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 Kent's online business, Azimo, and more than 30 others in the United
Kingdom are building on the success of firms like Western Union <WU.N>
and MoneyGram International <MGI.O> in carving out a chunk of the
market in international money transfers, travel money and card
payments.
Their pitch is simple: in the era of electronic money, the 4-12
percent fees banks charge consumers for any transaction involving
foreign currency is ludicrously expensive.
Today, to transfer 100 pounds to Germany, British high street bank
Halifax would charge 9.5 pounds and use a rate 3.06 eurocents per
pound worse than those the financial world's biggest players charge
each other, totaling around 12 percent.
Halifax points to the costs of running secure, wide-ranging
operations and says the percentage falls for larger amounts.
Currency market majors HSBC and Barclays charge less and costs on
foreign currency transactions on credit cards often go below 5
percent, but the fee at Azimo is 1 pound, the spread less than 1
cent, and the overall cost less than 2 percent.
"This is money that the banks do not need to charge people and we
just set out to change that," says Kent. "We are in the middle of a
worldwide downturn and these people are making supernormal profits.
It is money people do not need to pay."
REPLAY
Azimo's original raison d'etre was to reduce the cost for migrant
workers of sending money home by streamlining the sort of service
Western Union or Moneygram International were already providing at
cheaper rates than western banks.
Across London, in trendy e-business hub Shoreditch, market veterans
Brian Jamieson and Daniel Butcher are seeking to take the game one
stage further with another start-up, Centtrip.
As financial markets went electronic in the 1990s, they were among
entrepreneurs making the most of the large spreads banks charged
companies for day-to-day currency purchases.
Such firms helped drive corporate costs over interbank rates down
from several cents to a few pips, or hundredths of a cent. Centtrip
is now seeking to do the same for ordinary consumers.
Customers sign up online, get sent a Mastercard and pay into it at a
cost of 0.5 percent. They can then use the card for 14 currencies,
with a spread of just 4 hundredths of a eurocent to interbank rates,
compared to Halifax's 3 whole eurocents.
Centtrip's initial target is business travelers, but Jamieson says
it could take just five years for a mass audience of smart-phone
users to clock on to the model.
One key ingredient, he says, is convincing households their money is
as safe with small web-based firms as with their bank.
"After what happened in 2008, we've got to the point where we have
lost trust and faith in the banks," he says. "That has opened up the
door for people like us to disrupt the market."
Since the global financial crisis laid bare excessive risk-taking at
banks, their reputation has suffered further from allegations
traders fleeced their biggest clients by manipulating foreign
exchange rates, though there is no suggestion of any manipulation of
retail rates.
[to top of second column] |
UNDER THE RADAR
Banks do not break out their retail forex business in their results
and there are no overall figures for the sector, but official data
shows Britons spent $23.6 billion while on business and holiday
trips abroad last year.
Numbers from the Bank of International Settlements show global flows
worth $78 billion a day through retail foreign exchange brokers, and
$188 billion a day in flows from companies outside the financial
sector, although much of that is from big multinationals going
through their banks.
"If travel money is billions then the market in these ordinary bank
transfers will be at least 100 times that," says Ian
Strafford-Taylor, chief executive of one of the earliest players in
the consumer space, FairFX.
FairFX is worth just under 40 million pounds according to its
listing on London's AIM market, and made almost 3 million pounds on
revenues of more than 300 million last year.
The relative size of the newcomers shows there is some way to go.
Eesha Mohindra, analyst at consumer finance website
Moneysavingexpert.com, said more transparency was needed. "Without
knowing it, most people waste big money when spending cash abroad by
using the wrong card," she said.
A handful of senior bank managers who spoke to Reuters on condition
of anonymity said the challenge to them in the retail segment was
under serious consideration for the first time, but it was not yet
considered big enough to force widespread change in a market seen as
more lucrative even than the United States.
"Clearly some of the banks still see this as a captive client base
and it is coming closer to that point where these sort of nimble
startups will force us to change," said the head of electronic
trading with one large European bank.
"Banks are already investing in some of these companies. Then when
they see that they are really succeeding, they will buy some of them
out."
(Editing by Philippa Fletcher)
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