The evolution of international money transfers
Transferring money online is as simple as tapping a button on your phone. Whether you want to send it to your neighbor or somebody on the other side of the world, there is an abundance of apps that can make it happen. But things weren’t always that simple. In this article, we will go over the history of money transfers, starting from the 15th century and ending with the advent of cryptocurrency.
Money transfers pre-internet
The Medici family — 15th to 18th centuries
The first known case of international money transfers dates back to the 15th century. The Medici family, originally from Italy, began opening locations across Europe to exchange currencies for traveling textile merchants. To facilitate it, they used a double-entry account book that showed both local and foreign currency. Accountants across the world still use this double-entry method.
Amsterdam Forex market — 17th century
By the late 17th century, word of the Medici family’s methods spread around Europe. This led to the first official opening of the foreign exchange market (Forex) in Amsterdam. In 1704, the first foreign money transfer between two governments took place. Agents acting on behalf of England and Holland met at the Amsterdam Forex market and successfully exchanged currencies.
Western Union — 19th century
The next big step in international transfers came in 1851 when the New York and Mississippi Valley Printing Telegraph Company (later renamed Western Union) was founded. Using recently installed telegraph wires across the United States, they developed a method of electronic fund transfer. It made it possible to send money from one person to another over long distances. Initially implemented only in the US, their wire transfer system soon began taking off worldwide.
Popularization of international wire transfers — late 19th century
A boom of global industrialization in the late 19th century led to an increase in the popularity of wire transfers. As more companies dealt with international contractors, the banking sector had to become more globalized. The demand to send and receive funds internationally made the wire transfer system introduced by Western Union the global standard for almost a century.
International Payment Network (SWIFT) — 20th century
The first step away from the wire transfer method didn’t come until 1973 when the Society for Worldwide Interbank Financial Telecommunication (SWIFT) was founded. Unlike Western Union, SWIFT does not send money. Instead, they transmit messages between banks across the world, telling them which transfers to make. SWIFT is used by businesses and banks and handles over 43 million requests per day in 2021.
The internet changes everything
PayPal — late 20th century
In the late 20th century, the once novel concept of the internet began to mature. PayPal was the first company to use it for easy money transfers. Established in 1998, the company made online money transfers possible at a fraction of the cost compared to traditional banks and wire transfer companies.
In March 2000, PayPal first hit the 1 million customer mark and by 2006 that number exceeded 100 million. They remain a powerhouse in the money transfer industry to this day, with their annual payment volume reaching over USD 900 bln in 2020.
Digital banking — early 21st century
The banking sector was quick to follow the internet trend and by the early 2000s, most banks across the world offered online services and money transfer options. It enabled users to transfer money anywhere around the world with the click of a button.
As technology developed and smartphones became the norm, many FinTech startups and digital international money transfer applications such as Wise began to emerge. By establishing their own network to match money transfer requests worldwide, they eliminate fees charged by banks or online Forex markets.
Bitcoin and cryptocurrencies — 2009 to date
After the 2008 financial crisis, it became clear to many that while the internet provided convenience for transferring money, there were still problems with the system as a whole. This lead to the introduction of Bitcoin, the world’s first cryptocurrency.
Bitcoin is meant to be the digital currency of the 21st century, removing the outdated flaws that still linger in the banking system. It uses a decentralized peer-to-peer method to allow direct transactions between users without an intermediary.
Over time, the influence of Bitcoin has spread. There are now thousands of cryptocurrencies. Many of them have evolved technologically and provide solutions to various problems that Bitcoin could not solve.
All cryptocurrencies exist in digital form on the internet. They are not restricted by borders and work much like sending an email or an online message. The transaction fees, time and energy needed to send a crypto transaction are the same, regardless of the distance between the two parties. This makes them the best choice currently available when it comes to transferring money internationally.
The way people transfer money has evolved considerably over the centuries. Society has come a long way since the days of the Medici family, but there are further advancements to be made. Cryptocurrencies and the revolutionary technology behind them are set to be the next step in the evolution of global money transfers.
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