November 16, 2015
The remittance industry is experiencing fast growth and gathering attention from a number of startups and investors, bringing along technological and product innovation to address the increasing demand in this important market. Multiple startups have been launched and some have had significant growth even in this mature segment. This highlights the huge potential in a segment which includes the presence of established companies with decade-long operations. According to the World Bank, global remittance is expected to grow annually by 3.75% from 2015 to 2017.
LTP did some research and analysis on this segment and has come up with a crisp, three-page sector snapshot on the US’s remittance market which analyzes the market size and the remittance companies dominating the US market. The US dominates the global remittance market with a 22% share of the global remittance volume and with different companies offering remittance services including banks, money transfer operators (MTOs), and startup companies. The US remittance is driven significantly by international migration flows, home to a large number of international immigrants.
However, the remittance market is under pressure based on a higher fee structure with three dominant players: Western Union, MoneyGram and Ria. However, recent startups are disrupting the market with lower fee structures and innovative technologies which offer online and mobile capabilities that could potentially save developing countries an estimated $16 billion yearly.
Here are some of the major drivers of the online remittance market:
1. More convenience and lesser costs: Online transaction fees of 5-6%, expected to come further down to 3-4% with mobile payments, are currently 10-11% in the cash-to-cash remittance method. This cost benefit is driving the migrant population to adopt newer technologies, thus avoiding the inconvenience of physically going to traditional brick-and-mortar outlets.
2. Increased access to financial services: There has been increasing awareness around the financial inclusion and engagement of the underbanked community. With that attention, more nonprofits, startups and traditional, as well as nontraditional financial service providers, are coming up with solutions for this demographic. Credit unions are targeting a lower-income customer demographic, including the unbanked, and companies like Zest finance and LendUp are developing new technologies that could spur further adoption of financial services by underbanked Americans.
3. Increasing migrant population: The rate of growth of the remittance market has been observed to be 4-5 times that of the rate of migrant population in the past two decades. With the rising global migrant population and the US accounting for the highest migrant population share, a significant growth in this sector is expected.
4. Maturing of immigrant communities: An increasing number of immigrant children have grown up during the rise of technology and the Internet. This forms the basis of the ecosystem around them in which they have grown, where performing online money-related activities (including remittances) will be a natural progression for them.
5. Changing technology landscape for payments: The industry has traditionally been dominated by big players such as Western Union and MoneyGram, which utilize networks of remittance agents in brick-and-mortar stores to make and receive payments. But the increasing viability of online remittances has enabled the smaller brands and upstarts like the Web-only Xoom to effectively compete online with legacy companies. With companies like Regalii, Remitly and many more ventures in the online and mobile-based remittance space, the change in the industry’s landscape looks promising.
Table of Contents:
1. Market Size of the Global Remittance Market
2. Market Players in the US Remittance Market
3. Technology Trends in the US Remittance Market
4. Business Trends in the US Remittance Market
5. Regulatory Trends in the US Remittance Market