What is the cheapest way to send money to India? What is the difference between Xoom and Wise’s models? How to transfer money online to Mexico? Do startups like Remitly or WorldRemit have a chance to gain a sizable market share? What is the fastest provider to send money to the Philippines? What are the different ways money transfer providers mislead consumers? Why does MoneyGram’s valuation is much lower than other players? Why should migrants transfer money legally and not via hawala when sending money to China? Will Bitcoin/blockchain destroy Western Union? Why do some nationalities use cash agents while others prefer online? Is banks‘ remittance business really being disrupted? What are the differences in operating models across x-border money transfer businesses?…
If these and other such questions interest you, you have come to the right place. Thank you for visiting our blog! First, let’s clarify who this blog is for, why we started it, and what to expect.
Since the publication of “Bitcoin: A Peer-to-Peer Electronic Cash System” in 2008, international money transfers, although constituting a smaller portion of cross-border payments, have emerged as one of the most promising use cases for crypto.
The initial assumption was that remittance users were experiencing exorbitant fees and subpar services from traditional players like Western Union. The prospect of an almost cost-free and instantaneous blockchain-based solution appeared to be a much-needed relief. Additionally, it presented an opportunity for affluent individuals in Western countries to showcase their efforts toward promoting financial inclusion in developing nations.
Subsequently, many startups received funding to test this hypothesis with consumers and partner with money transfer operators (MTOs). Additionally, one country recognized this as a national priority and encouraged its citizens to explore cryptocurrency-based remittances.
Despite this, the adoption of cryptocurrencies for remittances is lower today than a decade ago. Using crypto for international money transfers remains a pilot or pay-per-play. More importantly, nobody can articulate an in-depth case of using private, public, or government crypto instead of or on top of Swift + local real-time rails.
In contrast, non-crypto fintechs such as Wise and Remitly have emerged among the global leaders. What factors have contributed to the disappointing start for crypto, and will this innovative technology have a more significant impact in the future?
Innovation Adoption: 3 Cases
Consumers and businesses possess trillions of disposable income that they eagerly spend on various products and services, regardless of whether they are beneficial. For instance, consumers collectively spend around a trillion dollars annually on alcohol, junk food, or tobacco. Introducing truly innovative technology is an even easier proposition. Financial services and insurance companies allocate a trillion dollars annually to technology spending alone. Apple generates $200 billion just from iPhone sales. While generative AI is still in the pilot stage, Nvidia’s annual sales of AI chips have already reached $50 billion. To achieve similar success, blockchain technology only needs to address one of the three following use cases:
Do remittance startups have a fundamentally different cost structure vs. incumbents? What are the primary customer acquisition channels for money transmitters? What can explain massively higher relative valuations of remittance startups vs. established providers? If you are interested in such questions, this article is for YOU.
Xoom’s fifteen-plus-years history is full of missed opportunities and second chances. The child of the so-called “PayPal Mafia” and protege of Sequoia Capital, Xoom was founded in 2001 to disrupt cross-border remittances. At that point, Western Union already had a website where customers could initiate and track money transfers, but it seemed clunky and wasn’t attracting much usage. The shift of remittances online was expected imminently, so creating an online-only provider with a better user experience was a no-brainer.
“… long, sorry decline has left the 140-year-old company a shell of its former self. Today, it is fighting for its very survival. Western Union fell victim to technological advances…”
Reading current reporting about Western Union’s role in international remittances could make us think that the company has been a successful monopoly of this space forever, but, now, with the arrival of some disruptive innovation (“P2P”, “Bitcoin-blockchain”, “Social”, “Mobile”…), there is a real danger of its imminent demise. In reality, Western Union’s subsidiary, Western Union Financial Services Inc., began providing international money transfers in 1982 thanks to deregulation. By the mid-90s, Western Union’s coverage included major remittance destinations like China. In those initial years, Western Union (renamed “New Valley” in 1991) had plenty of upheavals going near or into bankruptcy. After changing hands a few times, the money transfer subsidiary was resurrected as an independent entity in 2006. Western Union’s stock performance has been highly volatile ever since dwarfed by the overall market:
For disruption to occur, it only takes one determined startup with a long-term vision spanning two or more decades. The disruptive force of innovation only required one Amazon for books, one Spotify for music, and one Netflix for entertainment. After more than two decades since the founding of Xoom and over a decade since the launch of Wise (formerly TransferWise), the cross-border money transfer industry still does not know which fintech company will be such a disruptor. However, a decade of keen observation in this fiercely competitive space gives us a reasonable understanding of which ones still have a chance, which ones don’t, and why some fintechs are no longer around.
“Revolution is a rough business. You can’t make it wearing white gloves and with clean hands”
Lenin
Wise’s (ex-TransferWise) origins are often described as follows: Two Estonians, one a former Skype employee and the other a Deloitte consultant, became fed up with the exorbitant fees charged by banks for money transfers from the UK to Estonia. Fueled by their frustration, they had a stroke of brilliance – matching remittance senders and receivers within the same country. With a sauna in their office and a team unafraid to challenge the banking industry, TransferWise was born. The startup received backing from prominent investors such as Peter Thiel, Richard Branson, and Ben Horowitz, propelling it to the pinnacle of fintech consumer cross-border transfers, surpassing a valuation of $10 billion in 2021.
The foundation of money transfer startups’ PR pitch centers on a fairly intuitive concept concerning the role of banks: they are massive institutions with bureaucratic cultures, subpar customer service, and outdated digital capabilities. Consequently, it’s only a matter of time before banks are displaced from the cross-border money transfer industry. Ironically, this premise holds. In comparison to the leading fintech startups, a typical bank is notably behind in service quality and pricing. Furthermore, the vast majority of banks don’t even consider a money transfer business as strategic.
“…to date MoneyGram has refused to open a meaningful dialogue with us, leaving us no choice but to make this proposal public…”
Euronet CEO’s letter to employees, December 13, 2007
In the past, MoneyGram and Western Union were often mentioned as the “monopolies” of cross-border money transfer. However, MoneyGram’s valuation was not only significantly smaller than Western Union’s but also had a multiple that was below that of any competitor.
MoneyGram’s valuation had been erratic since its IPO in 2004, even reaching near-zero levels in 2019 and 2020, until it was finally acquired by a private equity firm, Madison Dearborn Partners, in 2023:
Throughout its history, MoneyGram has stood out as the most irrational player in remittances, defying the stereotype about incumbent financial services companies being too conservative. The only explanation for such behavior could be the curse of an eternal “silver medal.”
When asking about “the best” way to transfer money, we realize that it is a very subjective question. The reason for that is simple: we are as consumers are quite unique in our behavior when it comes to handling money. Mexicans don’t behave like Indians and Chinese are very different from Filipinos. But even within each ethnicity, there are multiple distinct behavior patterns. One manager of an Indian restaurant has accounts with multiple digital providers and compares prices before each transfer while his colleague next door prefers to send cash via a Western Union agent.
Let’s start with a “big picture” – there are 250+ million consumers worldwide who regularly send money home and that number keeps growing fueled by ever expanded migration:
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