Global Trends in Remittance
Industry Overview
The
remittance market continues to play an important role in the economic growth
and livelihoods of people across the world. Remittance inflows in developing
countries often constitute a significant share in their GDPs, and are much
higher than development aid and much more stable than private capital flows. In
2018, the World Bank[1]
estimated that US $689 billion was sent
in global remittances, $528 billion of which was sent to developing
countries. India has the largest inflows, with remittances estimated at $80 in
2018, followed by China ($67 billion), Mexico and the Philippines ($34 billion
each), and Egypt ($26 billion). This figure is expected to grow by 3.7% to US $715 billion in 2019.
The
largest money transfer providers in the remittance industry are Western Union, Moneygram,
Transferwise, Paypal/Xoom and Ria. The graphs below, from analysis conducted by
SaveonSend.com indicate that Western Union continues to dominate both
traditional and digital (online) money transfers.
Western Union recorded U $5.5 billion
in revenue in 2017, with over $150 billion in principal sent worldwide through
550,000 agents, engaging 150 million customers.
Although they are the biggest player in the market, Western Union has
seen relatively little growth in total revenue in the last 5 years. As a result
of this, the company has been pushing to branch out into new payment services.
Western Union’s biggest competition are newcomers who are offering a simpler
service delivery format, which WU cannot respond to quickly due to the expanse
and complexity of its network of over 500,000 agents.
Ria is a subsidiary of Euronet
Worldwide and operates throughout North America, Latin America, Europe, Asia,
Africa and online. The company earned US $878M in revenue in 2018, with over
$38.8 billion in principal sent worldwide. Started in 1987, Ria is now the 3rd
largest money transfer service in the world. Last year it recorded over 92
million transactions through over 343,000 agents. The company currently has a
partnership with Walmart, where customers can transfer throughout any of their
4,600 stores at competitive prices.
Digital Remitters
Transferwise, the largest new FinTech
entrant in the money transfer space was started in 2011 and has seen phenomenal
growth since. In 2017 it launched a borderless account, which offers its
customers virtual bank accounts, which routes payments from third parties to physical
accounts via traditional transfer. Their growth can be attributed to their
peer-to-peer business model, which facilitates reduced money transfer costs
through low and transparent fees.
Xoom, which was acquired by Paypal in
2015, allows senders from the United States and Canada to remit to customers in
over 131 countries, through a desktop or mobile app. Consumers can send money,
pay bills and reload mobile phones with Xoom and PayPal products and it costs
on average just 3.93% of the amount sent compared with World Bank data, which
indicates that the average cost of sending a remittance is 7.45%.
WorldRemit sends to more than 145
countries around the world and customers can choose whether their transfer is
received as a bank deposit, cash pickup, mobile money or airtime top-up.
Headquartered in London UK, the FinTech company was founded in 2010 and backed
by well-funded venture capital companies. The company stated that it expects to
have revenues of US $121 M in 2018.
Remitly which was started in 2011, was
another well-funded FinTech startup that now facilitates persons in the U.S.,
U.K. and Canada to send money to 11 countries across the world. As a digital
remitter, the company’s website or app facilitates payments via bank transfer,
debit or credit card and recipients can have the money deposited to their bank
account, or pickup at a Remitly agent[3].
Remitly charges small fixed fees instead of a percentage of what customers
send. The company’s service fees to send money abroad can range anywhere from
$0 to $3.99, depending on how fast customers want it to be - either via Express
or Economy delivery options.[4]
Threats to the Remittance Business
As
access to digital technology increases, smart-phone penetration grows and the
cost of traditional remittances remains high, companies have to consider new
way of thinking about the money transfer business by considering the following:
⇒Lower fees:
There are significant costs associated with transferring money through
traditional channels, such as money transfer agents, bank wire transfers and
money orders. According to research undertaken by PayPal Inc. in 2016, a 3.52%
percentage point cost savings from switching to digital remittances is
equivalent to $21 billion in cost savings. As technology improves and
competition increases, it is anticipated that the cost to send money across the
world will be reduced.Several businesses like Paypal and Transferwise are
sending transfers at rates much lower than the global average (to send $200) of
6.9% in Q3 2018. WorldFirst has a “Best Rate Guarantee” policy, in which the
customer can approach the company with a current quote from any other provider,
and they will promise to beat it. They also offer hedging options such as
Forward Contracts and no transactional fee for transactions of $10,000 or
above. The United Nations further supports this digital movement, through its
Sustainable Development Goals target of lowering remittance costs to less than
3% by 2030
⇒Increased competition from technology,
which is enabling upstarts to ramp up new operations quickly, is also a threat
to the larger MSBs. The use of digital innovations like mobile payments and
virtual accounts will force companies to innovate in the way money is sent
across the globe. This can be seen in the raid growth of FinTechs like
Transferwise and Remitly and the stagnant revenue of traditional MSBs like
Western Union.
⇒De-risking by banks continues and fines
for lack of compliance with AML/CFT regulations have increased since 2008.
Money transmitters have resorted to using non-bank channels to transfer funds,
which has increased costs and risk of theft and forfeitures.
⇒Exclusive partnerships between national
post office systems and a single money transfer operator also stifles
competition and forces fees to be raised. [5]
Recent Strategic Partnerships
Western Union & Other Global Market Players
Leading remitter, Western Union, has also formed partnerships in the various countries
it serves. Among these
include WeChat Pay (China), Yandex Money (Russia) and Hyperwallet (USA).
Details of each are highlighted below:
1.
WeChat Pay – In April 2018,
Western Union added WeChat Pay, alongside its “WU GlobalPay for Students”
product offering. This feature will enable academic institutions to offer
Chinese students studying abroad with a greater variety of payment options,
such as WeChat Pay, Alipay, UnionPay and Tenpay. This is a significant stride
for Western Union, considering that WeChat Pay continues to dominate the digital
payments sector in China. This is evidenced by data from the United Nations[6],
indicating that during the period from 2012-2016, payments from WeChat rose
from circa US$11.6B to US$1.2T.
2.
Yandex Money – This service
was started as a joint venture between Russia’s leading search engine, Yandex,
and Russia’s largest bank, Sberbank. Yandex Money is an e-wallet that hosts a
virtual MasterCard. Customers can utilize this product through mobile app or
Apple Pay at any merchant or online store that accepts Yandex.
3.
HyperWallet – Hyperwallet, based out of California, is an online
payment solution for collaborative economy and marketplace companies. In 2011,
the company was approached by Western Union Business Solutions to embed its
technology into Western Union’s B2B (business-to-business) electronic wallet
initiative. This service would allow for small and medium-service enterprises
to quickly transfer money without the hassle of entering bank routing details
to effect a payment. All required from the sender would be the recipient’s
email address and a security question/answer pair.
WorldRemit & JMMB
UK-based
WorldRemit partnered with JMMB in May 2017 to deliver an online remittance
transfer service. Using the WorldRemit app or website, customers can send money
to all bank accounts in Jamaica via JMMB Money Transfer. Funds sent by 3 p.m.
can be accessed on the same day, and within 24 hours for all other
transactions.
Ria Financial & Ecobank Ghana
In March 2017, Ria Financial established a partnership with
Ecobank Ghana, in order to facilitate a remittance system for Ecobank. Customers
are not required to possess an Ecobank bank account to utilize this service and
can opt for direct bank transfer or in-person cash transfer. Those living in
rural areas or those lacking formal banking services can particularly benefit,
as cash transfers can be redeemed in one of the bank’s 77 branches or 167
sub-agent locations across Ghana.
[1] Accelerated remittances growth to low- and middle-income countries in 2018 - https://www.worldbank.org/en/news/press-release/2018/12/08/accelerated-remittances-growth-to-low-and-middle-income-countries-in-2018
[2] Money Transfer Startups: race against time? Sept 28, 2018. https://www.saveonsend.com/blog/money-transfer-startups/#more-631
[3] Monito.com – Review of
Remitly - https://www.monito.com/en/send-money-with/remitly
[4] Remitly Shaking Up Billion
Dollar Remittances Industry Adds Massachusetts -
https://www.forbes.com/sites/rogeraitken/2017/01/14/remitly-shaking-up-billion-dollar-digital-remittances-market-adds-massachusetts-to-network/#d1a238249b57
[5]
Accelerated remittances growth to low- and middle-income countries in 2018 - https://www.worldbank.org/en/news/press-release/2018/12/08/accelerated-remittances-growth-to-low-and-middle-income-countries-in-2018
[6]
“Social Networks, e-Commerce Platforms and the Growth of Digital Payment
Ecosystems in China”. 6. Better than Cash Alliance. 2017. https://www.betterthancash.org/tools-research/case-studies/social-networks-ecommerce-platforms-and-the-growth-of-digital-payment-ecosystems-in-china
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