For those that are regularly dealing with overseas transactions, it's not ideal to have to convert your currency every time you wish to send money. Nor is it convenient for the sender to convert currency when sending you money. A solution which has grown in popularity recently is the multi-currency wallet.

 A multi currency account essentially allows the user to hold money in various foreign currency accounts. The convenience of this is that you only have to have one log in (i.e. an app) that gives you access to all of your foreign currency holdings. It's worth checking out a multi-currency account comparison before jumping into the first one you see, as there are varying models.

The target audience of multi-currency accounts

First and foremost, the key audience of multi-currency accounts are those regularly dealing with multiple currencies. This tends to be small businesses along with expats. Small businesses often need to pay freelancers, suppliers and tech products overseas, along with being able to control their own currency exchanges from sales (when leaving it to Amazon for example, you lose ~3% in every exchange.)

Expats and remote workers are of course delighted with the rising availability of the service, along with the cheap rates. The only drop in use that these companies may be experiencing is from holidaymakers, who aren't severely restricted by strict border control.

Generally, the average customer of a multi-currency account is looking for cheapness. They want the most Dollar for their Euro, and rightly so. If you're regularly exchanging money, you want certainty too. You don't want to have to check what margin the company is taking every time you use it, which is why TransferWise and Revolut are so popular - their transparency).

Finally, time and convenience play a huge role too. If you're having to use the account all the time, it may as well be a swift modern app with a geometric password and a speedy user interface. Compare this to the traditional method of speaking on the phone or a physical branch, it's incomparable. On top of this, exchanges are instant with most fintechs.

What companies occupy this space?

There are literally hundreds of money transfer companies out there with multi-wallet functionality. However, if we purge the list of companies with small infrastructure and market share (as they usually offer a weaker service), and those that are less credible, along with categorizing them into services aimed at different needs, then we're left with just a handful.

World First, OFX and TransferWise are three of the most widely known and successful companies. You cannot claim one to be objectively better than another, because they cater to different needs. For example, OFX are specialists in Asia. They have offices in Singapore and Hong Kong, along with targeting the Asian continent with their services (marketing for clients there, having very good Asian currency exchange rates).

On the other hand, World First specialises in having a huge selection of currencies. There are over 130 currencies offered, meaning they can serve almost any situation better than anyone in the market. This is very useful for those dealing with exotic currencies.

Finally, TransferWise is a slightly newer company that is very tech and app-focused. There's an incredible user interface making the app quick and snappy, as well as being transparent to those without strong financial literacy. It's also very easy to find your virtual bank account details for each of the currencies, which makes it very easy to be paid by others.

Why is this a lucrative industry?

Money Transfer Companies, for the most part, have access to the interbank rate. This means that they receive the mid-market rate - the same as the largest investment banks in the world. Their infrastructure is top notch usually, so it's clear to see how they can still profit when offering cheap rates.

Companies will either take a margin on the transfer, or a fixed fee (or both). For example, TransferWise takes a very little (almost insignificant) margin, but will have a 0.5% for most transactions for UK customers (varies upon client's residency). This is cheap and consistent for the customer, yet TransferWise are generating a lot of revenue given the $5 billion monthly transactions they facilitate.

Furthermore, there are other ways for these companies to generate revenue too. Revolut has a freemium model, in which customers can upgrade their service for either premium or metal subscriptions.

If we take Air Wallex as an example, the potential for growth is outstanding. Air Wallex is an Australian unicorn company which was only founded in 2015, but has reached over $400m in funding and has over 300 employees. Their model is extremely transparent: a free account for basic currencies (EUR, USD, AUD and HKD), and either a 0.5% or 1% FX margin. International payments, domestic payments and international payments are otherwise free.

It comes then as no surprise why Air Wallex grew rapidly in popularity. Many are not only comparing this service to competitors, but to high street banks. This difference in price, transparency and convenience is vast, and doesn't appear to be closing very fast, if at all.

The currency revolution and its impact

Offering cheaper and accessible rates isn't only hurting high street banks, but also online marketplaces that exploit the lack of access to good rates. Amazon and eBay/PayPal for example have their own methods of pairing overseas buyers and sellers together, which allows customers to easily pay or receive money in their domestic currency.

The black box of exchange that they're running though isn't the most transparent, and many sellers couldn't tell you what the margin paying is. The reality is that it's often 3% or more, and this is really hurting profit margins - not least because this margin is taken from revenue, and not profit.

More sellers are questioning the rates and switching to money transfer companies. Given their presence and marketing prowess, they're more widely known about now. This will be taking millions of dollars generated from these companies who were charging exorbitant rates.

This is likely going to have a significant effect on marketplaces and banks alike. They will have to seek out innovative solutions and cut down their margins in order to keep up, otherwise challenger banks will get there first.

Final Word

The biggest cause of innovation in the FX industry comes from competition. It's a fascinating space because it's really difficult to compete on pricing alone. One you reach a reasonable margin and cannot undercut anymore, all the company can now do is to differentiate. And the way these companies differentiate is what inspires incredible apps and convenience. Customers now have a whole host of affordable money transfer companies, so all that's left is the fun stuff: which company has the best features that suit their needs?