The forex brokerage industry is very competitive.
Establishing a financial-focused firm in 2021 is difficult enough, given the entire effect of the Covid-19 epidemic is unknown. This is particularly true in the money exchange business, where multibillion-pound behemoths like Wise (previously TransferWise) fight against multibillion-pound institutions.
Anyone believing that now is an advantageous moment to join the currency brokerages field may be unaware of how congested the space is and how much influence the industry giants have.
The currency brokerage sector is crowded with both large and small firms.
Understanding the competitive landscape is one of the first stages in assessing a company proposal. Starting a firm with the knowledge that there are few competitors in the sector makes the entrepreneurial journey simpler.
However, a study at the global foreign currency market demonstrates that this is far from the truth. In London alone, there are at least two dozen foreign exchange firms. Given that London is the global foreign exchange industry’s core, it’s reasonable for a sizable number of enterprises to be headquartered in the United Kingdom.
Several significant worldwide money exchange centres, including New York City, Singapore, and Tokyo. There are undoubtedly more than 25 significant money exchange businesses worldwide that can readily service a global clientele.
Doesn’t it seem like an uphill struggle for fledgling entrepreneurs? It’s worse than that. There are other smaller rivals and the several dozen big and worldwide money exchange services. Add to it an even greater number of even smaller rivals who have established a foothold in the industry.
These smaller rivals use systems such as Currencycloud. Currencycloud provides financial infrastructure and solutions to businesses that need currency conversion. Currencycloud, in other words, functions as a white-label supplier of a financial ecosystem that allows foreign exchange operations.
Good luck standing out among dozens of competitors.
How large is large? Wise wants rivals to be aware that the firm is on track to become a public corporation on the London Stock Exchange, with a market capitalization of between £9 billion and £10.5 billion. Wise disclosed some crucial data about its company and future as part of the IPO process. This may be seen as a warning storey for fledgling businesses eager to compete with an industry leader.
According to Wise, the company “created a new worldwide payments infrastructure to replace the ageing correspondent banking system.” This is accurate since the firm was the first to give clients a transaction fee near the mid-market rate.
Wise supports a total of ten million clients, ranging from individuals needing to transmit money across borders to enterprises of all kinds and sizes. Since 2017, the firm has been profitable, and management has reinvested profits back into the business.
Apart from that, Wise employs over 500 engineers and does over 90 production deployments every day, or around 3,000 per month. Do you believe you can keep up with that? How about Wise’s emphasis on artificial intelligence, which the company refers to as its “bread and butter”?
Entrepreneurs are renowned for their audacious goals, and executives with significant business expertise aren’t scared to take on a firm the size of Wise. What if we told you, however, that even its apparent size, Wise is a relatively modest participant in the worldwide foreign exchange transfer business?
Banks have captured the lion’s share of the market.
According to Wise, banks continue to have a 97.5 per cent market share in overseas payments and transfers. Banks are infamous for being sluggish, outdated, costly, and generally nasty, but they continue to dominate the business.
Wise continues by stating that its aim to disrupt banks would take “years, if not decades.”
And banks have shown their capacity to respond fast and adapt by simply cutting their costs throughout these decades. They are not vying for market share; rather, they are fighting to retain it. And retaining consumers is unquestionably simpler and more cost-effective than acquiring new ones.
Banks are they paying attention? Absolutely. In early 2021, Jamie Dimon, CEO of JPMorgan, said that conventional banks should be “scared s—t less” about fintech competitors. However, the organisation is undoubtedly up to the task. The CEO said that the company had “enough resources” to catch up with and surpass fintech competitors. He continued:
“I anticipate fierce, severe competition over the coming decade. I anticipate victory, so help me, God.”
Where no one thought to seek competition
When assessing the competitive landscape of the foreign exchange market, many are startled to learn that some of the biggest companies are stock brokers. For instance, Interactive Brokers’ brokerage service enables consumers to invest in foreign currencies by exchanging one for another.
Additionally, clients may liquidate their foreign exchange positions and get cash in their preferred currency. Individual investors may find this procedure a little more complicated since withdrawing funds in a foreign currency needs a bank account that accepts the foreign currency.
For instance, a British investor who converts pounds to yen using his or her Interactive Brokers trading account will need a second account in yen to complete the transaction.
In conclusion, rethink your currency brokerage enterprise.
After establishing that the currency brokerage field is very competitive, with even an industry leader like Wise being a relatively tiny player, it is sensible to reconsider creating your own business. This does not indicate that a new entrepreneur cannot earn a lot of money; rather, it means that there are likely more lucrative alternatives elsewhere.