Payments

With debit card, Transferwise moves closer to becoming a bank

  • Transferwise is piloting a cross-border debit card for borderless account customers, letting them withdraw funds in local currency
  • Banks aren't interested in competing products, because the market isn't large enough
close

Email a Friend

With debit card, Transferwise moves closer to becoming a bank

Transferwise, the payments startup that once campaigned on an anti-bank message, launched a "borderless" bank account this week, demonstrating that for financial services companies, all roads eventually lead back to banks.

The company is piloting a Mastercard debit card tied to a "borderless" account from which people can withdraw funds in local currency and hold funds in 28 currencies. In doing so it's inching closer to bank territory while stopping short of becoming a bank. The debit card product is in a beta phase with 1,000 customers in Europe, but the plan is to roll out the product globally by early next year, said Joe Cross, head of global marketing and public relations at Transferwise.

"We're not going to apply for banking license, but with the physical card, in theory, it replaces your bank," he said. Similarly, SoFi, whose tagline was "Don't bank, SoFi," ultimately sought a banking license itself though it has since backtracked on that endeavor because of a company scandal surrounding then-CEO Mike Cagney. No matter what the entry point is — personal loans, payments processing, small business loans — the direction seems to be the same: offering a more diverse suite of financial services products. Transferwise’s more obvious key competitors in the $429 billion global remittance market are money transfer companies like Western Union and PayPal; like any company, it needs to work with network of partner banks to deliver its product. Banks aren’t likely to launch a competing product because the market is too small and the international wires are a profitable revenue stream.

“Transferwise is coming at [the market] aiming at a problem they’ve identified that is a small part of most banks — the thinking is 'we can build a product that addresses this problem,' and it’s not a big part of any bank’s business that they’ll want to come at us,” said David True, partner at PagGility Advisors. 

For now, the international remittance market is the domain of startups. Moreover, international currency transfers generate bank revenue from fees, leaving them with no incentive to compete with startups by launching cross-border debit cards or similar digital transfer services. Apart from what's seen as limited profitability for banks to launch similar products, rolling out a competing product would be also be hard for banks because of regulatory hurdles.

"Banks wouldn't do this for two reasons -- one is the size of the market they would go after, and banks make a ton of money off of cross-border fees," said Andrew Luca, a partner at PwC. "There's really not a lot of incentive for a financial institution to give you products that reduce that fee income."

0 comments on “With debit card, Transferwise moves closer to becoming a bank”

Outlier OpinionsMakers

Lending, Payments

Can lenders improve the financial health of consumers through design?

  • Design can play a critical role in improving consumers' financial health when it comes to lending.
  • Research by the Financial Health Network shows that areas like defaults, making payments, and borrowing the right amount can be significantly improved through behavioral design principles, to ensure customers make decisions that improve their financial well-being.
Rabab Ahsan | May 26, 2023
Payments

5 questions with Zip CEO Larry Diamond

  • Payment act as a beachhead for financial services firms to more deeply serve customers, according to Zip's Larry Diamond.
  • We spoke to the payment firm's CEO about his new focus on the US and the future of the company.
Zachary Miller | May 15, 2023
Payments

Microsoft brings payments for businesses on Teams

  • Microsoft has collaborated with Stripe and PayPal to enable in-app payments for small businesses on Teams.
  • Connecting or signing up for one service – Stripe or PayPal – is required to set up the Teams Payments app, with support for GoDaddy in the cards.
Sara Khairi | May 11, 2023
Payments

Tokenization, programmable payments, inclusion: Unpacking near-term trends in the payments ecosystem

  • Very little appears to be staying the same where the payments industry stands in 2023 compared to where it’s headed in the next few years.
  • Tokenization beyond cards, borderless rails, credit for the underbanked, and the proliferation of payment acceptance options are some of the near-term trends in the payments ecosystem, suggests a new Mastercard report.
Sara Khairi | May 10, 2023
Payments

As Amazon Pay now offers Citi Flex Pay, will it help Amazon close the gap with PayPal?

  • Amazon has partnered with Citi Flex Pay to offer eligible card members the ability to pay over time at merchants who accept Amazon Pay.
  • Will gaining access to Citi's card network enable Amazon Pay to gain an edge over competitors like PayPal?
Rabab Ahsan | May 05, 2023
More Articles