How Did We Get Here? The History of Conventional to Modern Money Transfer Methods

Did you ever wonder about the history of money transfer to India? Do you know when the first-ever fund transfer took place electronically? Do you have any idea about when and how the transition in transferring funds from conventional methods to modern ways took place?

Well, about 3.1% of the total global population comprises expatriates who reside in foreign countries for different purposes, including education and employment opportunities to earn a livelihood and support their families and those dependent on them. But one hardly knows the answers to all the questions above.

This blog will walk you through the history of international money transfers and what it took to reach where we stand today in fund transfers across borders.

Transferring funds across borders: the early history and how it all began?

The first-ever formal financial institutions offering financial services to the public at large were the banks. The basic reason behind the establishment of banks some centuries ago was to safe-keep the money of people and maintain records like who deposited it, what amount, when, for how long, etc.

The said institutions offered these records in return for a fee or service charges. The depositors could have access to their amount anytime they wanted.

This is what the early banking stages look like.

This practice of safekeeping continued for quite some time and gained popularity to the extent that people started trusting these institutions largely. But since people had to move around to find work to earn a living as they do nowadays, it was difficult for them to transfer funds from one place to another.

This need for the people to send funds from one place to another without actually having to carry cash physically prompted these institutions to think of ways to move money virtually, leading to the establishment of Western Union in 1851.

Western Union started virtually transferring funds around the end of the 19th century, gained popularity, and dominated the industry.

The first ever wire transfer or the virtual transfer of funds took place in 1872 or around that time (because the exact year of the transaction cannot be ascertained) by Western Union, a couple of decades after it came into existence in 1851.

This was such a facility that people thronged the institution offering it and availed the same service regularly.

Although the detailed conditions of wire transfers of the days of yore are not known, two challenges remained intact and continue well into today. They are: the long-time wire transfers take and the high fee institutions offering these services charge.

It is also said that the first wire transfer or telegraphic transfer of funds (as it was also known then) was undertaken by the Federal Reserves Bank in 1918.

What were the main challenges in conventional methods of transferring funds in the early years?

It was a great advancement in the financial industry of that era to enable people to transfer money from one place to another electronically, but not without the following few challenges.

Fund transfers earlier took a lot of time.

This is a challenge that banks still face. A wire transfer or an electronic transfer through banks still takes between 3 to 5 business days to complete. This time, mind you, can still extend depending on several factors, including where the money is going, what the amount is, the time of initiation of a transaction, etc.

Service charges are high.

In the conventional methods to transfer funds, service charges are as high now as they were then. This is another challenge banking institutions offering these services still face.

Physical hazards and extra money are involved.

In the conventional methods of transferring funds, you physically approach the institution, a bank in this case, to set the transaction rolling. It is a hazard that involves time, resources, and the extra money you might have to spend on commuting.

There are some other challenges, too, but these are the primary challenges still standing in the way of conventional money transfer to India methods.

An insight into the modern methods of online money transfer(s) and how they are set apart from the conventional methods

Banks monopolized financial services as well as international money transfers till as late as the late 20th century. With the 20th century about to begin, technology in the global financial sector has evolved to the point where a parallel financial system has become inevitable, giving birth to several online money transfer companies offering quality services.

It was due to the presence and services of these companies that people in general and expatriates, in particular, switched to them for their fund transfers as they could send funds from one part of the world to another instantaneously in return for a low fee, and the convenience to initiate a transaction without having to move out physically as was the case with banks and other financial institutions.

Impact of modern methods on money transfer and global remittances in recent times

• A report by Insider Intelligence stated that global remittances are likely to reach $774 billion by the end of 2022 at a growth rate of 5.9%.

• The same report forecast that global remittances will reach $810.79 billion by the end of 2023 at a growth rate of 4.7%.

It is largely due to the presence of other money transfer services that global remittances have witnessed an exponential spike like this in recent years.

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