 2013. However, Mexico’s stake in the remittance has been on the decline since the beginning slowing of main street in the US starting in 2008.

For both Philippines and Mexico, the bulk of this money seems to originate from the United States. 98% of Mexico’s remittances come from the States while the Philippines obtains 30% of its total from the same source. Taking a closer look on the other hand, tells you that over $10 billion of the Philippines’ totals does not actually come from the US; it is simply re-routed there from countries in Europe, Australia and Asia.

What this tells us is that despite seeing a slow down the US economy, financial services in the US remained healthy. The United State having the world reserve currency is still the financial hub of the world. Many of the world financial institutions funnel economic trade through its American financial centres and this is a factor when transferring money. Not only does this make put transactions under US regulation it also increases transactional fees. The current monetary and economic system is still fairly centralized and lacks commercial diversity. The industry is ripe for innovation.

Putting the argument in perspective

It is not easy to imagine a bitcoin company starting from scratch and beating established money transfer services like Money Gram or Western Union. However, it is very possible to start a bitcoin transfer service to serve a small, targeted clientele. Establishing yourself if you do not have the financial wherewithal to open branches around the world can be an issue but through global collaboration, peer networks can be created? Independent businesses will have to work together to build a divers money transfer landscape. You will also have to assume that most of the migrant populations in many countries do not understand or care about the machinations of crypto currency, but this will slowly evolve.

The solution

Rebit (Philippines), Bitpesa (Africa) and Airbit (Indonesia) are some of the services that receive and convert bitcoins into currency ,sending them out to recipients at the end . There are no risks here because the final user is never gets to handle any part of the transaction.

The snag here is that to make a transfer, a client has to first convert currency to bitcoins. This technicality allows for the inclusion of an informal intermediary, a strategy that could potentially put a different business out of work. From the outset, this assertion seems laughable, but it is far from it. An in-depth look will give you an exact picture.

How it works

Bitcoin companies do not keep a supply all the time. They find sources of the crypto currency mostly when there is demand. Once they get a hold of a batch, they will try to sell enough to make payouts to the beneficiaries of their customers. A trader who knows their way around can manage to sell a decent amount of bitcoins for cash and make a decent profit. Though in harsher times, breaking even is always appreciated.

Whether the operation is on or off ramp, there will always be a need to integrate technologies that make transacting in bitcoins easier.  The problem however, is that only the countries with the best banking infrastructures will benefit from a setup like this. Sample this: in the Philippines, there is a markedly higher number of pawnshops than there are ATM machines while in India, money transfer services are very informal in approach. Dealers will have to integrate within these existing systems.

Legal aspects of the transfer of BTC’s

Some countries around the world will require that any business wishing to trade in bitcoins to obtain a license, and even then, the procedures are not exactly straightforward. In the United States, very few companies have managed to obtain licensing in every state because the costs are simply outrageous. In the ASEAN region, the costs will be in the tens of thousands of dollars while authorities in the Middle East will ask for between one and two billion dollars. Apart from financial implications, these start ups have to comply with anti-laundering rules that complicate everything all over again.

At this point, we are about to start a race, with $42 billion worth of global savings at stake. The good thing is that after all, we do not need a central authority to trade in bitcoins. The nature of the currency will make it easier for decentralized brokerages to exist in each country. This strategy may not topple giants like Western union, but it will make such transfer entities stand up and take notice.

Using Social Media to get the Best Online Payment System

With the advancement in technology and innovation, the process of payments has evolved significantly. Different fields have adopted the new payment solutions with enthusiasm. The banking sector is not an exception. Various banks and social media companies have embraced this new payments trends and have collaborated to offer new services. This is because of the growing use of the smartphones and internet among many people around the world. An increasing number of people are using the social media to make payments as well as performing other banking and transaction operations. The following are examples of banks which have integrated within social media platforms such as Facebook and Twitter in order to provide the best online payment system and respond to the needs of the people.

ICICI Bank – India
ICICI bank launched ICICIBankPay which would allow clients with a Twitter account to transfer money in the country. It can also allow individuals to recharge prepaid mobile, view the last three transactions, and check the account balance. Moreover, the rolling out of the mobile payment service via Twitter was also aimed to tapping the market of potential clients who did not have an account with the bank but still wanted to use its services.

Banque Populaire d’Ḗpargne (BPCE) – France
BPCE signalled a move to revenue streams by collaborating with Twitter in announcing that it would allow its clients to transfer money through tweets. All one needs to do is to link the Twitter username to the S-money account and install the app. Both the sender and the recipient of the money must have the S-money account and app linked.

Kotak Mahindra – India
Kotak launched a social savings bank account known as Jifi Saver. The management of the account is done through Twitter and Facebook. It caters for the tech savvy clients more so eCommerce partners. It also caters for the needs of online shoppers. The service is available in 27 cities across India.

Baclays Bank – UK
On 10th March, 2015, Baclays launched a Twitter service becoming the first bank in the UK to allow payments through Twitter. It aimed at exploiting social and digital opportunities in order to offer an optimal customer experience. The payment is swift and does not require that the user provides the bank details or the phone number. The service was successfully launched despite the security concerns associated with the use of the mobile phones and the social media.

Rakuten Bank – Japan
Rakuten has a well established reputation in global eCommerce business. It was therefore not surprising when the company utilized the use of Facebook in its service to clients. Customers are supposed to log in to the bank iOS and Android apps, connect their Rakuten and Facebook accounts, and choose from their Facebook friends who they want to pay. If the recipient bank account is not linked to a Facebook account there is a small charge of 165 yen, if it is, it is a free service.

RBC Royal Bank of Canada – Canada
RBC expanded its mobile bank solutions by enabling its clients to make electronic transfers through Facebook. This is in line with the bank’s mission to become “Canada’s most innovative bank.” In this regard, one can send money to his or her Facebook friends through Android, iPhone, or iPad.

ASB Bank – New Zealand
In July, 2012, ASB Bank sought to exploit the social media phenomenon by announcing that it would use the Facebook platform to send notifications to customers. Similarly, it allowed customers to make payments to other banks through Facebook. The bank emphasized that one does not have to provide a bank account. From the time the service was launched, 10 % of the bank’s mobile payments have been effected through the platform.

FNB – South Africa
FNB South Africa has drastically changed the South African banking landscape with its advertising strategies and progressive marketing. It is against this backdrop that it adopted Facebook as one of the banking tools. It uses Facebook to do the following business operations: crowd-sourcing, sponsorship, and communication with clients and fans. Its smartphone app can make payments and one can link it easily to a bank account.

Commonwealth Bank – Australia
The commonwealth, Australia, connects with the clients via the Facebook and Twitter. It released a social media app, CommBank Katching for Facebook , that will give clients payment options via Facebook. The app has put into consideration the security and privacy issues that surround the use of Facebook. For example, the bank was concerned about the online scams and cyber crime and promised to lay concrete measures that would protect its clients.

There is a paradigm shift in payments methods. Banks are realizing the immense benefits that come with the use of social media in their business operations. In this light, banking institutions are giving payments via the social media great attention. The greatest advantage with this is that the use of the social media is growing. There is all the likelihood that it will continue to grow. Despite providing little value for international remittance, social media will play a major role in online payments and transactions.

Using the Internet to Lower Fees to Transfer Money Abroad

With the advent and growth of the internet, we have seen an explosion in online businesses and services. Some that have change our way of living. Some that even have changed us so much that they have rendered traditional businesses and even entire industries obsolete. Take movie rentals for example; with the digitization of film and peer to peer sharing, the film industry has had to evolves or risk failure. Now people don’y use DVDs as their primary viewing medium which has opened the doors to services like Netflix and Youtube.

Our financial system is currently going through what the film industry went through in the early 2000s. Money is changing and fast. Not only are financial markets increasing in volatility but but the transfer of cash is occurring more frequently and beyond more borders. Traditional, international money transfer were cumbersome due to the lack of efficient trade and trust networks, making it expensive and less attractive to less affluent people.

Things are slowly starting to change, but not by coincidence. Technology is evolving and international networks are growing independently of incumbent financial infrastructure. Bank are no longer the only service in town for people to send money abroad. An entire generation of internet companies based on both traditional financial model and progressive peer to peer technologies are taking foothold in the money transfer industry and it is driving prices down worldwide.

In the past one would use a bank to place a wire to send money abroad. Depending on the country, settlement of wire transactions could take up to 15 days and fees could and fees could escalate upwards of $100. Another would use a bricks and mortar money transfer company such as Western Union or Money Gram and would physically send money or remit through a branch. This for a long time was the most efficient method to send money abroad as it was cheaper and faster. Being, what were bricks and mortar businesses prior to internet, these companies were based on physical networks of branches which are still relevant today, but a new type of financial institution has emerged; The digital financial institution. These companies don’t have physical branches and thus have lower costs and tighter margins. You save money.

An Example of such companies is Payoneer.com

This is a company that has designed its entire business model on being fast, efficient and cheap. Because they are primarily a digital facing institution they they’re able to provide some of the most competitive transfer rates both on and off the internet. Traditional bank are essentially leaving the business of foreign remittance because they know they can’t compete. Traditional money transfer businesses are still relevant but less for remittance because these new digital companies are more efficient for small and more regular transactions.

Payonner.com is interesting because it is designed for the online experience. You can choose to have the recipient of your money transfer receive a pre-paid Mastercard payable in local currency as to directly give spendable credits. This eases the experience because even though it’s not always relevant, you are more likely to be near a banking machine than actual bank. They also have a seamless process for identifying you. All you have to do is enter the numbers on your local identification. These types of processes are built specifically to be international and work within as many countries as possible. The entire company and site wasn’t build for one country but all of them. Why should an international money transfer company be specialist in any country when their business is sending money to any country. They need to equally know them all.

Trust is an obvious factor when sending money anywhere so I recommend building a relationship with a company to do your transactions. Choose a few different companies and start with smaller transaction to build that relationship but know that newer type of businesses are changing the experience of sending money abroad. In your research, I say give them a chance.