Remittance Revolution
Comprehensive Guide for Banks on Choosing Between
Traditional MTOs and Modern Fintech Alternatives
The Challenge with Traditional MTO Partnerships
Banks have historically forged partnerships with established major Money Transfer Operators (MTOs) with wide physical network presence to gain immediate access to their extensive global networks and leverage their established brand trust
However, these partnerships often saddle banks and their customers with significant drawbacks:
Understanding the True Cost: A Traditional MTO Transaction
FX margins are a significant, and often less transparent, cost component in MTO transactions. Let’s look at the table
Table 1: Illustrative Fee & Margin Breakdown for Typical MTO Transactions
| Feature | Example Transaction 1 (Low Value) | Example Transaction 2 (High Value) |
|---|---|---|
| Transaction Amount | $200 USD | $1,000 USD |
| Sending Country | USA | USA |
| Receiving Country | Mexico | India |
| MTO | A Money Transfer | B Money Transfer |
| Stated Transfer Fee | $5 - $10 USD | $10 - $25 USD |
| Mid-Market FX Rate | 1 USD = 17.00 MXN | 1 USD = 83.00 INR |
| MTO Offered FX Rate | 1 USD = 16.50 MXN | 1 USD = 81.50 INR |
| Implied FX Margin | ~2.94% | ~1.81% |
| Hidden FX Cost | ~$5.88 USD | ~$18.07 USD |
| Total Cost to Sender | ~$10.88 - $15.88 USD | ~$28.07 - $43.07 USD |
| Total Cost (%) | ~5.44% - 7.94% | ~2.81% - 4.31% |
| Potential Bank Share | 10-20% of Stated Fee + small FX % | 10-20% of Stated Fee + small FX % |
Note: All figures are illustrative and can vary significantly based on payment method, delivery option, specific corridor, and prevailing market rates. FX margins are a significant, often less transparent, cost component.
The Downside for Banks: Low Margins and High Risk
While banks act as a "convenient access point" in these partnerships, they only earn 10-20% of the stated fee and a small percentage of the FX margin from the entire profit made.
Plus, this model carries significant risks:
- Reputational Damage: If a bank's customers perceive they are being overcharged for remittance services, it can damage the bank's reputation for providing value and fair dealing.
- Technological Reliance: Disruptions or a clunky user experience on an MTO's mobile application or online portal reflect negatively on the bank's brand value.
- Stifled Innovation: Banks find themselves restricted from innovating to compete against new, digital-only banks.
The Trouble with Building or Using Standard White-Label Solutions
To solve these issues, it is critical for banks to have their own infrastructure. However, building a system from scratch or using standard white-label solutions presents its own set of challenges:
- Requires dedicated IT resources.
- Consumes 25-35% of a bank's engineering resources
- Can create siloed data environments
- Integration hassles with existing bank portals and systems.
The Way Forward: A Hybrid "Buy and Build" Approach
A hybrid approach of buying a foundational infrastructure and building on top of it is the most viable choice for banks. This model ensures:
- Faster time-to-market than building from scratch.
- Access to more modern technology than traditional MTOs.
- Flexibility for a higher degree of customization.
Beyond White-Label
A True Partnership Model with RemitSo
While standard white-label technology has limitations, it is critical to partner with providers like RemitSo who enable an entire support ecosystem and multiple revenue lines for the bank
Understanding the True Cost: A Traditional MTO Transaction
FX margins are a significant, and often less transparent, cost component in MTO transactions. Let’s look at the table
Table 1: Illustrative Fee & Margin Breakdown for Typical MTO Transactions
| Support Scope | Standard White Label Provider | RemitSo's Partnership Model for Banks |
|---|---|---|
| Technology Integration | Offers a standard tech stack. | Full Tech Stack - Modular Solutions, with source code ownership designed to seamlessly integrate with the bank's core banking systems and allow easy customization on top. |
| Jurisdiction Expansion | Mainly not supported. | Enable Licensed Partner Network (US, AU, CA, EU) offering strategic advisory for the bank's own expansion plans. |
| Partnerships | Primarily a technology vendor; partnerships are the bank's responsibility. | Facilitates two-way partnerships. The bank gains access to a global network of fintechs for payouts. |
| Compliance & Advisory | Usually lacks robust AML/CFT modules. | Comes with inbuilt bank-grade self-configurable AML/CFT, Risk Mitigation & Sanction Screening Modules. |
| Product Engineering | Typically only delivers standardized product updates. | Engages in continuous "Bespoke Development," ensuring the platform evolves to meet the specific strategic and technological needs of the bank. |
At a Glance
Traditional MTOs vs. Modern Fintech Partnerships
To remain competitive, banks must strategically shift away from the limitations of traditional MTO partnerships. A "buy" or "hybrid" approach with a modern fintech partner is the most balanced path, allowing for an upgrade of remittance capabilities without the full risk and expense of building a new platform.
Table 1: Illustrative Fee & Margin Breakdown for Typical MTO Transactions
| Feature | Traditional MTO Partnership | Modern Fintech Partnership (e.g., RemitSo) |
|---|---|---|
| Primary Advantage for Banks | Immediate access to established global networks and trusted brands. | Enhanced efficiency, greater control, and a modern user experience. |
| Cost to Consumer | High, often opaque, with significant fees and FX markups. | Potentially lower and more transparent, with fair pricing. |
| Speed of Transfer | Variable and can be slow, sometimes taking days for bank-to-bank transfers. | Faster, leveraging modern rails for real-time processing. |
| Transparency | Often low to moderate, with complex fee structures. | Higher, with a design that prioritizes clarity. |
| Revenue Potential for Banks | Commission-based, with potentially lower margins due to high MTO fees. | Potentially higher margins through fairer revenue sharing and lower operational costs. |
| Technological Agility | Often reliant on the MTO's legacy systems and slower innovation cycles. | High, with a modern, full tech stack and options for bespoke or modular solutions. |
| Control Over Customer Experience | Limited, as it is largely dictated by the MTO. | Higher, with customizable front-end and bespoke development options. |
| Innovation Capability | Dependent on the MTO's roadmap and willingness to accommodate requests. | Collaborative and bank-driven, with opportunities for product engineering. |
| Partnership Model | Often an agent or reseller model. | A strategic partnership that can include marketing support and tailored solutions. |
| Compliance Burden | The bank retains residual risk and oversight responsibilities. | Significantly reduced through managed support, process support, and strategic advisory. |
Embrace the Revolution
The Clear Path Forward for Banks
In conclusion, the path forward for banks in the competitive remittance landscape is clear. By shifting from restrictive traditional MTO partnerships to strategic alliances with modern fintech providers, banks can overcome challenges of high fees, slow speeds, and opaque systems. Embracing a hybrid model is equally important for banks to leverage advanced technology that ensures scalability, premium customer experience, improved revenue potential, ensuring banks remain key drivers of the future of global money movement.