Between PayPal and PayPal’s (privacy-unoptimized) Venmo, Cash App and Zelle, to name the more obvious ones, the biggest problem in sending money to a fellow American is deciding on which app you both should use.But if you need to send money across borders, the fintech landscape looks a lot more fractured.The conventional international wire-transfer option, SWIFT, is anything but. The best case in my experience with EU-based clients: Money appears in my bank account a few business days after it was sent. The worse case: The money never arrives. The worst case: The bank that was supposed to receive the money not only doesn’t process the transfer but charges the sending bank a service fee anyway.PayPal has served reliably for me in this use case, but the international experience with that app includes more fees than the domestic one. It applies a 3-4% spread on currency conversions and charges the sender a 5% fee on international personal transactions, up to $4.99—with an even higher cut of commercial transactions.You can, however, do worse: A World Bank database of remittance costs shows an average of 4.89% in charges to send $200 from the US to Mexico.Costly and ComplexWhat makes things so much harder when sending money between countries? A payments-industry analyst described it as a complex wiring problem.“I have to have somebody on my side that has access to somebody on your side,” says James Wester, director of cryptocurrency and co-head of payments at Javelin Strategy & Research. Having subsidiaries in other countries eases things—”Western Union has wires connecting themselves,” he notes—but that adds cost and complexity.Wester cited one case in which a payment from an Australian vendor took two weeks to reach him, with transaction expenses eating a large fraction of the payment: “I’d say it cost me 15%.”International money transfers also must comply with regulations written to impede illicit funding of criminal activity that go by a series of three-letter abbreviations: “KYC” (know your customer), “AML” (anti-money laundering), and “ATF” (anti-terrorism financing).“Those are very complex,” Wester said. “You have all these things that have to happen.”As a result, the account-opening routines at international money-transfer apps are much less like opening a domestic PayPal account—where confirming your existing bank account generally covers those bases, your bank already having established your identity—and much more like ID.me’s identity-verification regime.For example, setting up an account with Wise, a money-transfer service I’d seen endorsed as a simpler and cheaper way to receive payments from EU vendors, required me to upload pictures of the front and back of my driver’s license, take a live selfie with my phone’s camera, and transfer money into the account before I could get payment details to provide to other people.And because I was setting up a business account, the company also requested a copy of my LLC’s registration certificate.My reward for that effort came when a euro-denominated payment from a client landed in my Wise account the day after I sent the invoice—and without the bank taking anything. I then converted it to dollars to move to a dollar-denominated account there, with Wise’s exchange rate allowing it to take a modest bit of conversion.Wise, however, is not based in the US. Neither are other companies that seem to be making the biggest difference in easing cross-border payments.Bypassing SWIFT for Faster Transfers (Except in the US)I found another example during a trip to Vilnius, Lithuania, in February to speak at a fintech conference there. In a meeting at the office of the payments firm TransferGo, CEO Daumantas Dvilinskas opened the app on his phone and in a few seconds arranged a nearly free euros-to-dollars transfer to his mother, with only a slight gap in the app’s exchange rate and the day’s public rate. The app said his transaction would take about a day, but a notification of it being settled appeared on the phone’s screen about a minute later.“We are bypassing SWIFT altogether,” he explained. As in, TransferGo sets up subsidiaries in each country in which it operates, effectively splitting a transfer into a deposit at one TransferGo office and a withdrawal from another. In addition to taking a cut on the foreign-exchange rate, it charges a small fee—its site quotes €0.99 for a €500 transfer to the US, although using a credit card at either end will cost more to cover the merchant fees involved.The company, headquartered in London with offices in Vilnius, doesn’t charge a fee to open an account and doesn’t require an ID check to receive your first incoming deposit.“We’re the fastest growing money transfer company in the world,” Dvilinskas bragged.
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But not in the US, where the app is available (he initially seemed confused that the US Play Store on my Android phone carried it) but doesn’t let Americans send money. He said setting up a full-fledged TransferGo subsidiary in the States would be too much work, especially with state-by-state regulation of banking.Non-US markets, meanwhile, often offer such structural advantage as government-sanctioned mobile-payment standards like Brazil’s Pix and “open banking” regulations such as those in the EU that ease the way for fintech startups. Wester also pointed to the perverse incentives of the US being the center of the world’s financial gravity, which encourages fintech developers elsewhere to chip away at obstacles between their customers and US markets.“It’s an odd problem to have because the US dollar is the reserve currency,” he said.’The World Is Not as Digital as We Would Like It to Be’What about cryptocurrency? Wester said digital currencies like Bitcoin add problems of volatility. But even stablecoins tethered to the value of IRL assets like national currencies must swim in the same alphabet soup of regulations as banks.“The big issue is you still have to solve for KYC, AML, ATF,” he said.In a talk at the Web Summit Rio conference in April, Mike Brock, CEO of Block, said that parent firm of Square, Cash App, Tidal and other services was betting on distributed digital-ID technologies to bring those solutions to the tbDEX open financial protocol it’s developed.“You have this provable, privacy-preserving digital identity where you can prove who you say you are without relying on some huge centralized database,” he said in his panel. “We’re very actively working with government regulators around the world.”Asked which ones, Block provided a statement from Will Wilkinson, its head of policy and government partnerships, that specified efforts to promote digital-ID standards to “state and federal policy makers, including state DMVs and federal financial regulators” and overseas “work with partners like the Digital Identity and Authentication Council of Canada (DIACC) and the Tech Council of Australia (TCA), to encourage openness and interoperability in their emerging digital identity ecosystems.”Perhaps those efforts will bear financial fruit. In the meantime, we have to do business in an inefficient fintech universe. As TransferGo’s Dvilinskas said: “The world is not as digital as we would like it to be.”
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