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Z's Corner

When it comes to faster payments, countries in North America are behind the rest of the world. Countries outside of North America have enjoyed faster payment capabilities for two main reasons: 1) Government mandates that stipulated a need for immediate money transfers and 2) Countries that have no previous payment infrastructure jumped to the faster time payments rail right away.

Due to the recent political climate calamities worldwide, and at the US border specifically, the need for real time, faster, cross border money transfers has increased beyond normal levels. If a consumer or business entity has access to traditional banking channels, there are multiple cross border money transfer options. For those who are unbanked, cross border money transfers are an expensive proposition.

As of today, there are two primary ways to originate a cross border payment:

  • Traditional financial institutions (bank or a credit union)
  • Alternative service providers (aka fintechs) that specialize in international money transfers (examples of such providers are organizations such as Western Union or Xoom)


Traditional providers typically offer international money transfers using wire rails. Wires, while guaranteeing immediacy of payment, are irrevocable and expensive. Normal pricing structure includes two components, an exchange rate and a transaction fee. Exchange rates vary and can change minute by minute, while transaction fees are flat and typically change annually. Transaction fees start at around $20 and can go as high as $85, depending on the channel of origination (web, phone, branch). In addition to high cost, financial institutions have strict security guidelines and it often takes days or weeks to get approved to create the infrastructure to allow self-service international transfer options.

There are plenty of alternative providers, including fintechs, that specialize solely in domestic and international money transfers. They make the experience easy for consumers and small businesses with their customer-friendly user experience. The onboarding process is fast and painless. Some providers, like Xoom, only charge a percentage of the total transaction value, while others switch to a tiered flat fee. Western Union, for example, offers a flat fee based on the size of the transfer, and gives users multiple payment channel options: credit card, debit card, bank account debit, Apple Pay, and pay in-store. The most expensive fee (based on a transfer to Mexico) is for credit cards ($12) and the cheapest option is a bank account ($2.99) followed by pay in-store ($5). It is entirely possible that many Western Union customers that send money across borders must use an in-store option because they are unbanked and must give up $5 - $50 on a monthly basis.

While new startups pop up on a daily basis, one must be a sophisticated consumer to be able to take advantage of everything the fintechs have to offer. From the technology, ease of use, and onboarding perspective, alternative providers are ahead of traditional institutions. Banks and credit unions, however, win the security game due to stricter industry regulations. In order to remain competitive, financial service providers that can create a streamlined, inexpensive, and easy to use channel for cross border payments will be the winners in this game.

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