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A natural progression of this strategy would be offering physical cards or NFC pay services, which would move the business toward capturing day-to-day consumer transactions alongside one-off international ones. If Transferwise does move toward acquiring a banking license, it would gain more flexibility to offer different services such as lending , but its costs could rise substantially due to increased regulatory and compliance requirements.
The advantages of this for the business could be profound, though, as maintaining passive customer balances will provide working capital support to offset the large swings that come with the territory of international money transfer services. It has branded itself well by passing on attractive FX costs to consumers and then charging low and transparent fees. Its guerilla marketing stunts have attracted notoriety for attacking the high costs that other providers charge:.
Its growth has allowed it to build a platform of customers that have validated the service and allowed it to iterate an efficient technological proposition. With the business now working at scale, it can use its customer base to build further revenue opportunities via flexible API interfaces and ambitious plans for transactional banking. The service offered by Xoom is only available for consumers sending from the USA, but as demonstrated in Chart 2, this is the largest country market for sending money.
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This is a very narrow offering compared to the other two companies analyzed above; however, as Xoom is now a part of PayPal, a giant of the payments industry, both businesses can now upsell their customers complimentary services. PayPal has always been a pure electronic play for both consumers and businesses, but within the realm of payments, credit facilities, and invoicing. The focused nature of Xoom contributed to its successful exit. It did not try to be everything to everyone, but instead served its segment well.
Xoom was an attractive company to PayPal because of the strength of its affiliate network around the world, which facilitated payouts in cash, mobile topup, and bank transfer. Before the acquisition, Xoom was placing pressure on Western Union through combining online send with offline receive. The value of the business to PayPal therefore was to harness the offline elements while combining its own online ecosystem with Xoom to create an integrated service for both sets of customers.
In the scenarios described above, MTOs need strategies to cope with lower fees and increased competition from technology, which is enabling upstarts to ramp up new operations quickly. All three examples show characteristics of how players can look to compete within a market that is becoming a commodity. The directives from the G20 and UN to reduce prices is stimulating a price war and offering an easy point of differentiation for newcomers to attract new customers. With the race to the bottom on prices becoming apparent, incumbents must find efficiency improvements and offer different value added services to stand out from the crowd.
Value added services is the en-vogue trend to offer now, which should give the established players an advantage due to their high traffic and decades of customer data. The question is whether they have the means to analyze this data in a commercially useful manner and whether their legacy systems allow for it without a significant investment in data mining tools.
Outward Remittance - Axis Bank
There are many routes to take to find future growth; for example, Western Union is chasing businesses with its enhanced options for hedging and marketplace to connect buyers and suppliers, while Transferwise is targeting the consumer and moving down the road of becoming a bank. Both options provide the potential to encourage customers to make more transactions, which is how MTOs make money. It also makes the customer sticky, as the switching costs become more painful for them to move to a competitor.
In the case of MTOs, they have grown in prominence due to an increasingly internationally mobile population and their own dogged determination to do the ugly job of sending money, packaged up into a more compelling service than bank offerings. Options for sending and receiving money: The array of countries and transfer options provided to customers is an advantage gained from having a deep bench of agents and correspondent banks.
Quality of technology: In a low-margin business, powerful technology is required for reconciling transfers, managing working capital risk, and observing customer trends. The valuation potential of money transfer companies depends on how many of these advantages they hold. Remittances are personal money transfers sent from workers in one country back to their country of origin.
Due to different currencies and monetary systems, a remittance is processed by Money Transfer Operators MTOs , who convert and transfer the money. They are non-bank entities that use networks of agents and banks to process payments and transfers across borders. Inbound remittances are transfers received by the end user; they class as capital inflows into a country. International payments can take between one and seven days to fully clear. The range is due to system complexity; some are relatively fast while others have regulatory processes that delay completion.
Some MTOs speed up the process by using their own working capital to complete transactions earlier. Cash remittances are transfers made in paper cash and received in paper cash at the recipient end. The MTO making the transfer will still need to complete the process electronically, so the process requires more complex financial management and compliance to check against money laundering.
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Finance Processes. Mauro F. Read the Spanish version of this article translated by Marisela Ordaz. Executive Summary International money transfer is a large and competitive industry The market of international money transfer "remittances" has been growing considerably at a CAGR of Pressure from the G20 and UN to lower costs for senders has resulted in fees for transfers declining year-on-year since It now costs on average 7. The USA is the country that sends the most money, India receives the most money and China has the most even balance between sending and receiving. The highest volume from a Fintech "newcomer" is from 6-year old Transferwise, which is ranked 5th in the world.
Outgoing foreign currency remittance
With fees falling, MTOs are now differentiating themselves from their competitors by offering new services to increase customer loyalty, such as payroll services, virtual bank accounts, and prepaid debit cards. Western Union has some innovative value-added services, but its revenue growth is paralyzed The move to cut fees has stalled Western Union's revenue growth over the past five years. It has tried to compensate fee compression by increasing foreign exchange "FX" revenue. To respond to the increased competition, Western Union is focusing more on small businesses, offering innovative tools such as hedging and marketplaces for customers to connect.
Have , branches in its network affects its ability to respond to cheaper electronic transfer services. Western Union runs the risk of being disrupted significantly, in a similar vein to how Blockbuster Video was by online video-on-demand services. It offers customers very competitive fee prices 0. Reaching a break-even point with such attractive customer pricing suggests that Transferwise has significant scale, in terms of number of transactions and an efficient technological operational back-end.
Its moves into transactional banking via its "Borderless Account" offering show that it plans on transitioning more into the banking space, to capture more transactions from customers and maintain passive account balances. Alongside its acquirer, it remains one of the most significant exits for investors in the money transfer space.
It offers a very straightforward business model of only sending money for US-based customers, albeit with a wide range of options for inbound remittances cash pickup, mobile topup, and electronic transfer.