Disrupting the Travel Money Industry
Cutting out the middle-men and making ‘real’ exchange rates available for tourists
We recognise the benefits that hassle-free travel experiences can bring to the economy at both the local and global scale. Every cent saved for our users in fees, is another cent that can be spent on valuable experiences.
Here at Pecutus Technologies, we are building a next generation FinTech platform to enable our customers to swap physical cash and digital money with each other at the best possible price.
In this blog post, we want to briefly explore the technology and infrastructure that we’re building to make this possible.
Who determines the price of foreign currency?
Global money markets operate on a free-market principle. The collective action of traders, speculators, bankers and other businesses offering to buy and sell different currencies across the globe results in a collective agreement on the market rates we see advertised by brokers and money changing shops.
There are typically two quoted prices for any given currency exchange, called the bid and the ask price. The bid reflects the price that people who wish to buy a foreign currency are willing to pay, and the ask reflects the price that people who wish to sell a foreign currency are willing to sell it for. In practice, brokers will both buy and sell foreign currencies, quoting two different prices. The difference between these prices is known as the ‘spread’, usually quoted as a percentage difference. Brokers earn income by continually buying and selling currencies at these prices, thereby earning the spread. The price half-way between the bid and the ask is known as the mid-price. When you ask google what 10,000 Japanese Yen is in Hong Kong Dollars, it will tell you the mid-price.
What you see is not what you get…
When banks transfer foreign currency between themselves, they use the ‘interbank rate’. This is very close to the mid-price, largely thanks to economies of scale: when you’re dealing in billions of dollars, brokers don’t need to charge the same spread that they will charge to tourists changing a couple of hundred dollars. The difference between the mid-price and the price that a money changing shop will give you can be very significant, often it is as high as 5% or more. The end result of this is that tourists can lose 5% of their travel budget before they even get on the plane.
Cutting out the middle-men
The development of disruptive web technologies over the past twenty years has primarily taken the form of disruptive disintermediation and the replacement of incumbents relying on outmoded technologies and monopolistic business models. Perhaps the best example of this is the worldwide taxi industry and the introduction of Uber/Lyft. Taxis traditionally relied on powerful lobbies and a monopolistic licencing or medallion-based system, with no tolerance for competition. While private hire services did exist, the providers, prices and availability varied enormously from town to town. Uber, in essence, aggregated the capacity of this workforce and made it accessible on demand through the use of technology.
The Rise of FinTech
A similar story can be told about the death of high street shopping and the rise of Amazon. Through meticulous supply-chain management and optimisation, Amazon changed the face of internet shopping, such that it became quicker, easier and cheaper than relying on brick-and-mortar stores. In the FinTech space, we have begun to see the beginnings of disruptive disintermediation through the rise of so-called ‘challenger banks’. This is particularly the case in the United Kingdom, with the rise of the likes of Starling Bank, Monzo and Revolut. We are beginning to see early signs of a similar pattern emerging in Hong Kong, for instance with Neat.
Hong Kong is forecasted to see almost 7 million outbound travel trips in 2021. Singapore and Hong Kong together have the highest propensity to travel in the Asia Pacific region, by a significant margin. The costs associated with purchasing foreign currency for these trips is staggering, amounting to hundreds of millions of dollars per year. With ReadyTravel, our goal is simple: we aim to dis-intermediate the process of buying and selling currency, digitally and physically. What if we could connect travellers across the globe and allow them to swap currency with each other at the mid-price, without giving away billions of dollars to brokers?
Peer-to-peer 2.0
Almost as soon as the World Wide Web become a reality at the end of the 21st Century, peer-to-peer technologies began to shape the world around us. Growth in tech companies from the 1990s to today, can largely be explained and understood the successive development of enabling infrastructure layers sitting on top of the internet.
In the earliest days, the internet could not facilitate much beyond the exchange of data. It is not surprising then, that some of the earliest ‘Tech Startups’ were peer-to-peer file sharing services, like Napster. Naturally, it didn’t take long for additional infrastructural layers to be built on top of the web, supporting increasingly sophisticated business models. The development of early peer-to-peer payments services like PayPal acted as the enabling layer for the rise of peer-to-peer trade on eBay. These technologies took us from being able to merely exchange data, to being able to exchange physical goods and money, despite great distances.
More recently, with the rise of FinTech and RegTech, we have seen an explosion internationally in peer-to-peer lending for both business and personal financing, through platforms such as WeLab and MonkeyMonkey in Hong Kong that connect lenders and borrowers in money markets.
We believe a similar form of disruption is possible in foreign exchange. Through the development of a global network of ATMs, couriers and partners, we can establish a network through which physical and digital value can be transferred without the enormous costs of FX seen with traditional brokers today. We are working hard to develop the technological, infrastructural, and logistical means to make this a reality.
We recognise the benefits that hassle-free travel experiences can bring to the economy at both the local and global scale. Every cent saved in transaction costs, commissions and conversion fees for middlemen, is another cent that can be spent on valuable experiences that improve travel experience and provide a vital boost for local businesses.
Learn More
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