Relationships Between FinTech Startups and Traditional Banks Evolving

Telis Demos reported earlier this week at The Wall Street Journal Online that, “Transferwise Inc., the global money transfer startup, is getting ready to free itself from relying on banks.”

The Journal article explained that, “This is the latest example of the evolving and complex relationship between aspiring fintech disruptors and traditional banks. While many startups seek to displace banks, they also often rely on them for access to the financial backbones of payments, lending, or deposits.”

Demos pointed out that, “Transferwise says it is ‘peer to peer,’ pairing customers who are sending money to or receiving it across borders. It charges a small fee to make the match and exchanges money at the prevailing market rate.

Working with banks to do so enabled Transferwise to grow to billions of dollars worth of transfers annually. But it also created problems, especially in the U.S. where money transfers are overseen by each state.”

The Journal article noted that, “The company has been getting state licenses since last year. It also announced in August that it could directly access the U.K.’s real-time payment system, though for now it still requires a small bank partner to do so.

Such moves will allow the company to scale back its reliance on banks when moving money, except as back-ups. Taavet Hinrikus, CEO and co-founder, said Transferwise had always aimed to eventually seek its own licenses. This requires the firm to do things like check to make sure people sending money aren’t criminals and ensure senders have the money in their accounts. Transferwise said it already was doing such checks itself, and had viewed bank partnerships as a stepping stone.”

Demos added that, “In the U.S., Transferwise now has licenses in 37 states, and can operate independently in three states that don’t require licenses. In other states it will continue to use its bank partner.”

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