How many billion-dollar firms does it take to move some $ from the UK to the US?

Yesterday, I decided to move some unused funds from my multi-currency account with Revolut in the UK to my bank account in the US.

I opened the Revolut app and was able to initiate the funds transfer within minutes. Knowing that these transfers don't happen instantly, I closed the app and let it play out. This morning, I logged in to my US bank account to check if my money had moved across the pond.

Thankfully it had!

Interestingly however, as I looked at the transaction detail (see above), I noticed that it wasn't just a handshake between Revolut and my bank in the US.

I wondered, (if not 2) how many did it take to do this tango?

Some digging revealed an involvement of the following players:

1) Revolut - The Fintech / Neo-bank with whom I had the direct UK relationship

2) Revolut's UK Bank - Revolut isn't licensed as a bank. It holds an EMI (e-money institution) license which means they offer (their UK customers) e-money services but hold customers' deposits securely with a 3rd party licensed bank.

3) Currencycloud (CC) - As an international payments Fintech, CC has invested extensively in building out the infrastructure to move money globally (i.e., getting regulatory licenses, opening accounts with partner banks, integrating with these banks and local payments systems, and putting 'feet on the street' as necessary). They offer international payments 'as a service' to firms like Revolut (with whom they have a relationship since 2016). CC was acquired by Visa in late 2021

4) CC's US Bank - Like Revolut, CC isn't licensed as a bank either. In the US, it is registered with FinCen (Financial Crimes Enforcement Network) and is licensed across several US states for 'money transmission' services. This still does not give them the authority to hold customer deposits or interact directly with local payment systems. CC's website mentions that their banking partner in the US is a tier 1 bank. (for the sake of my clickbait headline, let's go with the assumption that this bank is valued over $1 bn.)

5) My bank in the US

So the magic number is..

Yes that's right, it took (at least) 5 large licensed financial services firms to move my $ from the UK to the US. With the likely sequence of events being,

1. I initiated the funds transfer on the Revolut app
2. Revolut in-turn called the Currency Cloud (CC) API to pull funds from Revolut's UK bank account
3. A combination of SWIFT messages and adjustment of ledger positions (across UK and US balance sheets) happened next, for these funds to magically reflect with CC in the US (I am sorry but there was no easier way to explain this step)
4. CC initiated a transfer from their US bank to my US bank, using the ACH payment system in the US
5. The funds hit my US bank account

Why are 'international payments' so complicated?

The reasons are aplenty, however some of the oft-cited ones are:

Regulations (licenses to hold and move money), that vary (significantly) by market

In the US, Fintechs needs to register with the FinCEN and apply for individual money transmission licenses across 40+ states to operate country-wide. This is not equivalent to a banking license however i.e., you can move money but the underlying deposit accounts and access to payment rails will need to be via licensed banks. There are some like Square and SoFi who have gone on to successfully apply for operative banking licenses from state regulators

In the UK, Fintechs need to start with an Electronic Money Institution (EMI) license but this doesn't give them authority to operate as a bank either. However there have been developments such as, Wise (previously Transferwise) being given direct access to UK's Faster Payments Scheme a few years back and Fintechs (like Adyen recently) getting a bank license

In India, Fintechs can apply for a Payment Aggregator license. There are some like PayTM (one of the largest domestic Fintechs) who have successfully applied for a 'Payments Bank' license which allows them to offer deposits and debit cards but prohibits them from offering loans or credit cards

Currency restrictions, imposed by countries to control the flow of money and to ensure the stability of their domestic currency

Companies and individuals are largely free to move money in and out of countries like the US and the UK. However this isn't the case globally.

Some countries (e.g., India, Malaysia) are particularly strict when it comes to the outflow of money. While some others (e.g., China, Japan) impose caps and restrictions on how much money can come depending on the type of transactions. In addition, countries can also mandate supporting documentation (e.g. invoices) as an accompaniment or as a pre-requisite to the payment.

Settlement risk, i.e., ensuring that the money actually moves hands

With domestic payments, a central bank (or a government controlled intermediary) can ensure that the banks party to a domestic transaction fulfil their obligations in the actual exchange of money. Internationally, this is a trickier task as there is no body with such regulatory remit or authority. Hence, money moves largely based on trust (e.g, banks forming trusted correspondent networks with banks in other jurisdictions) or via banks and fintechs setting up operations in multiple jurisdictions to move money across their own balance sheets.

And then there are other reasons (like having to deal with): the exchange of currencies; differences in time-zones & operating hours; inconsistent payment messaging protocols; and differing expectations from a compliance and legal standpoint (e.g., sanctions, AML).

All things considered, I am a happy customer today!

In-spite of all the complications under the hood, my experience as a customer was smooth. The money moved from the UK to my US bank account in less than 3 hours. The joke used to be that taking a flight and carrying your money in a suitcase might be the fastest way to move funds internationally. That perception will change, especially when it comes to retail remittances where the likes of Revolut, Wise and Xoom are driving change (with help from several parties behind the scenes).

And to top it, they even shared an up-to-date tracker like we see with DHL parcels.

So, it was only fair that they charged me a 0.029% delivery fee.

I hope you enjoyed reading this, please do share your thoughts and insights. In case of any factual inaccuracies, kindly let me know.