How Hot Is Fintech Remittance Disruption?

Remittance payments are an area of the economy that, until very recently, didn’t spark much interest around investors and entrepreneurs. Defined by Investopedia as “the funds an expatriate sends to their country of origin via wire, mail, or online transfer”, it’s notable that “these peer to peer transfers of funds across borders are economically significant for many countries that receive them.”

The sheer numbers of these transfers are also compelling. Yearly, recorded remittance payments to developing countries tops $400 billion, according to World Bank data. However, previously these payments were made in unreliable or slightly exploitative ways like Western Union, known for scams and high commission charges. However, the fintech sector has woken up to the action, and now remittance payments are one of the hottest areas of investment in the sector.

According to one industry blog, a look at the numbers show that fintech is edging out major banks when it comes to offering affordable ways to make remittance payments: “This outstanding achievement of FinTech could have had a significant impact on the situation with global remittance price reported by the World Bank. It’s possible to send money for the average cost of 10% or less in 80% of the world’s country corridors. For comparison, six years ago, only 50% of the corridors had the cost of 10% or less.”

If this trend continues, we could see financial institutions pushed out of the remittance game entirely. This would be unsurprising—and entirely their fault for having failed to take note of the massive market in this space and not seeing fit to design services to suit them. In a sense, the fintech industry and remittance is the archetypical tale of market “disruption”: they saw a large but untapped market—and suited their offerings to it. As Business Insider wrote, these “legacy firms’ businesses are already responding to the threats posed by digital by lowering fees and adjusting business strategies. However, they face lower margins if they continue to compete with startups on pricing.”

The benefits of using fintech over a bank make it easy to see why they’ve had an easy time gaining market share. There is almost complete transparency in pricing, lower exchange rates and fees, easy registration and an online platform that is user friendly and doesn’t limit how much or how little money you spend.

Here is a look at the 3 major players in the fintech remittance space right now, and the various services they offer.

TransferWise: Transferwise is one of the major winners from Britain’s fintech scene. The company offers peer to peer transfers between international bank accounts at rates that are far lower than interbank rates. Currently available in more than thirty countries, TransferWise reports that it makes “$750 million in monthly transfers and operates 600 currency routes.”

WorldRemit: WorldRemit is another major player on the market and has the added bonus that it includes the “unbanked” in its service offering. Recipients of remittance payments can obtain their funds via a bank deposit, delivery, or cash pickup, as well as prepaid mobile phones and Mobile Money digital wallet. This is particularly useful for users in developing world markets, where not everyone has bank accounts. The company reports that it has received a recent $45 million investment at a $500 million valuation.

CurrencyFair: Another option in the remittance market, CurrencyFair also uses the peer to peer model, which allows users to send money between two bank accounts in a decentralised way. Unlike TransferWise, CurrencyFair has a fixed fee per transaction, however it operates in fewer countries that TransferWise does.