Where is the Global Exchange Market Heading towards?

What is the global exchange market? The simplest way to explain what a Global exchange market is that it is a market where goods or services have been exchanged for money or other goods or services. It’s been known to mankind from early days. Before the money was introduced bartering was a direct way to trade goods and services. For example, a farmer may exchange a bushel of wheat for a pair of shoes from a shoemaker. Later with the introduction of physical money in early 640 BCE, money became the medium of exchange with a recognized value that was adopted in order to make it easier for people to trade products and services with each other.

With globalization the need for international money transfers arose. No country is self-sufficient meaning they always need to import the goods that they do not have or export their excess production, same with services. So the money needed to be sent across borders and to make this process faster money exchanges were immersed. To cater to this growing need many facilitators like banks, financial institutions, private money exchanges & many more have taken the task of advancing their money transfer channels. Today roughly $4.8 trillion worth of foreign exchange transactions occur each day. $530 billion is roughly transferred each year.

Transferring money across the borders is called International money transfers and also known as remittances. Most of this money comes from the immigrant workers and cross country trades like Imports & exports, trade loans, foreign aides and loans, etc.,

The most traditional is to send money online across countries was called wire transfers. Most wire transfers have been affected by banks or authorized financial institutions. Early days banks used Telex to accommodate these international money transfers. A telegraphic transfer, or TT, is a way of sending funds electronically and it was also known as telex transfers, the name harks back to when sending money meant sending a printed message using a tele printer. Since the telegraph itself has become obsolete, the need arises for new methods and SWIFT was introduced.

SWIFT (the Society for Worldwide Interbank Financial Telecommunication) was launched in 1973. A system introduced by a Belgian based company which facilitated cross-border transfers between banks by introducing uniform standards, which made transactions less prone to errors and able to move, yes, swiftly. In 2018 half of high value cross border payments worldwide used SWIFT and SWIFT has linked more than 11,000 banks and financial institutes globally in over 200 countries with an average of 32 million messages per day.

Apart from the Banks and financial institutions there are other companies that are involved in International Money Transfer and they are called Money Transfer operators. Most of these companies provide much faster fund transfers than banks by using their internal system or access to another cross-border banking network.

With the advancement of mobile phones and the internet most of these MTO s took advantage by creating simple mobile apps allowing their customers to use their services easily and with the convenience of doing it from anywhere. They offer lower remittance costs than traditional banks charge, very little processing time, value added services and the privacy and protection of consumer’s money. According to the GSM Association, in 2020, funds worth around USD 12.7 billion were processed through mobile money in cross-border remittances.

The outward digital remittance segment led the market in 2022 and accounted for more than 58.0% share of the global revenue and money transfer operators segment dominated the market and accounted for more than 40.0% share of the global revenue in 2022.

Companies like Azimo Limited, UAE Exchange, MoneyGram, PayPal Holdings, Inc., Western Union Holdings, Inc., and WorldRemit Ltd dominate the world's digital money transfer industry today.

The global digital remittance market was evolving considerably, Market value in 2016 was above the $530 billion mark. In 2022 market size was valued at USD 19.65 billion and is expected to expand at a compound annual growth rate of 15.6% from 2023 to 2030. The remittance market is projected to reach $1,227.22 billion by 2030.

The United States of America stands out as the country which has the most outward remittances and India tops up as the most inward remittances receiver. China maintains the most even balance between sending and receiving. North America has a global share of 28.43% of outward remittances mainly due to large immigrant workers in the region who are sending their earnings back home.

Also North America is the home region for major prominent financial service and communication companies, such as Continental Exchange Solutions, Inc.; Western Union Holdings, Inc.; and MoneyGram.

On the other hand, the Asia Pacific region is considered as the fastest growing region for international remittance. Mostly due to the large labor force that has emigrated from this region and works in North America and Europe sending money to their homes.

Region giants such as China and India are largely focusing on the adoption of mobile banking, cashless payments, and mobile-based payment solutions, thereby contributing to the regional market growth. The growing population in this region has also largely contributed to the Money transfer market's growth.

Virtual payments using crypto currencies are also getting very popular and with the evolving block chain technology the peer to peer payments systems become very versatile and fast. cryptocurrencies are typically exchanged on decentralized computer networks between people with virtual wallets. These transactions are recorded publicly on distributed, tamper-proof ledgers known as block chains. The popularity behind the cryptocurrencies largely stems from their decentralized nature. They can be transferred relatively quickly and anonymously, even across borders, without the need of a bank that could block the transaction or charge a fee.

Bitcoin, believed to be created by the Japanese engineer called Satoshi Nakamoto in 2009, is by far the most prominent and favorite cryptocurrency, and its market capitalization has peaked at over $1 trillion.

More than $8.2 trillion was transferred via the Bitcoin block chain over the past year. The figure works out to an average of $260,000 per second. Ethereum, the second most popular crypto, has a market cap of $211.73B and as of April 2022, over 120 million coins of Ethereum are in circulation. There are many other popular crypto’s including USDT, USDC, EUROC which are pegged one to one with real currencies and acts as stable coins. Many prefer these stable coins for money transfers as the value of the coin doesn't have a large price fluctuation.

The global exchange has moved from bartering animal skins to minting coins to printing paper money, and today, at the peak of a massive shift to electronic transactions. Ancient transaction forms have been revoked: for example, bartering still occurs on the margins in some markets such as the business-to-business (B2B) space and some consumer services. With the help of fintech the global exchange market will surely continue evolving as long as humans require a medium of exchange.