Although these startups currently have a small share of the market, their growth is impressive and will continue, says Forrester.
These platforms match customers with one another to facilitate currency exchanges. They offer better exchange rates than retail banks and international money transfer firms do and have already saved customers millions of dollars in transaction fees, according to the report authors Oliwia Berdak, Alexander Causey and Benjamin Ensor of Forrester.
If banks can enable international transfers to become as close to real time as possible, then this could be a key differentiator.
One of their advantages is lower fees compared to those charged by retail banks and international money transfer firms such as Western Union and MoneyGram.
They also offer transparency for customers by clearly displaying how much currency will be sent to the recipient bank account and upfront fees.
The report notes many retail banks claim they do not charge fees when exchanging currency for customers, but use an exchange rate that is often far from the mid-market rate. This adds margin on the exchange rate. Additionally, customers often end up being charged international transfer fees at the bank they send the money to.
Another advantage is access. Many customers still visit the branches or exchange bureaus to get their foreign currency. The P2P currency exchange platforms offer a simpler and easier digital experience. Several also make it easy to make transfers on the go, with TransferWise and WeSwap offering slick mobile apps.Read more: How businesses can meet the demands of the 'Information Generation'
Forrester lists some ways banks can ‘outsmart’ the startups.
The banks, for instance, can make it easy for customers to buy and sell through digital touchpoints, says Forrester.
They can also acquire or partner with a P2P currency exchange firm. Both parties will benefit, says Forrester. Banks will have access to the matching platform to offer international transfers to their customers for less. The P2P currency exchange firm would gain credibility and have access to a bigger customer base.Read more: The future of cybersecurity
Forrester likewise recommends the traditional players to focus on speed – a pain point of international money transfer.
“If banks can enable international transfers to become as close to real time as possible, then this could be a key differentiator,” says Forrester.
Read more: PMOs need to run occasional ‘reality checks’ to ensure relevancy: Gartner
— Greg DeGregorio (@dego963) May 26, 2015
Send news tips and comments to email@example.com
Follow Divina Paredes on Twitter: @divinap
Follow CIO New Zealand on Twitter:@cio_nzRead more: What do you do when 900 startups are targeting your service?
Join the CIO New Zealand group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.