It seems we may well be heading towards a world where, when sending money internationally, the only thing we need to concern ourselves with is the exchange rate – because transaction fees are rapidly being consigned to history.
Starting from today, Circle, a money transfer service and app that allows its users to ping money to one another using a mobile messaging service, is introducing fee-free person-to-person (P2P) money transfer services for users in the UK, Spain, and the US.
There will be no commission, or foreign exchange surcharges, to pay on any transfers made to other app users – even if they are based overseas and receiving the money in another currency, Circle say.
Overseas money transfers have been trending this way ever since the likes of TransferWise and Azimo began challenging the monopoly that the big banks and agencies such as Ria Money Transfer and the Western Union had established; a monopoly that allowed them to charge high fees for sending money overseas, as well as exchange rates that weren’t reflective of the true mid-market rate.
But now even these Fintech startups risk falling behind the curve, such is the pace of change in the money transfer industry.
Circle’s founders, Jeremy Allaire and Sean Neville have issued a joint statement commenting that their latest move “represents a disruption to the entire consumer cross-border payment market.”
“Prices and profit margins are collapsing to zero”, they say, “in the same way that the price of communications and information publishing collapsed to zero in the first phases of the internet.”
“When’s the last time you saw a cross-border email?”, Reuters quoted Allaire as asking.
Circle have raised more than $135 million dollars to date, with backers including finance giant Goldman Sachs, and China’s answer to Google, Baidu. As well as the UK, US and Spain, the service is currently being trialled in France, Gemany, Italy, The Netherlands, Finland, Slovenia, Slovakia, Austria, Estonia, Portugal, Luxembourg, Croatia, Lichtenstein, the Czech Republic and Poland.
And just to make the service even more of a “bleeding edge” technology startup, Circle also operates using blockchain technology. Circle in fact uses Ethereum, an alternative digital currency to bitcoin, the value of which has rocketed this year by more than 5,000% – from $7.98, to $407.1!
Circle processed more than $1 billion of payments transactions in 2016 and the company also says that its customer base has increased tenfold over the past year, but the founders are keen to stress that the company does not make money from the services it provides.
“We don’t think there is any money to be made in payments anymore”, Allaire has said. “The entire business model of extracting a toll or having time delays around the movement of value is going away completely.”
The obvious question is then how does the company monetise? The answer, by trading cryptocurrencies.
Circle said in a statement that it had traded more than $800 million in digital assets in the last month alone, and that it has appointed a new head of trading, shortly after the departure of treasury and trading operations chief Joshua Lim.
This strategy could be seen as a somewhat high risk one, however. Circle began life as a bitcoin trading business, before announcing in December last year that it was pulling out of bitcoin altogether, advising its customers who held bitcoin positions with the company to cash out, or transfer their assets somewhere else.
Circle has made a bold move, and made a big statement, by launching fee free, cross border money transfers – it remains to be seen whether the hype is justified- and whether the company can force other money transfer services to up their games.
By putting a squeeze on the profits of rival companies, and potentially starving them of new customers, perhaps Circle is trying to play the long game.
In the meantime, you can use our money transfer comparison service to see how the exchange rates Circle offer compare against the best authorised brokers and money transfer agencies.