OpenFX Offers NGOs “At Cost” Cross-Border FX

A NGO wants to send $50 million to Nigeria, and by the time it arrives, a sizable chunk of it is gone. For an institutional clip like this one, maybe that's half a percent, around $250,000. Another organization sends $20 million to Chad, and the same happens on the way: call it $100,000 that never gets there. That's money that isn't supporting the causes that drove the transfers. The question worth asking is, "where did it go?"

Moving money into a fragile-currency corridor genuinely costs something: spread in an illiquid market, compliance fees, correspondent fees across each of the hops necessary to complete the transfer, and whatever it costs to off-ramp it into the local currency. None of that is free, and we would not pretend otherwise. But layered on top of those structural costs is a markup, the margin a carrier adds because a flow like this will bear it.

We think there is something wrong with taking a profit on money raised to help people, so starting today, we have decided to take no markup on flows from NGOs.

What follows is why these markups are so big in the first place, and why removing ours was the easiest decision we have made.

What NGOs actually move

The money an aid organization sends is almost never headed somewhere easy. It pays salaries in South Sudan, funds clinics in the Central African Republic, moves relief into Burkina Faso. These are fragile-currency corridors, with no deep FX market waiting between the dollars going out and the local money arriving.

These also happen to be the most expensive corridors on the planet. A currency that only trades in size for a few hours a day will have a large spread, because only a handful of counterparties exist willing to provide a quote and hold the often unhedgeable risk. The harder the corridor, the wider that spread becomes.

So the flows carrying the most needed dollars are, by construction, the ones that lose the most along the way.

Money that can't be planned for

There is a second reason these flows cost so much, and it has less to do with the corridors than with the nature of the transfers.

Most cross-border money is boring. Payroll goes out the same day every month. Suppliers get paid on schedule. A treasury desk can see its yearly FX needs coming and plan around it. Providers compete hard for flows like these, precisely because they are predictable.

Aid money is the opposite. It moves when a famine hits or when a flood comes through. It spikes exactly when and where things are hardest, and it cannot be scheduled because emergencies cannot be scheduled. A carrier quoting that flow is quoting into urgency, creating leverage for the counterparty. The customer needs the money there now, cannot shop around, and everyone knows it.

Big institutions mostly do not want this business, it is small next to their commercial flows and hard next to their easy ones. The firms that do serve these clients know exactly what their position is worth. Nobody publishes their margins, and we will not pretend to know them, but you do not need the numbers to see the shape of it: room for markup is exactly what a desperate, unshoppable flow provides.

Who actually pays

It’s not the NGOs sending the money.

An NGO is a pass-through organization. The money it moves was raised for a purpose, and whatever gets taken out along the way simply never arrives. When a transfer across one of these corridors loses a chunk to the cost of moving it, no one in a head office feels that. It shows up on the ground, a food order that comes in smaller than promised or a well that doesn’t end up getting made.

Why we are giving up the markup

Put this all together and the picture is uncomfortable. Some of the most important money in the world moves through the most expensive corridors in the world, priced with leverage that comes from other people's tragedies, and paid for in the end by the people with the least.

Every cent that doesn't fall into this black hole is a cent that serves the people it was meant to.

So we are giving up our cut. On flows from humanitarian and development organizations, we will charge what the transfer costs and take no markup on top.

We can afford to do this because moving money through hard corridors cheaply is the entire company. Our costs on these flows are already low, and pushing them lower is the same work we do everywhere else, every day. We would rather this not be read as charity, because it is closer to a judgment about where a margin belongs. It belongs on commercial business, not on money raised to feed people.

That is the whole of the decision. The rest, creating a cross-border system that works affordably for everyone who has to move money through the hard parts of the world, is what we are building anyway.