Covid-19 has accelerated the trend towards digital remittances. With lockdowns leaving many physical stores closed, companies offering digital remittances have reported significant growth. Robin Arnfield reviews the underlying factors that will ensure the trend is permanent
Covid-19 has led to a transformation of the remittance industry, with many digital players reporting triple-digit transaction growth increases.
The convenience, speed and low cost of digital remittances means that once consumers have migrated to digital, they are unlikely to revert to cash. Going forward, digital as a channel of initiation and pay-out will continue to grow at greater rates than cash remittances.
A GSMA study of mobile remittances found that mobile technology cuts remittance costs in half. Research from PayPal and Xoom shows that the average cost of sending a digital remittance is just 3.93%, nearly half that of traditional remittances.
The digital remittance industry’s strength is indicated by recent venture capital investments. In July 2020, TransferWise announced $319m in secondary funding, pushing its valuation from $4.5bn last year to $5bn. Also in July, US-based Remitly received $85m in funding to expand its digital financial services products, valuing it at $1.5bn. In February 2020, UK-based Azimo signed a €20m ($23.7m) debt financing agreement with the European Investment Bank.
Several digital players provide value-added services on top of their remittance platforms. Remitly offers the Passbook immigrant bank account in the US, enabling users to deposit cash to their accounts at stores using the Green Dot network.
TransferWise offers debit cards and borderless accounts which can be used for pay-in and pay-out in multiple currencies, and provides banks with white-labelled remittance services using its TransferWise for Banks API.
Ten banks in three continents, including neobanks Monzo, N26, US-based North Loop, bunq and Singapore’s Aspire, offer TransferWise’s service to customers through this API.
Growth of wallets
SIM card-based wallets are playing an increasingly important role in digital remittances, with a rise in wallet use to receive funds in Latin America, Asia and Africa.
Benefiting from the popularity of wallets, WorldRemit saw massive spikes in new customers and in volumes during the pandemic, says Daniel Canning, UK-based WorldRemit’s general manager for the Americas region.
“We have a very strong presence in Africa, which is due to the fact that one of our cofounders, Ismail Ahmed, is from Somaliland,” he says. “In Africa, wallets are jumping ahead of the banks in terms of receiving remittances. Led by countries such as Kenya, Ghana and Nigeria, Africa has the highest penetration of wallets compared to bank accounts of any region in the world.”
WorldRemit connects to 49 wallet providers in 33 countries and 200 million wallet accounts. “We claim to be the remittance company with the broadest level of connectivity to wallets, reflecting Ismail Ahmed’s vision of the importance of wallets,” says Canning.
WorldRemit and Alipay
In January 2020, WorldRemit launched a partnership with Chinese digital payment service Alipay. “Since hundreds of millions of Chinese people have Alipay wallet accounts, remittance companies have to support Alipay,” Canning says.
Singapore-based Thunes (formerly TransferTo) provides cross-border payment services between emerging and developed markets. Its network ensures interoperability between banks and consumer-facing payment systems such as wallets, money transfer operators, and cash pick-up agents.
“There’s a clear shift towards wallets rather than cash in the remittance sector, with overall transaction volumes processed by Thunes having more than doubled in the second quarter of 2020 compared to the first quarter,” says Gabor Hava, global network VP at Thunes.
“We’ve seen an increase in transactions via wallets and banks in countries such as Mexico, Pakistan and the Philippines, which are traditionally dominated by cash transactions.”
Hava adds: “The use of wallets to remit money continues to grow strongly even in countries that are already using digital banking services. In Mongolia, for example, where there are more registered cellphones than people, we built a network for money senders to directly reach Mongolian wallets. This led to a sizeable increase in transactions to wallets, in a country where only 27% of all adults receive their wages in bank accounts.
“We’ve seen a steep increase in intra-African payments via mobile phones compared to traditional ways of remitting funds. This is largely due to governments increasing transaction limits as well as allowing higher transaction frequency. Some African wallet providers have launched zero-fee transactions to support their communities by facilitating the adoption of their services.”
Ripple on the rise
Real-time payment schemes, where available, have been important for the growth of digital remittances. Additionally, several banks and remittance providers are using Ripple’s RippleNet blockchain network and On-Demand Liquidity (ODL), which use Ripple’s XRP digital asset, for fast and cheap pre-funding of correspondent bank accounts and for transfers to individuals.
“The speed of an international transfer depends on whether you can link into faster payment schemes in different markets,” says Azimo’s Ambrose. “Nigeria is our single largest receiving market, and over 90% of our transfers to Nigeria arrive within five minutes because of its instant payments scheme. This is faster than the time taken to terminate a SEPA payment in Europe. So, it makes a massive difference to us if there are instant payment rails – we see different customer behaviours and different growth rates where there are real-time schemes.”
While the payments landscape continues to evolve, traditional payment infrastructure and correspondent banking models for international payments are slow and expensive and haven’t seen innovation for 50 years, says Marcus Treacher, SVP – customer success at Ripple. “Yet low-value, high-volume payments such as remittances could make up a sizable majority of global payments by 2025,” he says.
“RippleNet enables faster, lower-cost and more transparent payments to customers in over 45 countries across six continents,” says Treacher. “That’s why we’ve seen tremendous uptake from both traditional banks and remittance firms, including Santander, Siam Commercial Bank, InstaRem, MoneyGram, TransferGo and Azimo.”
Azimo uses Ripple’s XRP currency for transfers to the Philippines, and RippleNet for instant transfers to Thailand in partnership with Siam Commercial Bank. “Ripple has enabled us to offer faster payments to the Philippines and Thailand than we could provide before, and our business to those countries has consequently grown,” says Ambrose. “We expect to work with Ripple in additional markets.”
According to Treacher, ODL has saved Azimo 30-50% when arranging currency transfers between customers in the Philippines and those in the UK and Europe.
MoneyGram is using technology from Ripple, which acquired 9.95% of MoneyGram’s stock in 2019, to optimise its treasury operations. “After a few months of deploying Ripple’s On-Demand Liquidity platform, we were moving 10% of our treasury flows through ODL from the US to Mexico,” says MoneyGram COO Kamila Chytil. “We’ll continue to expand our partnership with Ripple to new corridors as more regions become available, and expect increased volume on RippleNet as the platform expands.”
Cash remittances remain important on the sending and receiving side, especially in countries where money transfer agents are located in businesses seen as essential services such as grocery stores. The low levels of bancarisation in emerging markets and among migrants are a key factor.
The World Bank-Knomad report Covid-19 Crisis Through a Migration Lens says poor and irregular migrants have lower or no access to digital instruments such as bank accounts, payment cards or SIM card-based mobile wallets to fund or disburse remittances. Many poor households in lower and middle-income countries lack access to transaction accounts to receive remittances, the report adds.
Despite the strong growth of digital remittances, the walk-in cash business remains strong, says Paul Dwyer, CEO of US-based Viamericas. “If users didn’t migrate to digital during Covid-19, they are not likely to switch when restrictions ease,” he suggests. “I think that the strong growth that digital players reported in the first and second quarters of 2020 would otherwise have occurred over the next two years, and may not be sustainable.”
MoneyGram, which was originally built on retail locations, saw digital growth take off in the second quarter of 2020. It reported 106% year-on-year digital transaction growth in quarter two, compared to 57% in quarter one of 2020. Digital transactions accounted for 27% of all MoneyGram money transfer transactions in the second quarter, up from 18% in the first.
The growth was driven by sending from the US, Canada and Europe to destinations in Pakistan, Bangladesh Latin America and the Caribbean, Alex Holmes, MoneyGram’s chair and CEO, said in a statement. MoneyGram’s digital business comprises
MoneyGram Online, its direct-to-consumer channel (Moneygram.com and MoneyGram mobile app); its digital partnerships; and deposits to bank accounts and wallets.
MoneyGram is leveraging partnerships with other firms to acquire customers and raise awareness of its digital capabilities. Chytil says: “We launched a partnership with Uber where they promoted our app and provided a discount to their drivers on transfers using the app or our website.”
Chytil notes that MoneyGram’s marketing campaigns have resulted in a significant increase in new customers. “We saw a 220% year-on-year increase in the number of customers who used our app in June,” she says. Account deposit and wallet transactions increased 148% year-on-year compared to growth of 80% in the first quarter of 2020.
While digital-to-digital transactions are growing, transfers that are digitally initiated and collected in cash are the largest portion of MoneyGram’s digital business. “Cash is still critically important in many parts of the developing world,” Chytil adds.
Viamericas uses walk-in locations for remittances. It principally focuses on Latin America, but its Philippines and Indian remittance transactions have grown very quickly and become major corridors.
“On the origination side, we’re focused on our agent network and cash or debit card payments,” says Dwyer. “The majority of our customers’ remittances are paid in cash.”
The termination of Viamericas remittances depends on the receiving market. “It’s a question of the level of banking penetration in each country and consumer habits,” says Dwyer. “On the receive side, every remittance firm has a similar mix of cash and bank account-based transfers.”
“India is 100% banked, so the Indian transfers we handle only go to bank accounts. The Philippines is a mixture of cash pick-up and bank deposits. In Latin America, 100% of our remittances to Brazil are received digitally in bank accounts, but only 15% of transfers to Mexico go to bank accounts.”
In late March and early April, Covid-19 affected the number of people walking into Viamericas agent locations. “Then things stabilised and got back to normal,” says Dwyer. “We saw very robust year-on-year growth in the second quarter.”
UK-based Azimo offers worldwide digital remittances from 25 countries in Europe plus Hong Kong.
“In April and May, we saw 50% more new customers starting with us than we usually would, mostly because remittance agents were closed,” says Azimo CEO Richard Ambrose. “As the lockdown started to lift, this growth in new customers was less prevalent in June.”
Azimo is cashless for pay-ins, Ambrose says, with the overall majority of remittances funded via cards, principally debit cards, though a significant minority are funded by bank transfers. In Europe, Azimo supports online bank payment schemes Sofort and Ideal, and will soon add Google Pay and Apple Pay due to demand from customers.
For Azimo, transfers to wallets such as M-Pesa are significant in countries such as Kenya and Ghana with high wallet penetration, though overall they represent a small proportion of transfers, says Ambrose. “Two-thirds of our volume is paid to bank accounts, and most of the remainder is cash pick-up,” Ambrose says.
Singapore-based InstaReM operates a digital platform in 90 markets, branded as Nium. The platform has multiple connections, allowing consumers to send remittances via bank credits, ACH transfers and wire payments, and receive pay-out to bank accounts, cards and cash.
“InstaReM supports multiple local methods, including bank account transfer services PayNow in Singapore and POLi in Australia,” says Yogesh Sangle, InstaRem’s global head of consumer and SME business. The firm is working to provide wallet pay-out capability in the near future.
“We’ve partnered with Visa Direct to allow consumers to conduct pay-outs via cards, and have worked with China’s Geoswift to enable remittances to UnionPay cards and affiliated Chinese banks,” says Sangle. “We have partners in the Philippines to ensure that cash pay-outs, the most commonly used method there, can be done at convenient retail locations.”
InstaReM saw 60% growth between March and June 2020, and continue to see double-digit growth, especially in markets where governments have been urging the population to go digital, Sangle says. “Our business is particularly growing in major corridors such as India, Philippines and Indonesia,” he explains.
InstaReM has launched its remittance-as-aservice platform to enable banks, enterprises and fintechs to offer digital remittances and other payment services such as Visa corporate cards on their own platforms. Businesses can send salaries and other payments in real time to these cards.
UK-based Paysend offers digital account-to-account remittances, enabling users to send money using a recipient’s name and card number. They are also able to transfer funds to bank accounts and digital wallets.
“During Covid-19, Paysend saw strong acceleration,” says marketing director Alberto Macciani. “From February to June 2020, Paysend transaction numbers rose by over 70% and active users by 65%.”
As of July, Paysend’s Global Transfer Service had 2 million users, up from 1.5 million in March 2020. Paysend’s B2B arm, Paysend Business, saw business registrations during the pandemic rise to 15,000 in June 2020, in which month it processed over 1.6 million transactions. Paysend Business offers merchant acquiring, payroll services and international payments.
Between February 2020 and March 2020, Remitly saw 100% growth in new customers and 40% transaction growth.
Remitly offers ‘express’ transfers from debit and credit cards and ‘economy’ transfers from bank accounts. It can send funds to 200,000 cash pick-up locations and to bank accounts and wallets, plus door-to-door delivery. It has partnerships with Alipay, Green Dot and Cross River, which offers international debit card network access.
“From February 2020 to March 2020, Remitly saw 40% transaction growth monthon-month,” Matt Oppenheimer, Remitly’s CEO, says. “One area that is growing particularly fast in Asia, Africa and Latin America is wallets.”
Remitly has seen very high demand for Passbook, its low-cost bank account for US migrants which includes cross-border transfers and is offered through Sunrise Bank. “Currently, Passbook and the Passbook Cash Deposit feature are only available in the US, and there’s a waitlist for new Passbook customers,” Oppenheimer says.
UK-based TransferGo supports bank transfers, cards and Apple Pay for pay-ins from 33 countries, and has 2.2 million customers. “For pay-outs, we offer bank accounts and cards,” says Gareth Knight, TransferGo’s chief growth officer. He adds that hank account transfers are the largest by volume, but TransferGo is increasingly seeing demand for transfers to cards.
TransferGo is currently exploring opportunities to partner with Visa Direct and Mastercard Send. TransferGo is seeing significant growth in Poland, Romania, Ukraine, Lithuania and Turkey. In January 2020, TransferGo partnered with cross-border payment platform CurrencyCloud to launch in 14 new markets, taking its total to 69 countries.
“Between January 2020 and July 2020, we saw 100% year-on-year growth, and it’s all digital,” says Knight. “In the last few months, around 40% of the growth has been during lockdown. Our partnership with Ripple continues to pay dividends. In March to June 2020, we saw transactions via Ripple increase by 126% year on year, and money flow by around 94%.”
To address cross-border payments to contractors and freelancers, TransferGo is investing in a product team for gig economy workers. “This is a segment that is growing steadily and becoming an important part of our monthly business,” says Knight.
“During the pandemic TransferWise saw an uplift in new customers seeking digital alternatives, with overall transfer volumes continuing to grow,” says Nicholas Lembo, TransferWise’s head of Americas growth.
TransferWise has eight million customers worldwide, and processes £4bn ($5,3bn) in cross-border payments every month. Its business service is one of the fastest-growing elements in its portfolio, with 10,000 new business clients being added each month. In June 2020, TransferWise launched a service allowing instant domestic and cross-border transfers to users’ cellphone contacts who also have a TransferWise multi-currency account.
TransferWise has partnerships with small business services such as Xero and GoCardless, and offers money transfers to China through a partnership with Alipay. TransferWise’s borderless account, designed for expatriates, freelancers and travellers, holds £2bn in current deposits, and one million debit cards have been issued since 2018.