NEW WORLD. Moving money for workers on the move

For two decades, Noe Sanchez sent money from California to his father in Mexico City through storefront outlets of traditional remittance firms such as Western Union.

Now he grabs his smartphone and uses Remitly, one of several new competing mobile apps promoting cheap and quick international transfers. Sanchez quickly got over his initial unease of sending money through an unfamiliar company.

“If it goes badly, I’ll cancel it and try another,” said Sanchez, a 44-year-old Mexican technical support professional in Oakland.

Founded in 2011 and backed by Amazon.com Inc Chief Executive Jeff Bezos’ venture capital arm, Remitly is among a vanguard of financial technology, or fintech, companies targeting what they view as an underserved immigrant market — traditionally disregarded as high-risk and low-margin. The upstart firms — along with expanding digital and mobile options from Western Union Co and MoneyGram International Inc — are helping immigrants deepen their roots in the US at a time when incendiary anti-immigration rhetoric dominates national politics.

Many emerging companies in the fast-growing fintech sector, by contrast, view financial services for immigrants as an untapped source of revenue. They include remittance apps, such as Remitly, TransferWise and Xoom — an early player bought last year by PayPal Holdings Inc for $890 million — along with companies such as Lendup and Oportun, which lend to high-risk borrowers.

“We’re part of a community of companies that is helping (immigrant) customers understand the landscape of financial services” in the US, said Raul Vazquez, chief executive of Oportun.

Global cash flow

It remains unclear whether Republican presidential nominee Donald Trump’s campaign attacks represent a real threat to the remittance industry. He proposes regulating remittance firms through US anti-terrorism laws that now apply to banks and other financial institutions.

The plan has been criticised in part because of the difficulty in differentiating between the transfers of legal and illegal immigrants.

Many financial technology companies expect a continuing boom in cross-border transfers and other financial services for US immigrants. According to the World Bank, remittances to Mexico totalled nearly $25 billion in 2015, their highest level since 2008. Globally, nearly $600 billion is transferred each year.

The World Bank reported that 700 million people opened bank accounts globally between 2011 and 2014 — making them more likely to use financial technology — and about 2 billion more people remained un-banked, representing huge growth potential.

Immigrant communities increasingly access financial services through phones. Thirteen per cent of Latinos in the US are dependent on smartphones as their only source of internet access, compared to just 4 per cent of white people, according to a 2015 Pew study.

Those trends play into the strategy of remittance apps such as Remitly and Xoom. Many other financial tech firms are private and not required to share financial results, but some claim fast growth in customers or revenue when releasing selective data.

Remitly said it transferred five times the amount of money in the first quarter of 2016 as it did in the same period a year ago. The company said it recently surpassed $1 billion in annual transfers. Western Union, a $9.36-billion public company, acknowledged new threats in its 2015 annual report. “We are seeing increased competition from, and increased market acceptance of, electronic, mobile, and Internet-based money transfer services,” the company told investors.

In a statement to Reuters, the company said the transfer industry is teeming with new players and that competition had contributed to falling prices. Western Union’s digital money transfer sales reached $300 million in 2015, and it expects online and mobile transfers to be a “major driver of overall remittance market growth,” it said.

Arjan Schutte, CEO of fintech investor Core Innovation Capital, said he’d seen more than 100 different business plans for companies wanting to disrupt Western Union or Moneygram, but that’s “not nearly enough relative to the market opportunity.”

Smaller financial technology companies can be flexible in crafting creative solutions to serve customers on the margins, said Lisa McFarland, an executive vice-president at Ingo Money, which charges between 1 per cent and 4 per cent to deposit paychecks through a mobile app. McFarland previously worked at Visa Inc setting up prepaid products for the immigrant market. She said more established financial companies have long struggled to serve lower-income markets because of high development costs and low profit margins.

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