When it comes to safety of your money most people focus regulation and technical safeguards.
And this is a good thing.
But there is an elephant in the room.
Financial markets are in turmoil and many money transfer companies will likely need funding again soon but they may not get it.
What about bank guarantees?
Money transfer companies are typically not covered by the same laws that banks are covered by and so they do not have the guarantees of your funds in place.
“Many people want to know if they are covered by the FDIC (USA), DGS (Eur), FSCS (UK), CIDC (Can), FCS (Aus) for their money transfers. These guarantees usually cover money held in bank accounts as well as some building societies and credit unions for amounts up to $250,000 USD/£85,000 GBP /€100,000 EURO/$100,000 CAD/$250,000 AUD.
Money Transfer Services are not covered under these schemes.
That said money transfer companies do have many regulations surrounding them which should offer a layer of protection.
The most significant of these is the fact that many of them have to operate using different bank accounts (as part of these regulations) for their day-to-day operations which are separate from accounts that handle your money in theory this means that your money is safe in the event that a money transfer company goes bust.
That is not the most important bit.
Apart from these regulations which in theory help ensure your funds are safe it is also important to know about other aspects of the money transfer industry which I believe are going to be helpful in safeguarding your money.
Part 1 – Financial strength
Each money transfer company has its own story to tell when it comes to financial strength. As a relatively new industry some money transfer companies rely on funding sources which may have dried up while others are well established and need no further funding or debt.
There are many factors at play here but the most important ones to ensure a company’s future viability are profitability, future funding needs and debt load.
In the chart below we show to the best of our ability he’s three factors for some of the largest and best money transfer companies.
|Service||Private/Public||Profitable||Funding Needs||Debt Load||Verdict|
|OFX||Public||Most recent quarter “net cash flows flows $7.2M”||None so far||No Debt||As best well can tell, this is solid choice for transfers above $7000 USD|
|TransferWise||Private||“... the company has been profitable for the last two and a half years.” Kristo Käärmann, TransferWise’s CEO||Raised $292M in 2019. “The company doesn’t need any new capital,” Kristo Käärmann, TransferWise’s CEO||Unknown||As best well can tell, this is solid choice for transfers below $7000 USD|
|WorldRemit||Private||Unknown||Raised $175M in 2019||Unknown||Limited visibility on financials, but they are especially good if you need cash for pickup at the destination.|
|XE||Public (Owned by Euronet)||Recent quarter quarterly earnings of $1.63 per share. This compares to earnings of $1.37 per share||Unknown||At the end of June 2019, Euronet had US$1.12b of debt. But on the other hand it also has US$1.56b in cash, leading to a US$437.7m net cash position.||As best well can tell, this is solid choice for transfers below $7000 USD|
In many instances, these companies are privately owned, which makes it hard to know exactly what is going on.
Clearly companies that are profitable, do not require future funding and/or have little or no debt load are going to be far more viable into the future.
On this score OFX (review) our number one money transfer company for amounts over $7,000 USD does very well.
For amounts between $1,000 and $7,000 TransferWise (review) is a great choice. Even though they are private, their recent funding needs seem more about growth rather than funding an unprofitable business. These factors combined with their size and just the way they do business makes us more confident than most. Check out Is Wise Safe?
XE (review) is also a preferred method and they also have a particularly strong Worldwide and North American presence.
WorldRemit (review) has limited information provided on their financials but they are a great low cost choice too and especially good at cash pickup.
Remitly raised $220M in 2019 (equity and debt) but otherwise limited information.
TorFX – As a private company there is limited information but they have been around for a long time.
Part 2 – Current and future business activity in a downturn
For some money transfer companies, volatility related to uncertainty in financial markets actually increases the amount of money transfers that are made.
Other money transfer companies rely on individuals sending money back home to relatives or friends or business and these companies can be positively or negatively impacted.
As an affiliate for many of the major money transfer companies we get a first-hand view of exactly what is happening real time with new business sign ups.
Right now across the board we have not seen money transfer companies busier. However as market downturn grinds (and potentially causes systemic financial failure) on we think there is potential for this to change.
Watch this space.
Part 3 – Other risk factors
Possibly the biggest risk for your money when it comes to dealing with money transfers is third party risk and money transfer scams.
The reality of a money transfer is that the money transfer company only has your funds for a short amount of time.
Banks and other financial institutions at both ends of the transaction tend to have your funds in limbo for far longer.
But that’s not all.
The banks themselves also deal with third parties to make these transactions happen.
We think choosing a money transfer company that is well regulated (ideally in your country) is a great first line defence against any issues arising with insuring your funds arrive.
Apart from this choosing a financially strong money transfer company is probably a good idea (even though you’ll probably get your funds back) dealing with a company that goes insolvent whilst your funds are in limbo is less than ideal.
We think the financial markets, the major banks and other services (like money transfer services) that operate with in them are going undergo quite significant change in coming years.