Disruption in remittance, survival of the savvy


Being savvy in the remittance industry is no longer limited to maintaining price competitiveness but has seen its horizon growing in many more dimensions. This industry has faced multiple issues in the past such as high transfer cost, limited money distribution methods, limited brand options, limited ways to deal with money, etc. The advent of new players in this space is redefining the solutions provided to these problems by this industry which was known to be mainly duopolistic in nature till a few years ago.

The infographic below provides a sneak peek at these issues and how they’re being addressed:

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The remittance transfer industry is getting disrupted with upcoming models that encompass benefits of cost, customer experience, convenience and brand. These remittance models have evolved from cash transfers > internet banking > mobile wallets > digital payments using mobile money > crypto currency, and we have discussed them all in our articles.

Another major problem to be addressed by the remittance industry are the strict AML regulations which are forcing a number of banks to move out of remittance industry or closing the accounts of firms that specialize in money remittance services . We have seen many of them such as JPMorgan Chase and Bank of America in USA, Westpac in Australia and many more. In this situation, any company that is able to exploit an alternative model to remit money is poised to hold a stronger market position.

Mobile money transfer platforms and bitcoin are emerging as the promising tools to come to the rescue of this situation, but with their own limitations. While the large footprint potential with mobile money transfer platforms is highly dependent on host country’s regulatory environment, cryptocurrency is still in a nascent stage to reach the migrant population masses and achieve its potential benefits.

Here, a significant role can be played by the recently established fast-growing players such as Xoom, TransferWise, and WorldRemit, to name a few. These new companies can benefit over the start-ups on strong balance sheets and significant customer base and over the traditional companies such as Western Union and MoneyGram who might find it difficult to deploy the use of new currency with their existing legacy system.

In this article, we have analyzed three new and growing companies, for different corridors from the USA, to identify how their technology-based business models help them to transfer benefits to the end customer and hence differentiate themselves from established industry giants.

Xoom: 

Xoom has positioned and established itself as a technology-driven company which enables instant and cheaper money transfers. For instance, for the USA-Vietnam corridor, the company provides the convenience of all options of cash pickup, bank deposit and home delivery on recipient side while charging a flat fee of $2.99 and $13.00 for payment through bank accounts and credit cards respectively. At the same time, a user sending money to be received through agent via Western Union is charged $5 and $20 for payment through bank account transfers and credit cards respectively.

This accounts for an average 61% higher fee.

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Benefiting cost with speed, Xoom transfers take a maximum of two days for transfers through any mode, including deliveries to rural areas, while Western union transfers can take four to six days. Xoom’s model of partnering with existing agent distribution cash-out points enables it to transfer monetary benefits to the end consumer. For a country like Vietnam which has an unbanked population of 42% and $16 billion of remittance industry, such a high difference in fees can be game changer for major players.

WorldRemit:

WorldRemit has developed a significant space in the remittance industry by using its technology-based systems. In some of the most crowded corridors such as USA–Mexico, USA–Philippines and many more, the company is able to achieve highly competitive rates over the industry giants such as Western Union, passing cost advantage to the end customer for smaller amounts of money transfer.

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In the USA–Mexico corridor, WorldRemit applies a flat fee of $3.99 for transfers less than $2,000, with an average 0.6% higher exchange rate than Western Union. Transfers are made instantly versus a period of minimum four days taken by other traditional models. Similar benefits by WorldRemit can also be applied by the migrants of the fourth largest remittance recipient country in the United States, Philippines. The company enables instant money transfers with higher exchange rates by an average of 1.3%, also accompanied with a reduced fee by an estimated 44% with regard to conventional players’ fee. This can amount to significant traction to the winning player in this multibillion dollar market.

Boom Financial:

This company is found disrupting the remittance space by addressing major concerns in this space like services to unbanked, convenience of transfers through mobile applications, cost effective services through technology-driven model and multiple distribution modes.

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With a $0monthly and membership fee, Boom Financial enables cash deposits at Boom stores or mobile branches for a fee of just $1. Company issues a Boom Visa prepaid card for the first time at $0 and charges an ATM withdrawal fee of just $2 per transaction. Transactions up to $2,999 to Haiti’s Boom account through a mobile phone costs a maximum of $5 to the end consumer. This results in a complete transfer fee of $3 to $7, which can go to maximum of $12 in case money is sent through a Boom agent. Conventional models usually bring along the “cash pick up at agent location” model, charging a fee of $12 to $48, based on the bank account or credit card used as a payment mode. These charges by established players on conventional models translate to 4 to 16 times higher than these newer players with innovative models.

(source Let’s Talk Payments)

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