I’m increasingly getting the sense that everything is possible in FinTech, at least from a peer-to-peer (‘P2P’) perspective. For example, marketplace lenders like Funding Circle and Zopa are all based on a P2P model whereby borrowers and lenders can transact directly.
I recently learned more about P2P foreign exchange services by listening to an episode of the London Fintech Podcast which featured John Booth, Co-Founder and Director of Midpoint. Midpoint is a London based P2P foreign exchange firm which facilitates “international money transfers at unbeatable rates.”
These are the main things I learned from listening to John Booth from Midpoint:
- Intermediation in peer-to-peer money transfers? — In the podcast, both John Booth and Mike Baliman, the podcast host, made the point that P2P money transfers still require a degree of intermediation, either by a bank or a P2P currency matching platform like Midpoint. The point was made that ‘opposite transactions’ — where the buyers and seller match each other immediately — almost never happen. You’re still most likely to be needing a middle man to match the relevant currencies (see the Kantox example in Figure 1 below).
- Waiting for a match to happen — Midpoint guarantee that the execution of a transfer will take place within 24 hours. John Booth made the point that P2P forex transactions sometimes take time to match, in spite of the simultaneous buying and selling that takes place through its platform. As a result, you won’t know upfront what rate you’ll pay for the trade. Booth made the point that there’s always going to be a need for a “fallback deal with the market” to ensure trade gets closed out in a reasonable timeframe.
- White label solutions — Like many FinTech businesses, Midpoint has kicked off some successful white label solutions and partnerships with the likes of accounting software provider Xero. They thus provide a seamless experience for private clients and SMEs wanting to pay their foreign invoices at the best possible exchange rate (see Fig. 2 below).
Main learning point: Listening to Mike Baliman and John Booth talking about peer to peer foreign exchange made me realise that it’s not entirely P2P, at least not on the consumer side. There’s still a need for some form of an intermediary to match currencies and platforms like Midpoint might still need to fall back upon ‘the market’ to ensure that transactions are executed upon within a reasonable timeframe.
Fig. 1 — Visual representation of Kantox’ intermediary role in facilitating peer-to-peer money transfers between companies and the wholesale FX market — Taken from: https://ctmfile.com/story/b2b-fx-kantox-peer-to-peer-fx-netting-solution-targeting-mncs
Fig. 2 — Midpoint and Xero, facilitating payment of foreign invoices — Taken from: https://www.youtube.com/watch?v=IfeUoYR-A90
Related links for further learning: