KEY POINTS

  • Remittances – primarily payments sent by foreign workers to their relatives back home – is a massive global industry that digital players are just beginning to disrupt. $583 billion was remitted across borders in 2014, according to estimates from the World Bank. Remittance volume is set to rise to $636 billion in 2017, representing a five-year compound annual growth rate (CAGR) of 3.75% from 2012.
  • Most remittance companies make money as a percentage of each money transfer. The total global weighted average cost of sending a remittance was 5.9% of the value of a transaction in 2014, so we estimate that global remittance revenues reached $34.3 billion in 2014.  
  • The remittance industry is a highly imbalanced one, with certain countries dominating send volumes and others dominating receive volumes. The US sent 22% of global remittance volume last year, and India received 12% of global remittance volume. In 2012, the top corridor for remittances — the flow of remittances between two specific countries — was the US to Mexico. 
  • Different types of companies offer remittances, but it is money transfer operators (MTOs) that primarily focus on these cross-border transfers. Banks actually dominate the remittance market, while MTOs, including Western Union and MoneyGram, have about half as much market share as financial institutions.
  • Cash pickup is the traditional remittance model offered by legacy MTOs. These businesses have massive agent networks around the world that enable people to go to an MTO partner's retail location in person and transfer money nearly instantaneously across borders for cash pickup at an agent location in another country. Legacy remittance companies also offer other types of send and pickup options that run over their proprietary payment rails.
  • Remittance companies earn revenues off of transaction fees and markups on currency exchanges. These fees also cover major overhead costs, including maintaining a massive agent network, staying compliant with local, country, and international regulations, and handling fluctuations in specific remittance corridors. 
  • Digital players are finding an opportunity to update the remittance model and gain a foothold in this industry by lowering overhead costs and passing the savings on through lower fees. Digital-first MTOs use mobile and online channels to send money, bypassing costly agent send networks. They also use more efficient and cost-effective computer modeling to meet compliance standards.
  • But there are still major challenges [...]