{"id":373,"date":"2015-10-31T11:05:43","date_gmt":"2015-10-31T11:05:43","guid":{"rendered":"http:\/\/gccexchangeblog.com\/?p=373"},"modified":"2016-02-29T12:57:16","modified_gmt":"2016-02-29T12:57:16","slug":"a-cheaper-way-to-send-money-home","status":"publish","type":"post","link":"https:\/\/gccexchange.com\/blog\/a-cheaper-way-to-send-money-home\/","title":{"rendered":"A Cheaper Way to Send Money Home"},"content":{"rendered":"

\"cheaper-way\"<\/a><\/p>\n

When Ismail Ahmed moved to London\u2019s outskirts in the late 1980s, sending money home to his family in Somaliland required a trip to a broker\u2019s shop in the city, a 10\u00a0percent remittance fee, and anxiety over when the money would arrive. \u201cI saw firsthand how costly and inconvenient it was for hardworking migrants,\u201d says Ahmed, who worked his way to a Ph.D. and a job at the United Nations, where he advised companies on compliance with anti-money-laundering rules. In 2010, while earning an MBA, he cut out the middleman by becoming one himself.<\/p>\n

Ahmed founded WorldRemit<\/strong>, one of dozens of startups running websites and apps that promise cheaper, easier ways to transfer money abroad. The World Bank estimates that remittance senders paid banks and courier services an average 8\u00a0percent of the $583\u00a0billion they sent across national borders last year. To send upwards of $1,000, WorldRemit and its digital competitors take 1.3\u00a0percent or less, says Daniel Webber, managing director of researcher FXcompared.com. \u201cThere\u2019s definitely good money to be saved,\u201d he says.<\/p>\n

To keep costs low, the startups operate only digitally. They buy currency in bulk to take advantage of volume discounts and offer better exchange rates. Customers transfer money simply by registering and providing identification and payment details. To speed transactions\u2014and maximize fee volume\u2014most of the startups automate ID verification and check against money laundering, says Mike Laven, chief executive officer of Currency Cloud, which isn\u2019t a remittance company but processes about $1\u00a0billion in monthly foreign exchange transactions for clients including banks and remittance providers.<\/p>\n

$583 billion Value of remittances sent internationally last year, the World Bank estimates<\/strong><\/p>\n

WorldRemit and rival Azimo, both in London, pitch their services mainly to blue-collar migrants who regularly send money home to their families in increments of $1,000 or less. Another startup, CurrencyFair in Dublin, targets professionals who send larger amounts, $5,500 on average, to cover payments on college loans and mortgages. Yet another, TransferWise in London, says it averages $2,300 per customer transfer, although CEO Taavet Hinrikus says he\u2019s trying to appeal to anyone \u201cbeing screwed by the banks.\u201d To further cut costs, CurrencyFair and TransferWise also operate peer-to-peer marketplaces that match people in different countries looking to exchange currencies.<\/p>\n

Combined, the four startups will send about $10\u00a0billion to $16\u00a0billion across borders this year, Webber estimates. They\u2019re concentrated in Europe because complying with regulations there is relatively cheap. Once licensed to move money in one European Union country, they can do so throughout the EU. \u201cIt\u2019s much harder to build a business in the U.S.,\u201d Laven says. \u201cYou have to go state by state to get licensed.\u201d<\/p>\n

Most of the transfer startups aren\u2019t profitable, but investors say they\u2019re more interested in the companies\u2019 expanding market share. WorldRemit raised $100\u00a0million from investors in February, bringing its funding total to $147\u00a0million. Four-year-old TransferWise has raised about $91\u00a0million; three-year-old Azimo, $31\u00a0million, much of it in June; and five-year-old CurrencyFair, $16\u00a0million, mostly in April. In July, PayPal announced it was buying remittance company Xoom in San\u00a0Francisco.<\/p>\n

TransferWise, which attracted financing from Richard Branson and Vikram Pandit earlier this year, is capitalizing on a loss of trust in banks, says early investor Toby Coppel, co-founder and partner at Mosaic Ventures. \u201cThere is a huge amount of excitement,\u201d says Dilip Ratha, head of the World Bank\u2019s migration and remittances unit. \u201cWe are looking at a\u00a0major force.\u201d<\/p>\n

The newcomers handle a sliver of the market compared with traditional providers such as Western Union, which alone moved about $85\u00a0billion in consumer remittances last year, charging a 5\u00a0percent fee on average. \u201cWhile our senders say they are interested in considering digital, the majority of traditional users of our services still prefer cash,\u201d says company spokeswoman Claire Treacy.<\/p>\n

WorldRemit, which sends money from 50 countries, is licensed in 41\u00a0U.S. states and working on the rest. Brett Meyers, CEO of CurrencyFair, says his company will set up shop in the U.S., as well as Hong Kong and Singapore, next year. TransferWise will be in Canada and Japan in six months, says CEO Hinrikus. Azimo CEO Michael Kent says it\u2019s hard to find a country where people aren\u2019t looking for a cheaper remittance service. Says Kent: \u201cThe big guys have been ripping off taxi drivers, restaurant workers, and cleaning staff for far too long.\u201d<\/p>\n

The bottom line:<\/em><\/strong> Online remitters charge about 1 percent, compared with an average 8 percent for traditional services.<\/em><\/p>\n

Source: Bloomberg<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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