Guest Post by Laurent Oberholzer of Tawipay
In 2015, the World Bank expects $608 billion to be sent back home by migrant workers around the world through money transfers known as “remittances”. Three-quarters of this sum will flow towards developing countries to pay for food, education, health care or starting businesses. The size of this market and the fact that it is still dominated by ancient monoliths and payment behaviors make it ripe for disruption and has attracted many new contenders. The extraordinary amounts of venture capital (VC) being poured into the money transfer industry, over $140m in the first two months of 2015 alone, are enabling new technologies and business models to take over.
TransferWise, which offers the true mid-market exchange rate thanks to a “peer-to-peer” payment system, announced in late January that it had secured $58m from American VC firm Andreessen Horowitz. After raising a record $40m last year in a Series A round from VC firm Accel Partners, WorldRemit just announced a $100m funding round to fuel its global expansion. Xoom, another example of a digital remittance player, was founded in 2001 and is now publicly traded and valued at over $600m. In 2014, one million US customers used Xoom to send nearly $6bn to 32 countries around the world. These companies are part of a new wave of money transfer operators around the world, operating entirely online and with a more transparent and fair pricing of remittance services.
Afrimarket, a Paris-based startup focusing on cash-to-goods transfers from France to Africa, raised €2.5m including a €1m investment and strategic partnership with French telco Orange earlier this year. Afrimarket and others such as Regalii allow the sender to pay for specific goods and services such as a mobile phone bill or medication, retaining control over how their money is spent and giving more emotional meaning to the transfer than when sending cold hard cash.
While over 2.5 billion people around the world lack access to a bank account, 1 billion of them own a mobile phone which can serve as a gateway to financial services to invest in and protect their livelihoods. This has convinced prominent figures of the promise of mobile money solutions for the financial inclusion of the world’s poorest, especially in Africa. By partnering with mobile wallet providers such as M-Pesa and MTN, money transfer operators such as Western Union, WorldRemit or Azimo are enabling their customers to send money to millions of mobile wallets in Africa instantly.
Finally, Bitcoin and other virtual currencies are starting to show their potential as worthy methods to send money. Bitcoin isn’t without its flaws, and the system isn’t sufficiently mature for recipients in developing countries to enter and remain in the Bitcoin ecosystem. Simply put, too few merchants accept bitcoins as a means of payment. Recognizing this, Filipino startup Satoshi Citadel Industries launched Rebit.ph, a service allowing migrants to send bitcoins to the Philippines. The recipient receives Philippine pesos on their bank account, in cash, as airtime credit or to pay for bills, without ever knowing that the transaction involved a virtual currency. BitPesa, which recently raised $1.1m, offers a similar service for remittances from the UK to Kenya, disbursing Kenyan Shillings on mobile wallets such as M-Pesa or Orange Money. Their total fees amount to 3% of the amount sent, and the money is received in minutes.
The entrance of these numerous new actors in the remittance market will undoubtedly drive down fees and provide migrants with cheaper, faster and more convenient services as well as an overall better customer experience. The enormous sums being poured into the industry and the ensuing growth in the adoption of new solutions will certainly make 2015 a landmark year for remittances, with more exciting developments yet to come.
However, the large number of remittance options also entails more complexity for migrants when deciding which service to use, which can confuse and overwhelm them. For this reason, we built TawiPay, a comparison website for money transfer services. TawiPay enables migrants to easily find the services best suited to their needs and stop wasting their hard-earned money on excessive money transfer fees. Our hope is that by comparing the services available to them, the 232 million migrants around the world will switch to using better ways to send money back to the 700 million people (10% of the global population) whose welfare depends on remittances. According to our estimates, this could save them $28bn every year.