Moving money around the world: Explained

Periklis Vasileiadis
5 min readMay 3, 2024

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Created by Dall-E

Did you know that a staggering $8 trillion transitions between different currencies is happening every single day? That’s right, it’s the largest market globally, roughly 30 times the daily global GDP. If you’ve ever found yourself frustrated by the complexities of foreign exchange, anxiously waiting for your money to reach its destination, questioning the fees involved, and pondering who’s profiting from them, you’re not alone.

Why does sending money across borders seem so expensive and convoluted? Why are some individuals and companies seeking to revolutionize this system, while others prefer to maintain the status quo? Understanding how this intricate web of transactions functions is key.

This process may seem straightforward on the surface, but in reality, it’s incredibly intricate. Unlike physical commodities like paper currency or gold, currency exchange occurs in the digital realm, where ones and zeros are shuffled around. However, ensuring that these transactions are accurately recorded and accounted for adds layers of complexity.

How does money move from one country to another?

Payment rails serve as the fundamental framework enabling the movement of money worldwide. Despite the existence of global payment networks like wires or card systems such as Visa and Mastercard, none offer universal coverage. This presents a challenge for businesses seeking to expand globally, as they must integrate various payment methods to cater to diverse customer preferences. Failure to support a customer’s preferred local payment method can result in lost sales opportunities.

In many ways, the current payment ecosystem resembles the airline industry. Just as airlines don’t serve every destination, payment networks don’t cover every corner of the globe. This necessitates the use of local payment methods, akin to utilizing local airlines for specific routes. However, navigating these disparate payment rails can be as cumbersome as coordinating flights with multiple carriers.

To streamline international transactions and enhance global connectivity, countries are beginning to emulate the airline industry’s approach by forming alliances. These payment alliances aim to create cohesive networks that facilitate smoother cross-border transactions, akin to how airline alliances optimize international travel.

Regulation differs by country

Each country boasts its own set of stringent rules and licensing requirements governing the movement and storage of money. Some jurisdictions obscure their regulations behind a wall of complexity, seemingly discouraging new players from entering the fray. However, shining examples like Brazil and the U.K. showcase progressive policies aimed at fostering innovation and attracting fresh investment.

For companies aiming to facilitate cross-border transactions, securing the necessary licenses proves to be a formidable challenge. The process demands compliance with regulatory frameworks in both the sending and receiving countries, often necessitating partnerships with established entities possessing the requisite licenses. This regulatory framework has long served as a stumbling block for fintech pioneers seeking to revolutionize the industry.

Moreover, compliance hurdles are just the tip of the iceberg. Meeting capital requirements, adhering to governance standards, and ensuring data storage compliance are additional hurdles, each tailored to the nuances of specific jurisdictions. Successfully navigating this intricate web demands not only expertise but also a deep understanding of local nuances and regulatory intricacies.

Why does sending money overseas take so long?

Sending a simple text from your phone to another halfway across the world seems like a breeze. Both devices speak the same language, operate on identical protocols, and require no intermediaries. It’s seamless communication at its finest.

However, when it comes to traditional banking, the story takes a more convoluted turn. Despite money existing primarily as digital bits and bytes, its journey is far from straightforward. Each transaction must navigate through a maze of centralized parties, slowing down the process significantly.

In the United States, for instance, the primary avenue for interbank transfers is the Federal Reserve’s wire system, known as Fedwire. But here’s the catch: Fedwire shuts down daily at 7:00 PM Eastern Standard Time. So, if you’re attempting to wire money to Greece on a Friday evening, tough luck. Not only might your local bank be unable to initiate the transfer, but it could also coincide with a Greek holiday, further complicating matters. A myriad of factors contribute to these delays, from national holidays to sluggish systems and infrequently traded currencies. Moreover, stringent regulatory requirements add another layer of complexity to the process.

Consider this scenario: You’re a resident of New York attempting to transfer funds to Greece. Your local bank scrutinizes the transaction to ensure compliance with anti-money laundering laws. Transactions exceeding $9,999.99 trigger heightened scrutiny, adding more hurdles to an already intricate process. But the scrutiny doesn’t end there. Recipient banks, particularly in countries with strict currency controls, subject incoming funds to thorough examination. Questions regarding the purpose of the transaction or the intent behind sending money abroad are not uncommon.

Indeed, the journey of money involves navigating through countless layers of regulations and protocols. Yet, by dissecting this complex process, we can identify areas for improvement and envision a future where international transactions are more seamless and efficient.

Enabling traditional FIs to better serve their customers

Between 2011 and 2019, cross-border payments surged significantly, yet the number of active correspondents dwindled, a trend observed across both developed and developing economies. Despite this, traditional methods still dominate the payments landscape, presenting a ripe opportunity for financial institutions (FIs) to modernize their international money transfer processes.

The challenge for FIs lies not only in the loss of revenue from international transactions but also in the risk of losing clients to competitors offering more efficient solutions. Hence, there’s a pressing need for FIs to revamp their systems, focusing on compliance and revenue enhancement.

Key to this transformation is ensuring compliance with diverse regulatory frameworks, combating financial crimes, and thwarting fraudulent activities. Achieving these objectives necessitates adopting modern compliance and workflow solutions. Companies like OKTO are at the forefront, addressing these challenges by bolstering KYC/KYB oversight to appease regulators while simultaneously streamlining transactions and reducing associated costs, much to the satisfaction of banks.

Furthermore, there’s an untapped potential in reimagining the communication channels between payment originators and receivers. By facilitating seamless communication downstream, innovative companies could potentially streamline transaction orchestration, thereby driving down costs and optimizing money flows across the network. As FIs strive to navigate the evolving financial landscape, embracing innovative solutions that marry compliance with efficiency will be paramount in ensuring their competitiveness and sustainability in the global marketplace.

The initial thought behind this blog was to empower everyday readers to understand and stay informed about the technology shaping our world. In Thought Series, I try — from my point of view — to provide a glimpse into the possibilities of what’s to come next. If you have any feedback, recommendations, or thoughts, please contact me by email or Linkedin.

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