As larger sums of cash are remitted from first-world countries to the developing world, upstart money transfer services are competing with established businesses for a piece of the growing pie.
One of the newer entrants to the international money transfer market, Seattle-based Remitly, announced this week it has raised $135 million in new equity funding.
Generation Investment Management, a sustainability-focused investor based in London whose founders include former Vice President Al Gore, led the round. The new capital will allow Remitly to establish operations in more countries, both in the developed and developing world.
Many remittance payments are made by people who have immigrated to a new country and send a portion of their income back to family members and loved ones in their home nations.
The World Bank estimates that in 2018, these money transfers reached $689 billion, up from $633 billion in 2017. More than three-quarters of last year’s total flowed to countries like India and Mexico from nations such as the US or UK, according to the organization.
But sending money across international borders generally requires the sender to pay a fee to an organization that facilitates such transfers. Worldwide, remittance fees averaged 7 percent of the amount sent in the first three months of 2019, according to the World Bank. (The figure is based on the global average cost of sending $200 through a bank, post office, or other facilitator.) The World Bank is seeking to reduce remittance costs to 3 percent by 2030 globally.
The countries that receive the highest amounts of remittances annually are India, China, Mexico, and the Philippines, according to the World Bank. Remitly counts all those nations, excluding China, among the 44 “receive” countries it serves, according to its website. Meanwhile, the company allows people in the US, UK, and 14 other “send” countries to make transfers to users in receive countries.
In addition to banks and post offices, Remitly is competing against established money transfer companies like Western Union and newer ones, like Xoom, which is owned by PayPal (NASDAQ: [[ticker:PYPL]]).
Remitly primarily targets consumers with its app. That sets it apart from other services, such as Boston-based Flywire and Australia’s Airwallex, which focus more on business users.
Part of Remitly’s sales pitch is that users can send money faster, and be charged lower fees, than they would using a competing service. Remitly facilitates transfers via its website and apps for mobile devices.
To highlight one example, Remitly says that a user who wishes to send $100 to a recipient in Argentina, and convert the funds from dollars to Argentine Pesos, would be charged a fee of $3.99 (about 4 percent of the total). The fee to send $1,000 from the US to Argentina, meanwhile, would be $14.99 (about 1.5 percent of the total). Both rates are for Remitly’s Express option, in which money is transferred within minutes; it also offers a cheaper Economy option, which takes three to five business days.
The company and its CEO, Matt Oppenheimer, have been consistent advocates for immigrants, and immigration policy reform.
Immigration has of course been a hot-button issue in US politics in recent years, heightened with President Donald Trump’s 2016 election platform that called for the construction of a wall along the southern US border, financed by Mexico.
Trump administration officials have also floated the idea of requiring money transfer companies to verify that their customers reside in the US lawfully, which could, in theory, impact the amounts of money being sent from the US to Mexico, where remittance payments represent a major inflow to Mexico’s economy. Oppenheimer has spoken out against the idea of creating such a requirement, as Xconomy reported in 2017.
Eight-year-old Remitly previously raised funding rounds of $115 million and $38.5 million in 2017 and 2016, respectively. In addition to its Seattle headquarters, the company has offices in London; Manila, Philippines; and Managua, Nicaragua.
Joining Generation Investment Management in Remitly’s $135 million equity round are: DN Capital; Naspers’ PayU; Owl Rock Capital; Princeville Global; Prudential Financial; Schroder & Co. Bank; Stripes Group; and Top Tier Capital Partners.
Remitly said it has also raised a separate, $85 million round of syndicated debt financing from Barclays, Bridge Bank, Goldman Sachs, and Silicon Valley Bank.
