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Fintech: MBA's P2P Foreign Exchange Start-Ups Challenge Big Banks

Niche players have been biting at the fringes of large lenders' business models, and foreign exchange faces growing competition from digital start-ups.

Tue Apr 7 2015

The disruption of traditional business models has been salient and the financial services sector is poised for a further shake up in foreign exchange.

Niche players have been biting at the fringes of big banks’ business models but a venture has not yet emerged with the scale to rival established institutions. This has not stopped MBA graduates from trying.

Ismail Ahmed, chief executive and founder of online money transfer market WorldRemit, brands the start-up as a low-cost alternative to traditional high street agents. Users can send cash to more than 110 locations, across continents.

He sees WorldRemit as an opportunity to shake-up a “stale” industry. “We are taking money transfers into the mobile age,” Ismail says. With an EMBA from London Business School, he incubated his company at LBS’ Entrepreneurship Summer School.

Ventures like WorldRemit are driving a transformation in culture at business schools, away from corporate careers and to start-up ventures.

“We have great talent in our ecosystem,” says Margaux Pelen, executive director of the Entrepreneurship Center at HEC Paris, a top French business school. He says entrepreneurs, investors and mentors form unique, tight-knit communities at schools. “Everyone pulls in the same direction.”  

Founded in 2010, WorldRemit has since raised nearly $150 million in funding from backers including TCV, a Silicon Valley venture group that was an early investor in Facebook and Netflix.

The crowdsourcing model of currency exchange is the latest challenger to traditional financial services groups.

Peer-to-peer foreign exchange websites like Midpoint and Currency Cloud take away the middleman by offering consumers mid-market rates and by taking a flat transaction commission.

Richard Lumb, Accenture group chief executive for financial services, says digital technologies have the potential to both disrupt and transform banking. “Banks need to innovate faster, become more nimble and develop a more entrepreneurial culture if they are going to compete effectively and meet customers’ needs,” he says.

Peer-to-peer lending and equity crowdfunding have already begun to make a small dent in the established finance industry. Foreign exchange providers will hope to emulate the success of P2P lenders like Prosper and Lending Club, which floated last year.

More than $8 billion has been lent through P2P platforms in the US and Nesta, a UK innovation charity, forecasts that the UK market will grow to £4.4 billion this year.

Brett Meyers, CEO of CurrencyFair who studied at IMD Business School, says this form of “people-powered finance” is going to change the market forever. “We’re laying down a major challenge to the banks by facilitating the cheapest, fastest and fairest way to transfer money [at] home or abroad,” he says.

CurrencyFair was the first platform to break the $1 billion barrier in money-matching transfers. The online P2P currency exchange company estimates the market for P2P forex is growing at 500% annually and will provide £250 billion of currency transfers by 2017.

Forex is a small slice of the pie. Global investment in financial technology increased at more than three times the rate of overall venture capital investment, tripling from $4 billion in 2013 to $12 billion in 2014, according to new data from Accenture.

The UK and Ireland accounted for more than two-fifths of the European total, as clusters of fintech start-ups have emerged in London and beyond.

Fred Destin, partner at venture capital firm Accel Partners, says he has seen the London ecosystem flourish and go from strength to strength. “London entrepreneurs are building technology leaders of global significance,” he says.

TransferWise has been one of the noisiest challengers. “Our mission [is] to stomp out hidden bank fees and make the world of money transfers a fairer place,” says Taavet Hinrikus, co-founder of TransferWise, who earned an MBA at global business school INSEAD.

London-based TransferWise plans to push into the US, after a $58 million funding round led by Andreessen Horowitz, the venture capital group that has backed Airbnb and Twitter.

Taavet is critical in his assessment of banks. “It’s outrageous that they can get away with advertising that claims their transfers are ‘fee-free’ despite often taking up to 5% of the money sent through the exchange rate,” he says.

Banks, however, say their charges offer comprehensive protection. In the UK, P2P forex companies are regulated by the Financial Conduct Authority, but critics say there are risks in allowing people to offer and choose their own rates.

Julian Skan, who heads the FinTech Innovation Lab London, points out the increased co-operation between traditional banks and innovative financial technology start-ups, which could result in new business models and revenue streams.

Working with tech start-ups is a challenge for traditional banks but they seem to recognise the need.

Spanish lender BBVA, for example, acquired online bank Simple and has invested in Coinbase, a bitcoin start-up. In the UK, Santander UK has a partnership with Funding Circle, the P2P lender, and RBS launched a similar scheme this year.

“Fintech is empowering new competitors and start-ups to move into parts of the banking business,” says Julian. “But paradoxically, it is also helping banks to create better, more convenient products and services for their clients.”

Student Reviews

HEC Paris




On Campus

Cultural experience

I have met the most competent and diverse batch in this school. These people not only thrive on their own but also makes sure that you are doing it with them. The professors will take your had and walk you through all milestones and make sure you are not left behind. I have found their extracurriculars extremely engaging. There was always a room to have social life after academic life. The only hindrance is the location of the school, it is slightly outside city and living in city is expensive.




On Campus

Internationality and diversity of opportunities

About my programme I would say it is very international and flexible: we have the opportunity to choose exactly the courses we want. But at the same time, the frame of the campus is crucial in students' life and enable us to create friendships.




On Campus

Great selection of people

While HEC's MBA is highly selective, I really enjoy the type of people HEC's selects to make sure everybody gets the best out of their MBA experience and networking opportunities. Not only it's an incredibly diverse pool of people (~60 nationalities) but most importantly they make sure to let in friendly empathic and curious people.





Best in France for Grande ecole

A prestigious business school. Languages ​​are important. It is better to have a scientific baccalaureate with excellent grades in high school and good assessments. The courses are well designed as per the latest trends and practicality of learning in stressed upon. Overall, a very good experience.




On Campus

Diversity and quality of fellow students

Very international and interesting place to be and opens a lot of opportunities, however the administration is very french and facilities are subpar (gym, classrooms) meaning the academic affairs is pretty much useless and lastly we are graded on a curve which can create a toxic environment because of the competition. With that being said the pros outweighs the cons by far.




On Campus

The quality of the teachers, the campus, the clubs

The school is very international indeed, we have courses with international students and share things with them within the extra academic life (in the social clubs especially). We have great career prospects if we prepare ourselves well - however, the global curriculum is still very finance-oriented, which is a pity for other interesting domains of the company world, which does not rely on finance only. The social clubs are good practice for the management and for now, are quite independent.




On Campus

HEC Paris awaits you

HEC Paris is really a nice place to do a master's in business. Many classes are useful and interesting (corporate finance, financial accounting, contract law…), some are less - but the curriculum is to be reviewed in the year to come. Regarding the student life, it is incredible, with about 130 clubs, lots of great parties with even greater people. The Jouy campus offers a lot of opportunities to do sports, and you can breathe fresh air every day. HEC also helps a great deal to find an internship or a job.





A dream institute

Enrolling in the HEC MBA was by far the best decision I made for myself. The people and faculty are great, with lots of opportunities to meet people and expand your horizons. Very nice campus where I have had some good running sessions. The alumni network is superb and very helpful. It also has a good support system for entrepreneurs. Would definitely recommend it!




On Campus

Good choice for a career boost

The classes were extremely practical and relevant to the current challenges that businesses are facing. You have access to a wide range of professionals and good career prospects once you leave the university.