Mclowd Community Newsletter February 2020

Welcome to the Mclowd Community Newsletter.

According to McKinsey & Co, global banks made $US280bn in fees from transferring money around the world in 2018. This week I spoke to Harsh Sinha, the chief technology officer of one of the new disrupters in this business, London-based Transferwise, which is now moving £5bn a month for six million users – instantly, and for a minimal fee.

Sinha says the company’s volume grew 53% last year and they are now responsible for 15% of all money moving in and out of the UK by consumers, and they have only just begun.

He thinks the $US280bn that banks make from this business will simply disappear.

Bleak Future for Banks, The Australian, Jan 25th

Introduction

I recently set up an account with Revolut.

Revolut is a multi-currency debit card that allows me to transfer up to AUD9,000 per month between currencies effectively for free (that is at inter-bank rates). I also use it as my default card for local purchases, as it operates in exactly the same way as any other debit card.

Revolut has applied a freemium model to a process that has traditionally attracted charges of 300-400 basis points. Fees which – as per the above article – are estimated to be in the hundreds of billions of dollars each year.

That is, every AUD1,000 I convert through Revolut generates a saving of AUD30-40.

Given the amount of money consumers spend online in foreign currencies (or when they are travelling overseas) the potential savings are unprecedented.

(I am a particularly heavy user because of accounts I hold with numerous US-domiciled technology suppliers. So in my case I am forecasting savings of many hundreds – if not thousands – of dollars each year).

Accounting Software Update

Reflecting the momentum that has already been acquired with respect to 2020 targets, we have recently deployed two major upgrades:

  • The previous workaround for the apportionment of member payments has been addressed
  • The interface for migrating funds into Mclowd is now more intuitive, and subjected to increased validation

That these projects have been delivered so early in the year reflects our continued focus on improving usability for high-volume Practitioner users.

Marketplace

Purchases in the Marketplace now make up 8.5% of all transactions in the Community.

Whether it is audit, technical support or assistance with lodgement, the Marketplace has begun to fulfil the role for which it was designed:

  • An Airtasker-style workflow management solution that complements the accounting software
  • A revenue stream that underwrites ongoing development of the overall technology stack

Speaking of his participation in the Community and his use of the Marketplace, SMSF Practitioner Graham Donnelly from Goldrock Accounting had this to say:

I have been using Mclowd on behalf of my clients for a number of years, and have now begun to leverage crowdsourced resources via the Marketplace for day-to-day administration tasks.

While the recurrent savings in licence fees are welcome, it is clear that the Marketplace has far greater potential in terms of driving down the overall costs of the annual fund workflow.

Conclusion

It is not possible to take nearly half a trillion Australian dollars out of the annual revenue line of the world’s banks without consequence.

And no where will these effects be more acutely felt than in the SMSF sector, where (as a recent Commsec report highlighted) the big four banks make up more than 25% of SMSF CHESS holdings.

The Trustees holding those shares (and their advisors) should be under no illusion about the implications of the above commentary.

The rivers of gold that have flowed through those banks and their international peers for decades – including the hundreds of billions in foreign exchange fees – are about to dry up.

Postscript

In a speech last week RBA Governor Dr Phillip Lowe indicated that investors face many years – if not decades – of ultra-low interest rates.

As a consequence an average-balance, two-member SMSF in pension mode with its assets invested in term deposits and / or government bonds is now generating less in annual income than those members would receive by way of the age pension.

As these deflationary forces play out enormous pressure will be felt across the SMSF value chain, forcing all stakeholders to review their cost structures in order to defend net returns.

Which is precisely the future for which the Mclowd Community was established.

Regards

Ashley Porter

Managing Director
Mclowd Pty Ltd

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