29th October 2020 – (Hong Kong) In a world that’s become increasingly interconnected, we have approached a crossroads. The pandemic has undoubtedly been as prolific in spreading itself because of this globalisation, yet, globalisation is also helping fight it, with cross-border coordination and instant communication. Whilst this has led to the disruption of many industries that rely on international trade, the international money transfer and Forex industry is certainly not one of them.
In fact, money transfer companies continue to grow, with the number of users and transactions also growing. This is for various reasons, as we’ll explore below, but one market in particular that is helping them thrive is Hong Kong. Almost all companies accept HK clients, and for very good reasons.
Hong Kong is a reasonably popular destination for expats, with around 650,000 foreign residents living on the small territory. Whilst this may be slightly declining due to a pandemic and tensions with China, it remains a global business hub. It currently benefits from being sovereign in its own right, which endorses free markets and freer politics than China, yet it has direct and close-proximity access to mainland China and its markets.
Hong Kong is a business-friendly, highly educated place with lots of productive workers and infrastructure. For this reason, not only are businesses attracted, but foreign investors. The housing market in Hong Kong for example remained resilient throughout much of the pandemic, and the hit it has recently taken is relatively smaller than many other economies.
It comes then as no surprise why money transfer companies have been leveraging their growth with Hong Kong clients, given the demand to transfer money from Hong Kong. It’s relatively simple for many of the western money transfer companies to set up offices and operations in HK too, with bearable admin and regulation. Whilst this explains why money transfer companies want Hong Kong, it doesn’t explain why Hong Kong wants money transfer companies.
The rise of Money Transfer Companies
The rise of money transfer companies is a story of globalisation. If we take the EU as a brief, purists’ example, movement across borders is free and frictionless. No paperwork, no visas. Humans are constantly crossing borders, and sharing their capital between different economies.
If you can imagine the sheer amount of companies operating in several countries, along with expats, holiday makers and foreign investments, you can only imagine why the Euro was a good idea to further rescue friction. Whilst many countries in the EEA use the euro, many do not. This has led to the widespread need for currency exchange. This is the same story across the world, with constant improvements to trade deals and visa programmes, yet whilst retaining local currencies.
So, whilst we’re not sure when we will continue heading down this road of globalisation in the midst of a pandemic, we can be sure it doesn’t end with COVID-19. In fact, even during a border-closing pandemic, we’re still seeing money transfer companies thrive. It was obvious why currency needed to become more democratised, accessible, and transparent, but it’s surprising that it remains so in-demand during these times. The answer for that is: sunk costs and interdependency.
We’re now at a stage of globalisation where we’re not just using international trade for our benefit, but we’ve become dependent on it. Many have fixed investments in other countries, properties they own overseas, or work with foreign clients. This is taken for granted, but it’s the reason why you can still travel around the EU: we’ve become dependent on each other.
Money transfer companies are the manifestation of such globalism. Many companies will use a deposit/withdrawal method in order to facilitate transfers. For example, being paired up with a customer on the other side of the world where your account is deposited/withdrawn money, and the other customer has the same mirrored action. This means that payments needn’t even transfer overseas, it’s merely the efficient communication across borders that organises frictionless exchanges.
Money transfer companies have the advantage over traditional banks for a few reasons. They can harness these new developments because they’re not stuck with legacy systems that have to deal with a multitude of departments, physical locations and varying services. Many of the largest money transfer companies are actually Fintech unicorns that have rode the wave of modern infrastructure, along with spearheading app UI/UX developments.
Why businesses are opting for Money Transfer Companies
Dealing with international customers or moving abroad used to be an ordeal and not something the everyday person does. For this reason, foreign exchange felt both exclusive and expensive. Phoning up to get a quote and waiting days for the funds to transfer was acceptable 20 years ago, but today it would seem wholly unviable.
Money transfer companies were the challengers in the market. They saw that the everyday person, as well as small businesses, needed an alternative. Something not only cheaper and more transparent, but a lot faster and user friendly. Today, there is a booming market of fintechs that are leveraging the latest technology to build better infrastructure and gain access to the interbank rate.
Many money transfer companies are specialising in private clients and small businesses. This means that not only are they offering cheap and safe FX rates, but a whole host of supplementary business support. This was a key area that many believed fintechs to lack, due to being wholly online and lacking a physical capacity for meetings and a wide variety of services. Some are filling in the gaps, and branching out into new areas, however.
For example, Global Reach, like many others, have a dedicated account manager. This means that you can deal with the same person and build a relationship concerning your dealings. This can also be done over the phone too, making communication more effective. There are a bunch of hedging opportunities, as discussed below, but the important thing here is that there is assistance. Clients can ask questions, advice, and ensure no mistakes are made.
Some FX brokers take things a step further by offering consultancy services, and even POS systems. There is a certain sophistication being embedded in some specialists, making them the perfect all-in-one solution that offer a personalised service.
Hedging Opportunities in this uncertain time
The biggest threat to cash flow for small businesses is that COVID-19 policies are constantly adapting to the current environment. Government loans come in waves and are easy to miss out, and businesses don’t know if they’ll be forced to close down temporarily. On top of this, there are US elections, international tensions, Brexit and a whole host of retail investors that are causing currency swings.
Certainty is an important part of business that goes overlooked when times are good. Whilst economies such as Hong Kong are solid, they’re not impenetrable, and hedging can be one way to offer more certainty. Whilst larger films and investment banks have been exploring hedging products for decades, they’ve been democratized to SMEs thanks to money transfer companies.
Forward contracts for example are routinely available on many of the FX platforms. Such direct access to products that allow you to mitigate currency exposure is a real bonus for cash flow forecasting. Increasing certainty of future cash flow is also a huge bargaining power for when applying for finance — lenders want certainty.
Money transfer companies are extremely popular among expats and remote workers. When working overseas, like many do in Hong Kong, money transfer to HK will be a routine transaction. Traditional banks will have a huge markup compared to such FX fintechs. Not only this though but when businesses transfer money from HK, they can do so with a company that has offices in both the sender and recipient country.
For businesses that have employees travelling a lot, they can get a good rate with borderless cards. These are visa cards that essentially use the same infrastructure as online along with the same margins, but are capable of withdrawing from an ATM with.
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