There are some squiddeldypop number of startups attempting to get into the money transfer business here in the US. And why not? The fees charged by the banks are extortionate and the market looks both ripe for disruption and very juicy indeed. However, as Josh Hannah pointed out over the weekend here at Pando there’s a certain amount of regulatory risk associated with entering the money dealing world. It may be that the juiciness of the market is sufficient to make fighting one’s way through the regulatory thicket worth it but it is going to require a great deal of capital to do so.
Actually, it might require an infinite amount of capital, if Aaron Greenspan of Facecash is to be believed:
One by one, states were passing versions of the money transmission statute. The result is that five companies — Western Union, MoneyGram, Travelex, Sigue Corporation, and American Express — have effectively limited competition for pricing of financial services.
The laws were far more effective than envisaged, however, shielding Visa, MasterCard, Discover, and the entire banking system from new entrants and new technologies. The laws imposed licensing requirements so high, and so vague, that effectively the only companies able to afford compliance were his clients. In California, I was told by the relevant authorities that unless I could come up with anywhere between $2m and $20m, the DFI would call the sheriff and throw me in jail, and that my questions about the MTA made it sound an awful lot like I “intended” to break it.
It’s precisely the difficulty of breaking into this market that will make being able to do it so valuable of course. Being the only person who can complete the obstacle course means that you’re protected from the follow-on competition.
However, Vodafone’s announcement makes that space rather more difficult again. M-Pesa is the successful money transmission business they’ve been running in Kenya these past few years. It operates over SMS and costs some 50 cents per average transaction. And now they’ve managed to get a license to launch in Romania:
Vodafone M-Pesa – the mobile money transfer and payment service that has transformed the lives of millions of people in emerging markets – has come to Europe for the first time.
M-Pesa, which launches in Romania today, will offer simple, safe and secure mobile money transfer and payment services to approximately seven million Romanians who transact mainly in cash. The service also offers banked customers the convenience of being able to access and transfer money via the mobile phone.
M-Pesa is based on simple text messaging technology and operates over any of Vodafone Romania’s mobile network connections, including 4G services which launched in 2012. Romanian M-Pesa customers will be able to transfer as little as one new Romanian leu (0.22 euro cents) up to 30,000 lei (€6,715) per day.
Users are not restricted to sending money to other people on the Vodafone network: any phone that can pick up an SMS message qualifies. And it’s only necessary to visit the Vodafone office if you want to convert into cash: those offices essentially acting as bank branches at that point.
That’s going to be pretty big competition to any disruptive upstart in any market where Vodafone decides to launch this product. Of course, now that they’re out of Verizon they have no presence in the US, so perhaps people are safe there. On the other hand, if I were looking around for a method of breaking into money transmission services in the US I think I’d be trying to raise the wind to get M-Pesa authorized in the US (sadly, it has to be across all of the different States individually) and then wangle a license on the technology with Vodafone.
After all, it’s a known technology, it works, it’s managed to achieve licenses elsewhere, so why not? And if I was thinking about competing in the money transfer space I think I’d be very worried indeed that someone would try to use that plan against me.
In fact, if I were a mobile telecoms company in the US I would be thinking very hard about trying to license that technology myself. How do you think that people would take to an Apple money transfer service? And who would want to compete against one?
[image via wikipedia]