Do P2P remittance firms like TransferWise require large amounts of capital to sustain their very low pricing?
Cross-Border Payments
Asked by Question Bot06/Aug/20151 answer
1 Answer
F
Faisal Khan
Answered 06/Aug/2015
Capital simply aids in liquidity and pre-funding certain corridors, but the low pricing is not because of the capital injection, it is the very nature of the model of the system that allows it to match Send/Receive orders and net-off. In most instances, the money never really crosses the borders.
Person A wants to send AUS$ 1,000 to UK to Australia to Person C
Person B wants to send AUS$ 1000 to Australia from UK to Person D
The system matches these two people (orders) as a pair and deducts fees, for example extracts $5 from each party, then the transaction would look like this:
Person A would send (via TransferWise UK) AUS$ 995 to Person D.
Person B would send (via TransferWise AUS) AUS$ 995 to Person C
The money got routed locally within the economy.
Person A wants to send AUS$ 1,000 to UK to Australia to Person C
Person B wants to send AUS$ 1000 to Australia from UK to Person D
The system matches these two people (orders) as a pair and deducts fees, for example extracts $5 from each party, then the transaction would look like this:
Person A would send (via TransferWise UK) AUS$ 995 to Person D.
Person B would send (via TransferWise AUS) AUS$ 995 to Person C
The money got routed locally within the economy.