In the course of due diligence work I was doing for a client in the remittance space, I stumbled across TransferWise’s Board of Shame. TransferWise is one of the more notable Financial Technology companies in the remittance space. Their Board of Shame was a marketing initiative to highlight the fees that traditional remittance companies hide through a mark-up in their exchange rates. Poking around their website, TransferWise’s message is clear and consistent: unlike existing remittance players, we do not hide fees in exchange-rate mark-ups; we are able to offer low prices because our technology makes our money transfer process more efficient.
Technological solutionism creates a compelling narrative that journalists love, especially in B2C FinTech where the reputation of traditional financial institutions have taken a beating since the collapse of Lehman. That aside, the marketing message and emphasis on brand-building is a smart strategy for the remittance startup. When it comes to remittance services, the search cost for consumers is particularly high. It takes a lot of time and effort to compare prices between services because of several reasons: 1) Not all operators are transparent. Operators may hide fees in their terms and conditions or through exchange-rate markups. 2) Each operator may have different pricing structures based on the amount to be remitted (e.g. flat fee for smaller amounts; percentage fee for larger amounts). 3) Exchange-rates are constantly fluctuating. 4) Even if a consumer finds an operator offering a good exchange rate for a given currency pair, the same operator may not offer equally good prices if the consumer decides to exchange another currency down the road; he would have to embark on the searching process all over again.
TransferWise’s technology may be legitimate, but can it offer the best rate all the time? A competitor adopting a similar P2P model, CurrencyFair, was not able to offer the lowest prices all the time. TransferWise, despite touting its simple pricing structure, also has some complexity in the form of different pricing structures and additional fees for certain countries (e.g. additional fees are levied if SWIFT international payments is involved). Much of this stems from the complex and highly-regulated nature of the remittance industry in general. It is no wonder there are fewer than 30 remittance start-ups, compared to more than 140 in the Consumer Lending space.
TransferWise’s brand messaging allows the consumer to take mental shortcuts instead of navigating the complex remittance landscape — and it appears to be working. The company grew 10x in 2013 and has processed more than £1 billion of customers’ funds since its launch three years ago (source). Like Walmart, TransferWise seems to be building a reputation of offering the lowest prices in a commodity-like industry. The company offers a “Best Price Guarantee” and is pushing on with its various marketing campaigns (one of which involves people stripping in public), despite one of the company’s previous campaigns falling foul of the UK’s Advertising Standards Authority. On the back of the company’s recent $25M round of financing, it is worth noting that the company aims to use the funds to “embark on an aggressive marketing spree”. Of course, the technology that keeps costs low will be a key factor in the company’s long-term sustainability. However, a strong brand would go a long way in driving repeat customers even if future exchange rates may not be significantly lower than competitors’ or if a particular rate is not the lowest on that given day. Even Walmart can’t keep prices low all the time.