Will China’s digital currency disrupt remittances? Not so fast, says TransferWise’s CEO
The PBOC’s new token could wipe out the need for remittance services like TransferWise. But if the eurozone is any foreshadowing, uniting several countries with a single currency is a complicated endeavor.
International money transfer service TransferWise is disrupting the global remittance market. But China's upcoming digital token, which aims to create a new cross-border trading standard, could theoretically threaten his industry. Forkast.News Senior Editor Sam Reynolds sits down with TransferWise CEO Kristo Käärmann to find out more.
The London-based company is an online service that helps users send and exchange different currencies without charging a margin on the exchange rate.
The company processes over £4 billion (USD$5.1b) in payments each month, which according to TechCrunch, saves users over £1 billion (USD$1.28b) in bank fees each year. Over five million people are now using the service.
See related article: How TransferWise is shaking up remittances
Käärmann commented on the People's Bank of China's (PBoC's) work on producing a digital currency, and how future adoption of digital currencies might pose a challenge for TransferWise. "If the world chooses a nomination of a digital currency and every country joins that, that would be awesome... but it doesn't seem to be a very straightforward thing to achieve any kind of global scale."
On November 13, the PBoC said in a statement that it is “still in the process of research and testing” a digital currency, and that any potential timetable released by news outlets are "inaccurate."
Sam Reynolds: Hey, guys, we are back at Hong Kong FinTech Week and we're talking to Kristo from TransferWise. Now, your company has origins in Skype. And Skype disrupted the long distance telephone markets for telecoms. You guys are disrupting the market for transfers, which was once a cash cow for banks. Now, if I was a bank, I wouldn't really like that. What kind of pushback have you seen from the old school legacy banks?
Kristo Käärmann: This is a great analogy, actually, because you go back to first principles, then making it an international call versus a local call. This is technically the same. It doesn't matter how long the wires are that they have to go over, or which country borders they cross. The reason why Skype was able to do that was because there was nothing special about international calls. And we see that in the Internet, right. If you send an email from Hong Kong to San Francisco, it's going to kind of cost you the same then sending that email to Singapore, which is just close by. The same analogy works with money, really. We don't have suitcases of cash carried over country borders. It is really just information.
It's absolutely right that the cost of domestic money should be the same as the cost of international, rather than the other way around. The cost of international should be the same as domestic. And you point out that banks have kind of created this illusion that international transfers are more expensive. In fact, let's let's be clear. They haven't made that illusion. They say, okay, international wires are 35 bucks. What they don't tell you is they use an exchange rate where they charge you another 5 percent of the transfer. Just giving you a terrible exchange rate that's favoring them and not you. But you're right. Overall, they take a lot more money than they take from international transfers.
Sam Reynolds: Part of your pitch is that you guys have the same Forex rate you see on Google. Obviously, banks make money on that margin. You guys don't charge much for wire transfers fees, you don't have that margin. How on earth do you make money?
Kristo Käärmann: We do charge transparently. So you're right that we never hide anything in the exchange rate. You get exactly the same as you get on Google and Reuters or any independent source of exchange rates. But we do charge a fee. And of course, when we look at the fee and compared to what banks do, then it's 10 times less. But it also makes sense because the costs involved in moving money, like with this long distance telephone calling that you stated, are not actually too different to making domestic payments. So our charges are somewhere depending on the market five times, 10 times less than what the banks would take.
See related article: Is the world ready for a federated currency?
Sam Reynolds: A big theme today at the conference was the idea of the central bank digital currency. We saw the heads of the PBOC's research team on that talk with his counterpart from Thailand. So obviously, if we were to see this kind of cryptocurrency be implemented around the world, it would definitely decrease the costs of wire transfers.
Kristo Käärmann: Sure. I mean, if the world chooses a nomination of a digital currency and every country joins that, that would be awesome. You don't need TransferWise. Heaven forbid. Don't spend any more than if you have the same currency. And it would be pretty awesome. I think the best achievement so far to show is Europe. So Europe has created the eurozone. That is pretty complex, like 20 countries working together. And in fact, that some of the recent countries that joined it, I think I recall Latvia when they joined, they calculated that the whole country saved something like 200 million euros, just not doing currency conversion and not being a separate currency zone.
So that's definitely a saving. But then on the other hand, keeping a currency zone together like the eurozone hasn't been easy either. So there's you know, I'm definitely for moving more and more into those currency zones, but it doesn't seem to be a very straightforward thing to achieve any kind of global scale.Sam Reynolds: All right. So last question. We're here at Hong Kong FinTech Week. What are you seeing on the show floor for trends? What pops out to you? Kristo Käärmann: There's a lot of stands and a lot of variety here. You don't have like one thing and then everyone's doing the same thing. I see there is this, I don't know if that's a sign of the times, but a year ago we would have seen much more like blockchain crypto-related things. I think that's much more rational now. There's still kind of uses of that technology, but they start to make a little more sense than they maybe did a year or two years ago. That's a kind of positive trend that is happening. But it seems to be that Asia is suddenly booming and there's there's more to expect from here. Sam Reynolds: Great. Well, thanks for your time.