Remittance Frontiers: Banking Without Borders

Soon I will be celebrating the fifth anniversary of my sojourn in the United States. One of the very first things I did after landing in New York was to open a bank account and transfer all the money I needed to start my new life in the New World. After a week or so the money arrived, but the amount was lower than I expected due to a number of fees and the currency exchange rate. A couple of weeks ago, with this experience in mind, I read with genuine excitement an announcement made by TransferWise about its borderless account.

According to claims, the borderless account allows businesses (and soon individuals) to have a full-fledged local bank account in up to 15 countries in Asia, Europe, and North America, even without ever being physically present in a given country. TransferWise is one of the few European FinTech unicorns. Its proprietary solution allows customers to send money internationally for a fee of less than 1 percent (more than 6 percentage points cheaper than average), so claims like this should be taken seriously. While TransferWise is only one of many providers (traditional and FinTech) competing for what amounts to almost $600 billion remitted every year, the borderless account may become a distinguishing factor and a competitive advantage.

But is the proposed service enough to satisfy customers? Let’s dream a bit about how similar products could be tweaked and even possibly improve the lives of customers in developing countries . . .

Imagine there was not only a borderless account, but a truly international joint account that could be used by family members living in different countries, who are earning and spending in different currencies yet sharing their financial lives. This account would bring remittance costs close to zero while offering maximum convenience. It would allow a wife in Russia and a husband in Kyrgyzstan to keep their earnings together and use them wherever and whenever needed. Such innovation would go beyond convenience.

First, the account would facilitate global mobility for work, study, or even tourism by making cross-border remittances easier. Second, it would improve the capacity of each account holder to access additional financial services, such as credit, by generating data about his or her past transactions and by adding an extra layer of information about overall household income and spending. Third, it would equalize the relationship between the remittance sender and receiver (now both contributing to the joint account). Fourth, it would allow account holders to have control over each other’s spending, perhaps ensuring more discipline in saving for joint goals such as buying a family house (or if you don’t like the idea of spouses controlling each other's spending, think of a son or daughter studying abroad with unlimited access to the account).

The account could also offer smart personal financial management tools. For instance, there could be a tool to optimize the actual balance denominated in a specific currency based on a set of criteria, including the current exchange rate, interest yield on deposits, deposit insurance coverage, and the like. The intra-account remittance would still likely incur costs, but with solutions similar to TransferWise, these could be much cheaper than current average remittance fees. Last but not least, the account would offer the sense of shared responsibility that many couples desire.

If you are screaming “Bring it on!” by now, rest assured that there are several challenges — most importantly, regulation. Deposit-taking is one of the most heavily regulated financial services. It is subject to licensing, prudential regulation, anti-money laundering rules, consumer protection, tax regimes, and so on. Many of these requirements are not harmonized at the international level, ruling out the option of having a truly international account (whether joint or not), at least for now. But there can be creative solutions. For instance, there could be an over-the-top service — a third-party provider’s platform that would allow multiple users to see their respective accounts, including mobile money accounts, in a single interface. (To get an idea of how it could work, check out some of the many over-the-top finance management tools, such as Personal Capital.)

It will be interesting to see whether TransferWise and others with similar offerings continue innovating and expanding beyond the developed markets of Europe, North America, and Asia to serve millions of customers in developing countries. The borderless account hints that what is a dream today may become reality tomorrow if the right technologies, such as APIs, cloud computing, and biometrics, are in place. However, the regulatory challenge will be hard to overcome without substantial coordination among various stakeholders at the national and international levels.