How is Brexit going to impact the money transfer business
International money transfer providers are brimming with promise. Transferwise reported earlier this year about transferring more than £2bn on average per month, startups like Azimo and WorldRemit have raised hundreds of millions in investments, and traditional money transfer companies like Currencies Direct have been sold to private equity for hundreds of millions of dollars. There is a real necessity for such services, too, as transferring large volumes of money with banks can be extremely expensive, and moving small remittances with companies like Western Union could be even more expensive (relative to the volume of funds transferred).
The vast majority of large money transfer providers around the globe are headquartered in the UK – London, to be specific. It is no accident that dozens of companies have decided to be incorporated in the very same city – London has been positioned for years as the world capital of business and trade, and it attracts domestic and international businesses as well as high net-worth individuals from abroad. For money transfer companies, and particularly ones geared at higher volume foreign exchange transfers, British customers are the bread and butter of their business.
Brexit concerns piling up – what are possible implications?
With Brexit looming around the corner, things are bound to change in more than one way. The obvious implications of an unorderly Brexit will be that British firms will not be able to take on European customers without being regulated in the EU as well, but that’s an obstacle the majority of larger currency transfer firms like industry veteran TorFX have already overcome by being dually regulated in the UK and within the EU.
Another obvious implication of a “no deal Brexit”, or simply a bad deal, would be that London may be dethroned from its title of the world’s business capital. In that instance, many multinational corporations will move elsewhere, as would high net-worth individuals, and the UK market will no long be the bread and butter of the international money transfer business. This is more of a medium to long term concern, though, as it is unlikely to believe there will be an avalanche of corporations, or individuals, leaving the UK on an immediate basis – regardless of the details of the agreement. It is more reasonable to believe these corporations and individuals will be closely following the practical implication of the UK’s exit from the EU throughout 2019, before making any conclusive decisions on leaving the UK.
What could have a much quicker impact on the turnover of money transfer service provider is the status of British expatriates in the EU post-Brexit. Should the British parliament vote “yes” on the agreement in December 11, then it’s business as usual for these expats. If the parliament votes against the agreement presented by PM Theresa May, then there is a viable chance of the UK exiting the EU with no agreement, forcing British expats to go back home or apply for a foreign citizenship in order to stay in the EU. That would need to fewer requirements to transfer money between the UK and the EU, and create a big dent to money transfer companies’ revenue stream (with transfers to Spain and France being specifically popular).
The impact of GBP rate on cross border transfers from the UK
Another way in which the Brexit is already impacting the money transfer industry is the impact on the actual currency rates. A big chunk of the currency providers private desk’s clientele is Brits who are looking to invest their money abroad (especially in overseas property). Ever since the Sterling plummeted in the wake of the referendum vote in June of 2016, overseas purchases have been put into a halt.
The vast majority of political commentators and analysts believe May’s resistance is strong than her support, and hence, the chances of her agreement getting the Parliament’s okay are slim. This will lead to even more uncertainty than we have seen until now, or alas, to a no-deal Brexit commencing on March of 2019. Both of these scenarios will lead to another 4-5% decline in the sterling short term, with strong chances of hitting parity against the Euro during 2019, and are likely to nullify the average Brit’s dream of a vacation home abroad.
On the other hand, if the Brexit agreement will indeed get the parliament’s support, or that a second referendum vote will take place, then the GBP is likely to gain significantly against the Euro, unleashing a very strong demand for overseas property purchases and netting money transfer providers a strong boast.
Ever since the referendum that has determined that the UK will leave the EU, money transfer companies (particularly the ones focused on higher-end transfers) have been suffering. In fact, the entire British business landscape has been on some kind of a limbo for the past year and a half, but the lack of certainty, fueling a weak sterling and lack of appetite for overseas investment, has proved specifically destructive for the money transfer business. The trend is likely to persist upon pessimistic predictions for the future of the UK-EU agreement, and currency providers will be forced to adapt by catering to new audiences or enhancing their functionality, or – die out eventually.