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The 10 Most Important Issues of the International Money Transfer & Payments Industry for 2015

Hugo Cuevas-Mohr Mohr World Consulting

Here, once again, are the ten most important issues faced by the International Money Transfer & Payments (IMT&P) Industry in 2015. I put this together as a way of reflecting on the significant issues of 2015 as well as to analyze trends for 2016. These issues are not listed in order of importance. They are based on my own personal opinions and ideas which have been discussed with colleagues in the firm and within the industry. If I’ve missed something of importance or if you have comments, please do so via LinkedIn or you may contact me directly. Click on the hyperlinks to see additional info.

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Although the volume of IMT&Ps continues to increase, the % increase YTY has slowed down. U.S. and Western Europe are seeing an increase in overall volume. In 2015, worldwide remittance flows are estimated to have exceeded $601 billion.

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Bank discontinuance and de-risking is still a major problem industry-wide. However, we believe there has been a slight shift in the market with small banks opening accounts to industry firms amidst higher costs and strict compliance requirements.

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Prices of industry services to the public have been fairly stable during the year with a slight upward trend, even though competition in every channel is fierce, more so in the exchange spread than in the fees. U.S. dollar valuation has influenced markets.

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Mobile money services continue to expand across the developing world with new cross-border functionalities, systems integrations, partnerships, and regulatory advances for the industry. We’ve seen high domestic use of mobile transfer spreads.

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Digital IMT&Ps are continuing to increase their market share as investors and bankers favor online/mobile channels. Adoption of these channels is creating a digital divide while fraud and merchant services are major issues being faced.

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The digital race heats up in the U.S. with the entrance of WorldRemit and TransferWise into the U.S., while Western Union opens online channels in Europe. Investors keep money flowing, funding these companies as time for IPOs loom.

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It was a good year for mergers & acquisitions (M&As) in the IMTC&P Industry, with the most notable news coming from the U.S: the $890M deal for the purchase of XOOM by PayPal. Similarly, Qiwi announced the acquisition of Contact and Rapida.

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Middle East, Oil, War, and Remittances: The continued decline in the price of oil is affecting remittances. This trend might worsen in 2016 and beyond. The refugee crisis, as a result of war, will impact the market in the years to come.

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The rise of P2B and B2B services in the industry is making the “payments” side of the International Money Transfer & Payments Industry more dynamic and more important, overall, with new services, new entrants, and new offerings.

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Bitcoin, as a remittance tool, is now being used by a few pioneer firms, mostly as a settlement mechanism, while the overall acceptance of the blockchain protocol as a significant invention has shifted the rhetoric about VCs for the better.

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Although the volume of IMT&Ps continues to increase, the percentage increase YTY has slowed down. According to the World Bank and Knomad, in their latest Brief #25, the growth rate of remittances to developing countries is projected to fall from 3.3%

in 2014 to 2% in 2015 (down from 7% in 2010-2013). The slower growth rate is not uniform at all since the sharp decrease in remittances from Russia and slower growth in the Middle East significantly affected the global average. Both Latin America and Caribbean, as well as South Asia had increases of 5% or more. It must be noted – and discussed in Issue #3 – that the valuation effects of the U.S. dollar appreciation against the currencies of remittance-source countries, especially the ruble, influence the impact of this slower growth. The continuing recovery in the U.S. and a modest acceleration of economic activity in Western Europe are producing a general increase in overall volume. Most U.S. money transmitters have had YTY growth between 5% and 15% in 2015 with a modest growth in their European operations. The mood in November at the IMTC WORLD 2015, in Miami, was upbeat, as many corridors showed a volume increase. Coupled with fairly stable prices and competition mostly based in the Forex spread, the traditional MTOs have been more optimistic in 2015 than in previous years. For 2016-2018 it is estimated that Europe and Central Asia will see a large rebound if the Russian economy stabilizes. In 2015, worldwide remittance flows have been estimated to have exceeded $601 billion while developing countries received an estimated $435 billion, with East Asia, the Pacific, and South Asia each receiving around $130 billion, while LAT received close to 7$0 billion. The $453 billion is nearly three times the amount of official development assistance. But, as we always state, the true size of the IMT&Ps market, including the unrecorded flows through formal and informal channels, is without a doubt, considerably larger. TOP ↑

Bank discontinuance and de-risking of MSBs/MTOs/money transmitters is still a major global problem industry-wide, but we think there has been a slight shift in the discussion with reports, regulations, and statements being published that gives us a sense of the issue moving forward; the small positive steps might seem irrelevant to a

number of companies caught with limited or no banking relationships. The World Bank report entitled, “Report on the G20 Survey on De-Risking Activities in the Remittance Market,” published in November 2015, must be read by everyone. In total, 13 governments, 25 banks, and 82 MTOs completed the survey and, despite the relatively low response rates (mostly on the banks’ side), the MTOs that responded, in terms of market share of the overall remittance market, can be considered quite substantial. One key statement in the report is the fact that, “Neither banks nor MTOs cited AML/CFT-related violations or sanctions by MTOs as one of the top five reasons for account closures.” In the European case the Revised Directive on Payment Services (PSD2), published in November 2015, contains a very important regulation that cautions banks to provide “. . . payment accounts services on an objective, non-discriminatory and proportionate basis.” It adds that, “Such access shall be sufficiently extensive as to allow payment institutions to provide payment services in an unhindered and efficient manner.” (Check chapters 35 and 36.) At IMTC WORLD 2015 several speakers provided opinions and insights, from FinCEN Deputy Director, Jamal El-Hindi, to a panel moderated By Leon Isaacs, Antonio Selas major successes in Spain, and comments by remittance expert Manuel Orozco (who subsequently published in December 2015, his document entitled, “Bank Account Closures: Current Trends and Implications for Family Remittances.” There is also some evidence that some smaller banks are opening accounts to industry firms amidst higher costs and strict compliance requirements.

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Price to the public of industry services have been fairly stable during the year with a slight upward trend even though competition in every channel is fierce, more so in the exchange spread than in the fees. According to Remittance Prices Worldwide (RPW), the global average cost of sending remittances (including all fees and charges) was

7.68% in 2Q 2015, remaining stable (1Q 2015 was 7.72%). The Migration and Development Brief 25, published by The World Bank and KNOMAD in October 2015, included this chart which shows the relative stability of the cost of sending $200 USD in 2014 and

2015. Dollar valuation impacts the cost of remittances, as was discussed in the IMTC WORLD roundtables. The Brief also gives us a detailed analysis on the effects of dollar valuation and its impact on remittances, “The impact of slow growth on remittance outflows measured in dollars is compounded by the valuation effects of the U.S. dollar appreciation against the currencies of remittance-source countries, especially the

ruble.” When the exchange rate in the paying country rises continuously, the exchange rate price competition subsides and volume sent increases. The Brief further ads that Euro Depreciation (around 20%) contributed to the projected two percentage point decline in the growth rate of remittances in dollar terms to the Middle East and North Africa, where countries receive substantial remittances from Europe. Euro depreciation also affected remittances to Latin America and the Caribbean and to Sub-Saharan Africa, to a more limited extent. It is interesting that remittances to Albania fell by 2.5% and to Morocco by 13.9%, while remittances to Romania rose by 1.9%. However, if the euro-dollar exchange rate had remained fixed at the level of 1Q 2014, then remittances would have increased by 21% for Albania, 6.9% for Morocco, and 26.4% for Romania. TOP ↑

Mobile Money Services continue to expand across the developing world with new cross-border functionalities, systems integrations, partnerships, and regulatory advances for the industry. Domestic use of mobile transfer services spreads. The Global Mobile Systems Association (GMSA) reports that mobile money industry

continues to expand globally, with more than 250 live mobile money services in nearly 90 countries (263 live deployments and 101 planned deployments. See chart.). Also, more than 20 deployments

have at least 1M active mobile money customers and, in 16 markets, there are more mobile money accounts than bank accounts. Mobile money usage continues to be dominated by domestic person-to-person (P2P) transfers and airtime top-ups. Mobile money providers are moving into international remittances at a fast pace, working on interoperability while

companies are providing interconnection bridges or hubs between MTOs and mobile money operators, such as Mastercard’s Homesend and TransferTo. In the sending markets, online money transfer companies are connecting with mobile money service providers and, although traditional MTOs are also increasing the provision of such services, their technical limitations might make difficult their expansion into this distribution channel. New remittance models in West Africa and in Latin America (Tigo in Paraguay and El Salvador) will undoubtedly make mobile money remittance services (MMRS) grow and expand. News of MMRS topped the most influential posts in NextBillion’s Financial Innovation contest. TOP ↑

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Digital IMT&Ps are continuing to increase their market share as investors and bankers favor online/mobile channels. At IMTC WORLD 2015’s M&A roundtables, the message was clear: Investors and bankers are favoring digital channels, overwhelmingly, and not only is the valuation of digital money transfer companies very high, but there is very

small interest in the investment world for investing in traditional agent-based MTOs. Interestingly enough, we are seeing movement in the traditional sector with M&A being discussed, mostly for positioning purposes and increase in market share and geographical distribution. Traditional MTOs are increasingly looking at online/mobile solutions to expand this channel (RIA, Transfast, Uniteller, Moneydart) or bring them to market (Dolex, Xpress Money) and several mobile solution providers in the U.S. and Europe are seeking partners to use their technological innovations (Mobetize,, Moni, PayToo, and others). A very recent whitepaper released by Amdocs and Juniper Research, entitled “Forget the Wires, Connect the Wallets,” provides interesting data on mobile remittance expectations, “More than 83 percent of respondents show a strong willingness to use their mobile phone as a means of sending money internationally. When current user base of money transfer operators (MTOs) is considered, this percentage rises to 92 percent, suggesting that a mobile offering, suitably priced and marketed could have a substantial disruptive effect.” It will be interesting to see Amdocs incursion in mobile remittances. The increased adoption of these channels is creating a digital divide in the consumer base that needs to be investigated further (wealthier senders using low-cost channels). The two major challenges of the industry now are Fraud Prevention and finding reliable and knowledgeable merchant services providers willing to provide debit card processing. TOP ↑

The digital race heats up in the U.S. with the entrance of World Remit and TransferWise into the U.S. market, while Western Union opens up online channels in Europe. SaveOnSend articles, written by Alexey Artamonov and his multinational team, are probably one of the best sources to explore the rise of TransferWise and its initial

strategy in Europe – competing with banks for “non-remittance” cross-border money transfers which are sent by white-collar expats, retirees, or students, “rather than by blue-collar migrants. Therefore, TransferWise’s average sent amount is $2,300 per transfer which is two to three times more than an average amount sent by remittance startups like WorldRemit, Azimo, or Remitly.” Investors keep money flowing, funding these companies as time for IPOs loom. Again SaveOnSend analysis of the funding and valuation of WorldRemit, TransferWise, Remitly, and Azimo is quite interesting, as well as

the future prospects of these companies as they continue to grow. In terms of the U.S., SaveOnSend writes, “Up until 2014, Xoom’s transfer volumes and revenues have been growing rapidly. Maybe not as much as TransferWise and WorldRemit’s, but enough to explain why Xoom was allowed, by investors, to avoid for so long international expansion (it still serves only U.S. outbound corridors). However, in 2014, Xoom’s metrics began a rapid decline, and by Q3, 2015, its YoY revenue growth became consistently the lowest among digital providers, including top players, Western Union, and MoneyGram.” TransferWise and WorldRemit arrived in the U.S. in late 2014, but, in the large USA-to-Philippines corridor, Remitly managed to gain 5-10% share of online volume.

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It was a good year for Mergers & Acquisitions (M&As) in the IMTC&P Industry, with the most notable news coming from the U.S: The July, 2015, $890M deal for the purchase of XOOM by PayPal. You can google hundreds of news articles on PayPal’s acquisition of Xoom or read the SEC merger report. Even if, in our industry, we all know Xoom very

well, it was interesting to read an article in Market Mad House stating, “A lot of people were stunned and confused earlier this month when PayPal Holdings purchased an obscure company called Xoom on the verge of independence. Not surprisingly, many people were wondering what Xoom is and why PayPal wants it so badly.” Inside the industry, we all knew of the close relationship of the founders of both companies and their management teams. We all felt it was good for the industry as a whole to see major players like PayPal entering the ring. But yes, the “obscure” company was bought at a surprisingly high cost, although very few analysts questioned PayPal’s valuation of Xoom and concentrated on the synergies. SaveOnSend provides its view and posted in a paragraph entitled White Knight on White Horse. “PayPal paid 80% premium for a company with rapidly deteriorating performance . . . by early April, Xoom stock was settling around $14, but then acquisition rumors began pushing its stock up. It kept going higher despite the disclosure of Q1, 2015 results that growth in transfer volume dropped to only 6% year-over-year vs. 49% a year earlier. While usually stock zooming up on acquisition rumours get acquired at that acquisition’s day value, PayPal paid another 20%+ on top of that run-up.” It will be interesting to follow the development of the Xoom-PayPal merger. Similarly, Russia and the CIS leading payment services provider Qiwi (with over 17M virtual wallets and close to 200,000 kiosks and terminals), announced the acquisition for $167 million USD of the Contact money transfer system and the Rapida payment processing system from Otkritie Holding, JSC. Qiwi, PLC, was the first Russian company to complete an IPO under the U.S. Jobs Act and is listed in NASDAQ. TOP ↑

The continued decline in the price of oil is affecting remittances worldwide, although the effects are varied, depending on the region of the world. But even if oil prices fell to their lowest levels in a decade, remittance outflows from the GCC were not heavily impacted during 2015. Remittances to Egypt, Jordan, and Yemen, with over 70% coming from the

GCC, were not affected. The trend might worsen if fiscal spending and construction slow down as the effects of low oil prices continue. Up to now, GCC countries have used their fiscal buffers to maintain

spending. Russia’s remittances that have been closely linked to the price of oil, have plummeted. The Kyrgyz Republic, Uzbekistan, Tajikistan, and Armenia – countries that are heavily dependent on Russian remittances from Russia – are feeling the effects, worsened by the weakening of the ruble. As reported by The Economist, money sent home from Russia by Tajik migrants was down by 44% in the first six months of 2015. Remittances from Russia to Uzbekistan fell by half, and those to Kyrgyzstan fell by a third. Iran entering the oil market will surely hurt the other GCC countries economies, and 2016 will offer us the

first glimpse of this new world. How remittances will evolve in the Middle East as a result of the refugee crisis is hard to predict. From anecdotal evidence we know that remittances have helped migrants in their “going north” journey, and reports have been published on remittance flows to the refugee camps (Roger Dean); but, how the displaced Middle Eastern migrants will find work in Europe and North America and participate in the reconstruction of their towns and villages back home is uncertain. The war destruction won’t leave much family to help and too little motives to make the journey back to rebuild. Whatever the future brings to the region, the IMT&P industry will be there to serve the needs of the migrants and their families. TOP ↑

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The rise of P2B, B2B, and Forex services in the industry is making the “Payments” side of the International Money Transfer & Payments Industry more dynamic and more important, overall, with new services, new entrants and new offerings. The P2P money transfer and remittance market has been historically closely linked to the Forex

Market, although regulations in many countries, as well as currency controls due to AML compliance concerns, broke the bond and led to the demise of many Forex firms, most prominently, the “casas de cambio” in Latin America. Hawala, currency trading, and money transfers are still one and the same thing. But, the Forex Market, which is the “the largest, most globally integrated, and most active financial market in the world” has been changing as the Executive Vice President of the NYFed pointed out in his remarks at the 2015 FX Week in New York. Mr. Potter noted that the participation and the execution in this market, due to the transformative effect of technology platforms, has brought individuals and firms to deal directly with Forex firms to execute money transfers and payments – some P2P, but mostly P2B and B2B where better exchange rates mean big savings. While many MTOs concentrate in the remittance market and are not comfortable dealing in larger payments, some companies, most notably RIA, have invested in the Forex Market with the purchase of UK’s HiFX in 2014 for $242M USD, and XE in 2015, to reach other segments of the market competing with banks for white-collar workers and small businesses, competently leveraging its RIA remittance network. The rise of Forex firms and online currency offerings have been growing, mostly out of the UK (Currencies Direct, WorldFirst, Currency Cloud, MoneyCorp, and others) using their online presence to reach hundreds of customers and effectively compete in the MT market. Start-ups like Revolut are using mobile and a prepaid card to entice customers into their Forex Service. At the same time, bill payment companies, prepaid card issuers and small-value lenders, have been partnering with MTOs to offer these services in both their online and agent channels. We also must mention airtime and top-ups as one of the most successful cross-industry products, paving the way for the slow coming-together of the mobile and IMT&Ps industries. A good evidence of this is WorldRemit growth in both segments and Xoom online money transfer and bill payment offerings.

TOP ↑ Bitcoin, as a remittance tool, is now being used by a few pioneer firms, while the overall acceptance of the blockchain protocol as a significant invention has shifted the rhetoric about VCs for the better. With MTBIT, at IMTC, we have been actively seeking individuals and firms using blockchain protocols to offer solutions to cross-border customers, either directly (bitcoin exchanges selling bitcoin and partnering

with other exchanges in other countries to connect sender and beneficiary) or using the VC as a settlement mechanism – firms offering MT services in a corridor and using bitcoin to settle (avoiding bank fees, fiat settlement spreads, funding requirements). We feel that 2015 was a seminal year and that 2016 will be the year when the efforts of pioneers will crystallize. Pioneers such as Luis Buenaventura (Bloom), Pablo Gonzalez and his group at Bitso, Alex Karis and his group at AirPocket, and Bill Barhydt and his team at Abra, who will be challenging not only the industry, but also analysts, regulators, bankers, etc. (read Bill Barhydt’s interview here). We strongly support all these efforts. Innovation and thinking out-of-the-box is very important. In a parallel universe, blockchain uses are being initiated, investigated, and developed by a number of Bank and non-bank financial institutions in order to harness the potential of this technology, mostly for internal payment processing functions that could be done more efficiently with its use. Several articles have discussed the potential of technology in the financial industry (Brookings and Star Tribune). TOP ↑

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