How technology is making finance fairer
As traditional finance continues to underserve consumers, FinTech (or financial technology) has emerged.
When we talk about technology changing the world we often hear about how it makes our lives easier, more connected, safer or even healthier. They’re all things we can easily identify with. The internet makes our lives easier, services like Skype and WhatsApp allow us to be more connected — the examples are endless.
But what of fairness? The sharing economy, championed by the likes of Uber and Airbnb, is an interesting example. While it doesn’t necessarily make the market fairer, it allows more people to enter and therefore drives down prices.
One industry where fairness is growing thanks to technology is finance. Traditional consumer finance has been unfair for decades. Banks have had a monopoly on financial services and have been able to overcharge and underserve consumers. In the UK, for instance, banks and brokers charge up to 5% of the money sent in hidden fees.
As traditional finance continues to underserve consumers, FinTech (or financial technology) has emerged. Not bound by archaic systems like the banks, young tech companies are rapidly innovating in this space, often significantly undercutting the banks.
There aren’t many fintech companies stepping in to run banks as we know them, but there are a number of new players that are slicing off a service normally run by a bank and doing it much better. Funding Circle is doing it in SME lending, Square in card payments, Zopa in peer-to-peer lending, to name just a few examples.
Ultimately we’re all working towards the same goal, and that’s not necessarily to bring down the banks. The banks will probably still be here in 15 years, but with the rise of fintech I hope we’ll see a financial sector that has significantly reduced levels of friction and unfairness for consumers.
At TransferWise we work hard to make the money transfer market fairer. Banks charge up to 5% when you send money abroad, often hiding these fees in poor exchange rates. This was something my co-founder Kristo and I discovered when sending money between the UK and Estonia. We each needed the currency the other had and realized that by exchanging money via each other’s domestic accounts rather than sending it across borders we could save significant amounts by cutting out the banks and their fees.
As a result, TransferWise was born. We match people transferring currency in opposite directions around the world so that money never crosses borders. That means we are able to help consumers move their money for a small one-off fee often as low as 0.5%. And we always use the mid-market exchange rate (meaning we’re up to 89% cheaper than banks in the UK, for instance).
We built TransferWise focussed on customer innovation. That means we build our product based first and foremost on our customers. That doesn’t just mean testing improvements on customers. We also open new currency routes based on customer requests and our product teams work closely with our customer service team to better understand issues with our product. And then they fix them.
We’re able to work like this not just using technology, but because of it. Not being bound by the ageing systems that hold the banks back allows us to innovate and build TransferWise rapidly. It has allowed us to build a product that is both cheaper than banks and, importantly, is transparent with its customers.
As technology progresses, I believe that fintech will fundamentally change finance. But it’s not the legacy players that will drive this change. Their systems are outdated, cumbersome and difficult to adapt. Fairness will grow out of consumer-focused companies that are tackling the issues that banks are creating.
Tech start-ups are in a much better place when it comes to making finance fairer, and it will be these companies that lead meaningful change. Will the banks be able to keep up? We’ll have to wait and see.
Help us fight for fairness in finance, sign the Stop Hidden Fees petition.