One of the big success stories in the UK Fintech startup world over the past couple of decades is Wise (formerly TransferWise). Although it was started by two Estonian friends, Wise was based in London and served countries around Europe and the world. It served an important need at a time when there were few other companies who did so efficiently. It also led to the launch of many more currency brokerages in London.
By providing an online platform to send currency across the world, TransferWise attracted millions of people working internationally or sending remittances back home. It grew incredibly quickly, gaining huge popularity among businesses and individuals.
But despite the success of TransferWise, and the consequent abundance of similar companies, more are opening up and expanding, particularly in London. What exactly do these companies do? And how is there space for any more of them, considering TransferWise’s huge popularity?
What is a currency brokerage?
Many people still picture the bureau de change window in a post office when they hear about currency brokerages. However, while these companies do exchange currencies, they serve a much more widespread need: international money transfers.
When sending money to a foreign bank account, international banks use the SWIFT system. Anyone who has transferred money this way will tell you just how slow and expensive it is. The banks charge fees on both ends, while providing you with a poor exchange rate as well.
Currency brokers offer an alternative. Instead of sending money through SWIFT, they provide a quick and affordable way of making international payments and transfers. They are upfront about their fees, which are far lower than those charged by the banks, and they do not hide costs in the exchange rate.
These currency brokers serve a wide range of clients. Big corporations doing business internationally use them to send money between branches. Online sellers use them to receive payments from foreign buyers and to pay for administrative expenses abroad. Individuals use them to invest and buy property abroad. And a fair amount of freelancers and contractors use them to get paid by clients every month.
Currency brokerages offer added services which facilitate better foreign exchange. They provide tools such as futures contracts, which will set the exchange rate at a certain price for a period of time, so that companies and individuals are protected by volatility in the Forex market.
If TransferWise already made this process easier and is only growing in popularity, where do these new companies come in? They are hoping to succeed by going in a different direction to TransferWise.
The new wave of currency brokerages
TransferWise was not the first currency brokerage to offer better prices and turnaround times than banks. However, they managed to bring their services to the masses by creating an excellent online platform. Through that platform you can send and receive money, automate your transfers, and use currency tools. This independent experience is not what the new wave of currency brokerages are going for.
Rather, the new transfer companies are focusing on hand-holding. They market themselves as being by the client’s side every step of the way. This may seem like a strange step backwards in a world that is becoming increasingly automated, but it makes sense as a model in this moment.
Right now, we are going through a prolonged period in which more and more people are managing finances internationally. Even those who are not doing any business abroad may well have relatives who they are helping across the world. Many of these individuals are tech-savvy and would generally choose a platform that requires no human touch.
However, when it comes to money management, there is a lot of confusing jargon, as well as good reason to ask for extra help. Currency brokers offer more than just a mechanism for transfers. They offer tools to minimise the cost and maximise foreign currency profits. These tools can be difficult to use, especially for those who do not work with numbers.
The learning curve may be short, but it is necessary. The newer currency transfer companies are taking their clients along that journey. Before long, the clients are able to continue independently, but by then they are already doing business through the particular currency broker.
Finally, it is interesting to note that 90% of all currency brokerages have their headquarters in London. Why should this be the case in an age in which these transfers are done digitally?
This concentration of money transfer companies goes to show that London is still the UK’s business centre, even with remote work becoming all the more common. Currency companies choose London for a number of reasons. For one, it is where the best minds go to get involved in the business world. For another, in London they are surrounded by big businesses that may well need to use their services.
Technically, there is no need for most companies to meet with their currency brokers in person. However, when big sums are being moved from one country to another, individuals often want the personal touch. Being in London is therefore an advantage much of the time.
The future of foreign exchange
Foreign currency exchange has been evolving rapidly over the past two decades. TransferWise brought the entire industry a long way forward, but there is still demand for companies that take a different approach.
It will be interesting to see where foreign currency exchange goes next. With cryptocurrencies vying for their time in the sun, it could be that the next big company disrupts the industry once again, causing people to flock to a system that further breaks down the boundaries between countries.
For now, currency brokerages are flourishing. As globalisation continues its march forward, even in 2021, that is unlikely to change soon.