The international payments market has become an attractive target for startups looking to pry clients loose from banks by providing a way to reduce fees by routing around third parties.
And as the market grows, so do the transactions that can benefit from such a service.
"We are looking at much larger transactions than the traditional $300 remittance," said David Carrithers, consumer general manager at Moneycorp, a London-based foreign exchange and payment company that is collaborating with Washington, D.C.-based Tempus to launch a high end cross border payments service.
The service is aimed at U.S. consumers looking for international currency trading and payments, with a focus on Americans purchasing property outside of the U.S., paying for expatriate living expenses, long-term travel and tuition for U.S. students studying outside of the country.
"We're looking at lifestyle transitional events, where a large payment needs to be executed quickly," Carrithers said. "Some of this is new to Americans who may not be comfortable paying across borders."
Tempus and Moneycorp's agreement addresses processing, back office and support services that aim to provide users with more information than a bank would about rates and costs, and provide that information faster.
"People need to have more control of the timing of when a payment is going to be available," Carrithers said. "Real estate agents and other parties will want to know."
Moneycorp has access to a global affiliate network including real estate agents, law firms and other property, travel and high-end lifestyle payment stakeholders. Tempus' technology includes a Web-based international payment and reporting tool that updates exchange rates and market information. It also executes digital transactions and tracks the payments.
The combination of the Web-delivered payments, foreign exchange technology and real estate partner network allow the two companies to execute transactions relatively fast—about two days as opposed to the six business days for banks to execute payments of a similar size, Carrithers said.
The traditional model of using a local in-country bank handle a cross-border transaction is more cumbersome than a specialized service, and it also adds parties to a transaction than can take out extra fees for conversion services, he said. Moneycorp and Tempus' fees are based on the exchange rate, amount sent and the currency purchased.
"Having a general big old bank is always there, but there is a space for companies that can provide a specialized need, like a medical specialist as opposed to a general practitioner," Carrithers said.
Myriad companies are trying to disrupt banks in the cross-border space through a combination of emerging technology and specialization.
Align, for example, is targeting small-business payments in specific corridors, such as the U.S. to Mexico, while AstroPay focuses on consumers and merchants. Transferwise uses a peer-to-peer model to speed cross-border payments, while Flywire specializes in tuition payments and is expanding to other categories—and as such has a model that's relatively close to the collaboration between MoneyCorp and Tempus.
Some of these companies use blockchains, or distributed ledgers, through partnerships with virtual currency technology providers such as Ripple, while others rely on local networks. Carrithers did not provide details on the underlying technology that powers Moneycorp and Tempus system.
Regardless of the technology used, the overall advancements in startup-driven international transfers are allowing small companies to threaten a historic source of fee income for large banks, according to Michael Moeser, director of payments for Javelin Strategy & Research.
"You have the players that are between the payer and the payees' [banks], and the currency conversion challenge, " Moeser said, adding the management of complex and expensive wire transfers led businesses and other parties to use letters of credit and lockboxes, providing a steady and reliable source of income for banks.
But these new companies are more nimble, offer lower cost and are gaining attention from investors, Moeser said.
"There's different players with lots of different angles that deliver better solutions," Moeser said. "There's no killer app right now but there are a lot of new players…Banks should worry. This is a lucrative market that's not been targeted in the past."