Fee or Free? How low should remittance transfer fees be? The ultimate dilemma.

Determining the price for a product or a service is the penultimate question. The money-transfer industry is no different. At present, the remittance industry has more or less the following models for pricing:

• Regular Pricing – whatever it may be, is an average of the large players operating for that particular remittance corridor
• Free – send/receiving free, where money is made on the FX
• Low Pricing – Priced considerably lower than the Regular Price to entice clients by showing them the differentiator.

The combination of the above-mentioned three models can then be hashed out in various forms to show consumers the price being offered is the best, often citing hidden fees or no-hidden fees in the transfer fees.

Then there are the disruptors – who feel that the pricing has to be low enough(sometimes even free, although, technically speaking, it is never free).

The reason I bring this up, is that there has to be a floor price for doing business, else you are not doing business, you’re simply subsidizing to take on a market, which is huge.

If offering pricing from, say, US to India is free (as set by a disruptor), what will it take for Western Union or others to match your free with their free, and literally drive you out of business?

The whole argument of having very low or no fees is just that – unsettling. It is not pragmatic and most likely won’t last long. And herein lies the contradiction, where I will voluntarily shoot myself in the foot. I feel money should be like email – sending it should be free or have an extremely low fee attached to it (think Bitcoin, think other methods of crypto-currency transfers, but I digress). There is a great article by Ben Milne, CEO/Founder of Dwolla on this matter: Generally Obvious Things About Real-Time and $0 Transactions.

Most startups in the money-transfer space are in a state of constant battle: battle of the spreadsheet as I call it. For they are forever trying to run various models on their Excel, trying to find that sweet spot on pricing where they make money and disrupt at the same time.

I personally know a couple of startups who had to either abandon their model of low transfer fees, after they realized they would have to channel in US$ 100s of Millions per month just to be able to afford the payroll. Bitcoin transfer companies have found this to be the bitter truth, that there is a floor price for each market, otherwise, you end up losing money on the transfer.

There is no free (…yet!)

Those who cite free, should look carefully, there is always a de minimis charge. Moving money within the container, i.e. the same ecosystem, is always free, but moving it between different payment ecosystems carries a charge, and even more so when the two payment ecosystems have a different dominant currency in play.

Today, our banking and payments networks require money to move money. This is by design. Unless we find a radically new way of juxtaposing new payments and ledger rails on the existing payment and ledger rails to move money, this require money to move money scenario will remain.