remittance Archives

January 25, 2018January 24, 2018

WorldRemit’s Catherine Wines: ‘We’re trying to make money transfer as easy as sending texts’

Catherine Wines has seen how technology has impacted the remittance business. When she co-founded WorldRemit in 2010, she envisioned doing to remittance what the online travel agencies had done to their industry. Fast forward a few years and her firm, WorldRemit is one of the fastest growing tech companies in the U.K. and from a valuation perspective, is progressing toward unicorn status.

On the podcast this week, we talk about what prompted her to take on such a large, stodgy industry and why it’s been so hard to move money internationally. We discuss her view on the role of cash in our economy and WorldRemit’s international growth plans.

Catherine Wines is our guest today on the Tearsheet Podcast.

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Below are highlights from the episode, edited for clarity.

Why get into remittance?
I used to work in another company doing remittance, but the old fashioned way. People would need to go to a shop to send money. When I left my previous company, I met Ismail Ahmed through a common friend. He had this idea of bringing remittance into the 21st century by bringing the industry online.

We’ve often made the comparison to travel agents. Years ago, when you wanted to book a flight, you used to go to a travel agent in a physical location. It was the same with money remittance. Now, you wouldn’t think of booking a flight by going to a shop. You do it online. That’s what we wanted to do with moving money: make it a lot more convenient and a lot cheaper. By doing this, we knew we would compete with the large incumbents like Western Union and Moneygram.

Why has it been so hard to move money internationally?
You have to establish quite a large network. In order for us to be able to send money and have a customer receive it almost instantaneously, you need to have a lot of partners in the recipient’s country like in Africa, the Philippines, or Africa. Building that network takes a long time and is quite costly.On the send side, in order to be able to send money, you need to get a license, and that can be quite expensive and time consuming. For example, in the U.S., you have to apply for a license in each and every state. We started in 2014 and now, we have licenses in 48 of 50 states.

Where are the banks in the remittance business?
Banks have never really gone into remittance because of the need to build these partnerships. Banks couldn’t provide the service that their customers wanted. Our products is very much for economic migrants, working overseas and sending money home. They need to send smaller sums of money pretty quickly. Banks just couldn’t compete because they work on Swift, which is quite slow and expensive.

Where do you see growth in the business coming from?
Sending money is about a $500 billion market. A large amount is still sent informally, like people carrying cash with them. There’s a big push to move that to more formal channels, like us, making it more convenient and cheaper. We started seven years ago in Europe, and now we’ve expanded to 50 send countries going to about 140 destinations.

We’re still a relatively small competitor compared to Western Union, so we’re trying to grow our business in existing markets while we expand to new ones.

May 25, 2017May 24, 2017

WorldFirst’s Mike Ward: ‘There are alternatives to the incumbents’

This week’s guest on the podcast is Mike Ward, the chief revenue officer of WorldFirst, which is a strong competitor in the international payment and money transfer industry. We discuss why historically it’s been so hard, expensive, and frustrating to move money around the world and how new financial technology firms like WorldFirst have improved the experience.

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Below are highlights, edited for clarity, from the episode.

Why people feel it’s so hard move money internationally
“There are two reasons why people still feel like it’s hard to move money around. The first is that they’re probably still using their banks. We believe, in most markets around the world, banks own 85 to 95 percent of the market share in money transfer. The banks have been trying to incorporate technology and make transactions easier. But with an incumbent, you still have to go into the branch and talk to a teller. The teller is a generalist and not an FX expert. You have to fill out a large form and pay high fees.

The second reason is that most people and businesses don’t realize there are alternatives. Financial technology companies have disrupted and changed the transaction in terms of speed, price, and complexity.”

Financial technology begins to disrupt banking money transfers
“The original approach to competing with banks in money transfer probably began 25 to 30 years ago. We’re going to compete against the banks with pricing and service. Travelex would be a good example. To them, service was picking up a phone. Have a matter expert, not a generalist, behind the counter. They’d have better pricing because Travelex would go out and make a market and trade with the big banks. Higher volumes resulted in better pricing Travelex could pass on to their customers.

Then technology came and said let’s make technology core. Let’s not have feet-to-the-street sales people running around to land one customer at a time. Let’s not have it phone-based. We want our technology to solve the issues, answer questions, and conduct the transaction. That’s really what customers want. They don’t want to talk to someone to manage the transaction. The next wave of disruption to banking over the past 10 to 15 years created an interesting dynamic as we’re seeing a lot more collaboration between fintech and banks.”

Growth in the industry
“Consumers are 20 percent of our business. Those needs come and go and we need to continue going after the next client. It’s a good business but there’s a lot of competition out there, like Transferwise. Corporate customers and e-commerce is very big for us. In the U.S., a lot of people still deal with the banks. Many owner/operators of businesses don’t understand currency exposure of working internationally. If you look at e-commerce, growth is being driven by e-commerce marketplaces you’ve never even heard of.”

November 7, 2016March 16, 2017

Does PayPal’s remittance solution stand up to competitors?

An argument that’s used against new remittance companies is that consumers don’t trust fintech startups to move real money. Companies like Western Union may be more expensive, but customers feel more secure with them. Remittance is a big deal for those who send money back home to families, and customers don’t want to run the risk of having their cash lost by new digital solutions.

But a payments pioneer just released a digital remittance service that may provide more consumer confidence. The new integration of Xoom is PayPal’s answer to digital remittance. Xoom isn’t new to remittance (it was founded in 2001 and bought by PayPal in 2015), but gets an upgrade with “Powered by PayPal” under its logo.

“PayPal can offer more services to its global customer base, which we believe will increase customer engagement,” said Julian King, PayPal’s vice president, chief marketing officer, and business development, Xoom. “We’re very excited to announce that Xoom is now integrated into PayPal.com, which will cross-sell Xoom’s services to PayPal users in the U.S.”

In conjunction with the new integration, PayPal released a white paper on the costs of remittance. In its marketing, Xoom emphasizes its contribution to the UN Sustainable Development Goal and its work towards lowering remittance fees. Using data from the World Bank, the firm found the average remittance transfer through brick-and-mortar firms like Western Union cost seven and a half percent of the money in motion. Xoom costs users less than four percent. With 2016 remittances set to hit $600 billion, the difference in fees could reduce fees by $21 billion.

“Those savings have the potential of lifting nearly 30 million people out of poverty, according to the UN Center for Trade and Development findings,” remarked King. “We’re starting to see the impact in savings from digital technology and are on our way towards achieving the UN Sustainable Development.”

Xoom stresses lower fees, but looking closer at the numbers, something doesn’t compute. Compared to companies like Western Union and Ria, Xoom is cheaper. But when looking at other digital solutions like TransferWise and WorldRemit, Xoom doesn’t hold up well.

Remittance fees can be placed into two categories: how good of a forex rate you get and how much the transfer of funds costs. Xoom gives a better forex rate than traditional remittance companies, but worse than other digital solutions. Additionally, Xoom’s transfer fees are comparable to other digital remittance companies. But when sending funds from a debit or credit card, users have to pay nearly $25, an astronomical amount for this type of transaction.

King claims consumers have responded to Xoom that they are happy with fees, but points to other factors when determining the true value of remittance transfers.

“We’re trying to match cost to the value that we’re delivering…You can’t solely differentiate on pricing in this industry because it depends on so many different factors. Because of the emotional significance of these transactions, consumers choose a service based on overall value and convenience that they get for a service,” he concluded.

Value, in the case of Xoom, seems to be transferring funds via an established payments company versus a fintech upstart. Even though fees and forex rates aren’t as bad as banks and remittance incumbents, customers will continue to pay a premium for a more established remittance service.

July 19, 2016

WTF is remittance?

If Bill Gates thinks remittance is important, we probably should too. Microsoft’s founder and one of the richest people on the planet addressed maximizing remittance payments during his speech at the 2011 G20. In Gates’ view, every cent of the $581 billion market for global remittance is vital for many individuals in developing countries. Although the concept of exchanging currencies and sending them back home hasn’t changed much, new technological advances have changed the way the way these payments work.

Here’s an overview of remittance and how fintech is changing it.

What is remittance?

Simply put, remittance is when a migrant worker sends money back to an individual in his/her home country.

Who uses remittance?

Classic remittance users are people from underdeveloped countries who, seeking economic opportunities, work in developed countries and send funds back to their homeland. Modern remittance users are not limited to the classic example; another type of sender could be an individual working for a multinational corporation and working in a different country than home for a bit. Other remittance senders would include foreign students, international volunteers, and retired expatriates. Regardless of economic level or the dollar amount, all these individuals use remittance.

What countries are the biggest recipients of remittance?

Of 2015’s $581b in global remittance, $431b went to developing countries. The highest recipients included India ($69 billion), China ($64b), the Philippines ($29b), Mexico ($25B), and Nigeria ($21B).

Who are the classic remittance facilitators?

Obviously, we’re only talking about official transfers, since dealing drugs or arms and dropping duffel bags full of cash from a low flying plane can’t be tracked.

The largest remittance facilitators are incumbent money transfer operators (MTOs) like Western Union, Money Gram and Ria. All three serve between 150-200 countries and have over 1 million agents. Other large incumbents offering remittance services are banks, as customers can use bank services to wire funds back home.

Individual and corporate forex brokers are another type of remittance facilitator. Workers can use services of small and large forex traders to change and/or transfer wages to their native currencies.

The final classical facilitators are post offices, where customers can purchase and send money orders to their homelands. Although they may not be the fastest or most efficient, post offices are one of the cheaper classical remittance options for individuals.

What’s changing remittance?

One simple word: Fees. Users using banks or incumbent MTOs have to pay high fees to send money back home. When Bill Gates spoke at the G20 summit in 2011, he addressed the importance of lowering remittance costs. “We must continue lowering the transaction costs of remittances, so that this growing pool of money has as big an impact as possible on the poorest. Reducing these costs to an average of 5 percent (compared to the current average, which is roughly twice that) would save $15 billion,” remarked Gates.

The high cost associated with remittance can be best seen by the forex rate that MTOs give for remittance payments. Disruptors like TransferWise frequently offer more competitive forex rates and lower fees. Below is a side-by-side shot of the exchange rates on the same day and time from Western Union and TransferWise:

As you can see, TransferWise offers a lower forex rate than Western Union. By offering lower fees, better forex rates, and more transparency, new fintech companies are slowly chipping away at the 800lb remittance gorillas.

Who are the new remittance players?

Digital MTOs TransferWise and WorldRemit are the biggest competitors to incumbent remittance leaders. Various P2P models and low overhead result in substantially lower fees and better forex rates than the incumbents. Other companies allow workers to fill debit cards remotely through an app, and digital wallets allow remittance users to transfer funds through online and mobile apps to their native countries. Finally, with new cryptocurrencies like Bitcoin and Etherium, workers can convert funds to digital assets and send the money home, as well.