December 30, 2015
The article provides you with a flashback of the major touchpoints for the remittance segment in 2015. The initial wave of innovation was leveraging digital technology to reduce the cost of sending money abroad. The usage of online channels and mobile has led to multiple startups, payment channels, instruments and more choice for consumers. The push by the World Bank for lower costs in sending remittances has made these digital solutions more attractive. Apart from costs, the new-age solutions also provided enhanced customer experience, higher convenience and multiple brand options to choose from.
On the other hand, incumbents haven’t been holding back. Western Union and MoneyGram have been quick in responding to these challenges and have enhanced their offerings by partnerships, acquisitions, or by in-house innovation. We have talked about this trend in our analysis Western Union and MoneyGram Say ‘Elephants Can Dance’. Both Western Union and MoneyGram have aggressively adopted a multichannel approach and have partnered with banks, network operators and mobile wallet service providers. Around 6% of Western Union’s total revenue is contributed by its digital business which includes westernunion.com and mobile money transfers. Around 15% of MoneyGram’s revenue is contributed by self-service channels like online, mobile, account deposit, ATM and kiosks.
The cost of remittance has been on the decline since 2008-09 when the World Bank, the G8, and later, the G20 have mandated to reduce the cost from more than 10% then, to around 5% now. This initiative has made significant progress and the average cost of sending remittance stands at 7.68% as of June 2015. The World Bank estimates that this reduction in cost has saved migrants and their families more than $60 billion. In June, the World Bank came up with a new initiative called the Smart Remitter Target (SmarRT), which will monitor remittance transactions at a more granular level with the aim to ensure that there are at least three remittance service providers in each country corridor who charge 3% or less to send money.
Another major trend that we have seen is that globally, banks have started to exit or cut their exposure to remittance business. Specific banks include JPMorgan Chase, Bank of America, Banamex USA in the US; Westpac in Australia, Barclays from the UK, BBVA from Spain. The common reason for these are regulatory pressures, lack of control and visibility over the remittance corridors and increasing costs.
The year 2015 has also seen a number of startups that have sprung to provide money transfer services by utilizing blockchain. The concept is being tested by multiple large banks, not only to provide remittance services but also to reduce the overall transaction costs associated with inter-bank transfers. The concept has gained such significant interest that Bank of America had filed an application to patent its cryptocurrency-based remittance service that it could plan to launch later.
Here are some of the major startups that have raised funding in the remittance segment in 2015:
TransferWise, a P2P cross-border money transfer service provider, raised $58 million.
WorldRemit, an online and mobile remittance service provider, raised $100 million.
Remitly, an online remittance service provider, raised $12.5 million.
Align Commerce, a blockchain remittance company, raised $12.5 million.
Other major news:
LTP Research Reports in Remittance: