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Money Transfer Startups: race against time?

Money transfer startups - Race against time

“High fees, large incumbents, and a $400B+ market are under attack by a slew of remittance startups.”

– CB Insights, February 26, 2015

The best feature of being a startup during a bubble is TIME. Investors, usually impatient folks, are doing much better and encouraging startups to focus on growth rather than boring corporate stuff like “revenues” or, even worse, “profits.” Why bother with positive cash flows when investors are stuffed with money and more are available with a quick WhatsApp message? This is especially true when considering such seemingly easy and huge market as international remittances: $0.6T in size, ruled by one, hopefully, incompetent, colossus:

World's largest x-border players as of Q1 2018


International remittances market is also expanding. The World Bank is projecting 3-4% annual growth in the coming years. More importantly, due to proliferation of inexpensive smartphones and displacement of elders with tech-savvy millennials, the usage of mobile for sending and receiving money might be about to skyrocket.

Remittance startups expectations for growth in online usage - June 2015

Remittance startups expectations for growth in online usage – June 2015

Money Transfer “Disruptors”

As the result, we now have 4 well-funded startups, all following Xoom’s dream from a decade ago to be a better version of Western Union:

Except TransferWise, these companies remain small in comparison to the market leaders in transfer volumes…

Money Transfer Providers X-border Volume Comparison 2014-2018 Q1

… but are catching up with some incumbents in digital cross-border revenues:

Money Transfer Providers Digital X-border Revenue Comparison 2014-2018 Q1

Because of mostly targeting a small niche of digital-savvy consumers, so far Fintech has made almost no impact on cost of remittances:

WorldBank Cost of Sending $200 till Q2 2017


Here is how CEOs of Western Union and Euronet (parent of Ria Money Transfer) described a competitive pricing environment in 2018:

WU CEO Quote about pricing Q1 2018 Investor Call Transcript

Euronet CEO on UK remittances startup Q4 2017 Investors Call

But a very broad cross-section of investors remains optimistics and have dropped close to $1 billion on this quartet since 2010:

Funding Rounds of Remittance Startups, Dec 2017

So TransferWise has received the most funding so far, then Remitly, and WorldRemit. Azimo has received the least amount.

Let’s now compare amounts of funding with valuations for these startups and the revenue multiples vs. industry incumbents. For startups, keep in mind that valuations were given during different stages of scaling cycle, hence, multiples are not always comparable (more on that later):

X-border money transfer providers - Latest Market Cap or Valuation, Apr 2018

So why do investors value and fund these startups so differently? What could explain such variability among four almost identical mobile apps on the same mission to “disrupt” banks and incumbents? Let’s consider the same funding data but on a different timeline – years since the seed round:

Funding Rounds of Remittance Startups - years from Seed round, Dec 2017

Money Transfer Startups Are Vastly Different

All 4 startups got the seed round at point “0” but what happened next has varied significantly, both in timing and amounts. After 6 years, Remitly passed $4 billion in annualized transfers. It might seem like a lot, but not when compared with TransferWise‘s trajectory. Two companies were founded at about the same time and received their first $1M+ funding in April of 2012. However, TransferWise reached $2M monthly transfer volume only a year later and more than 2 years before Remitly. By mid-2015, TransferWise was transferring thirty times more per month than Remitly:

TransferWise vs. Remitly - Comparing Transfer Volumes

The underlying reason is in TransferWise’s much faster scaling. In the first three years, Remitly launched, albeit large but only one corridor: USA-to-Philippines. In February 2015, the startup launched the second corridor, USA-to-India, and in October 2015 – USA-to-Mexico. In July 2015, Remitly also announced its first acquisition of a failing application Talio to bring in a local talent (both companies are based in Seattle) and beef up messaging features in Remitly’s mobile technology. In April 2016, Remitly opened outbound business from Canada to India and Philippines. In September 2016, the startup added seven more countries in Latin America for transfers from USA:


In early 2017, Remitly launch couple outbound corridors from UK, and its growth trajectory seems unstoppable:

Remitly Transfer Volume and Revenue in 2014-2018 Q1

In fact, before 2017, Remitly has been growing faster than any of the established digital players during 2014-2015:

MoneyGram Revenue Change 2015 - 2018 Q1

So it is not surprising for a hyped-up digital remittances niche that in the October 2017 round Remitly was valued “at least” $345 million.

Remitly Headquarters

Remitly used funding to launch in new markets like Australia in May 2018 while accelerating hiring, reaching 600 employees by March 2018:

Remitly Employees Till March 2018

However, during about same time, TransferWise launched hundreds corridors and passed $1 billion transfer volume per month milestone, reaching $1 billion in transfers during its very first 12 months in the US. As you noticed in the chart above, by late 2016, both Remitly and TransferWise were growing 100% year-of-year, except that one of them was five times larger than the other and was doing it with less than twice as many employees:

TransferWise Employees till March 2018

What about Azimo which funding to date has been significantly lower than TransferWise and WorldRemit’s? Please take another look at the chart with funding amounts by years since a seed round. Azimo is clearly slowing down with the last $15 million round in May 2016. But you might also remember a chart above where Azimo has the “best” valuation. Why? Because that valuation was given during an earlier scaling phase than with other startups. Valuation multiples tend to decline as startup becomes more mature. Similarly to Xoom, Azimo has been limiting its growth ambition to just one geography (in Azimo case, it is Europe, for Xoom – USA). As a result, its growth slowed down to 40% by the middle of 2017. Compare that with TransferGo, another Europe-centric x-border provider, also founded around 2012. By April 2018, TransferGo was still growing at 100%:

Even more worrisome, Azimo’s P&L structure has a disproportionate administrative expense, and the company is getting increasingly unprofitable:

Azimo performance 2014-2017

The explanation for WorldRemit’s lower valuation against TransferWise is the same: relatively weak planning and execution, although the difference is less dramatic. For example, by mid-2015, WorldRemit significantly overestimated how fast it would be growing across markets – as the result, it had to layoff employees in both USA and UK. Compare it with TransferWise’s claims about performance in USA or gaining 10% market share in UK. By early 2017, WorldRemit was so focused on growth in the US that it slashed pricing by two-thirds in two top corridors, losing ~0.5% on each transaction:

WorldRemit FX Markup India and Mexico till June 23 2017

Another insightful comparison between TransferWise and WorldRemit is via employee reviews on Glassdoor:



WorldRemit’s uneven management was also evident in some forecasting misses. In June of 2015, CEO expected to triple 2015 revenue vs. 2014. By November, it downgraded expectations to “at least double”… and finished 2015 with 80% growth. Apparently learning from those mistakes, by 2016 the performance clarity was back on track. Company was expecting 50% growth in revenue that year which was delivered coupled with a positive effect from scaling:

WorldRemit Performance 2011-2017 Dec 9

In 2017, there was another overestimate – in later September, WorldRemit was expecting to grow “more than 50%” but less than 2 months later, in early December, the expectation subsided to 46%. Regardless, WorldRemit’s 50% year-over-year growth is impressive except TransferWise is growing at 100% at twice the revenue. That is why WorldRemit’s most recent valuation was $0.7 billion compared to $1.6 billion for Transferwise.

Money Transfer “Pie”

So among this quartet, TransferWise seems the most promising. But why does it matter if the remittances market is huge and growing? Wouldn’t any provider with some degree of success reap a major windfall? Yes and no.

In such highly speculative field as startup investment one doesn’t have to worry about details as long as there are other investors who worry even less about those. Most of investors in VC or corporate worlds are not “smart”: among established companies, failure of M&A is 70-90%, among VC-backed – three-quarters, so it is likely that any of these startups could be acquired with a significant premium in 2017 and maybe even 2018 before the next FinTech bubble bursts.

Other People Money - Money Transfer

But what if these startups were hoping to build a long-term sustainable business? Let’s start with projecting the overall market size into the foreseeable future. Despite $0.6T of money transfer volumes, due to low margins the international consumer remittances is a relatively small global market. The revenue “pie” is approximately $35B with around 90% of money transfer volume sent in cash. While transfer volumes will be increasing, the margins will keep declining (assuming 1% in next 10 years) and consumers will continue slowly switching from offline to online method of sending money (around 30% in next 10 years), resulting in a significantly smaller revenue “pie”:

International Money Transfer - Volumes and Revenues change 2015-2025

To put these numbers into perspective, McDonalds revenue is $25B while Starbucks’ – $16B. Which means that thousands of banks and small money transmitters, myriad of bill payment and bitcoin-based startups, incumbents, plus this quartet of startups are all competing for the global marketplace that is heading to be the size somewhere between Starbucks and McDonalds… except those two are making handsome income from that revenue, and these startups are bound to be breaking even at around 0.5% in online margins by 2025 (read more about costs in another SaveOnSend article).

Money Transfer Startups Differentiation

By they way, some providers understand that they are in a long-term battle for pricing themselves out of business and wouldn’t mind being acquired. Some, like Azimo, discuss it openly (here), some are asking around for potential suitors more privately hoping to cash out on their dreamy valuation multiples. While many startups play the numbers game, the closer to IPO, the more scrutiny will be applied to its performance. One key metric is the operating cash flow that shows whether a company is burning through or generating cash. Here is an example of such analysis for MoneyGram:

Research Analyst Assessment of MoneyGram's Performance by Zacks - April 10, 2015

Research Analyst Assessment of MoneyGram’s Performance by Zacks – April 10, 2015

So how are these startups taking on Western Union while competing among themselves and thousands of other providers globally? First, via geographic and customer segmentation:

Azimo CEO & Co-founder, Michael Kent - Source: TechCrunch, June 15, 2015

Azimo CEO & Co-founder, Michael Kent – Source: TechCrunch, June 15, 2015

In the same TechCrunch article, Azimo’s CEO & Co-founder continues “$700 is the average transaction size… That’s the difference between us and TransferWise…” And this is how WorldRemit’s Head of PR describes differentiation with TransferWise:

WorldRemit Differentiation vis-a-vis TransferWise - WorldRemit's Head of Pr

Differently from Azimo, WorldRemit’s ambition is global in scope with around 40% of revenues already coming from non-Europe-based customers:

WorldRemit Revenue Breakdown by Region 2015-2016


WorldRemit’s emphasis on mobile payments and larger portion of African migrants among customers leads to a much smaller average transaction size:

Remittance providers - Average Send Amounts Dec 2017

These providers also compete on price. TransferWise, while not the fastest, has by far the lowest gross margin (<1% globally) and clearly builds its PR/marketing around this differentiation angle:

Comparison of Providers - USA to Mexico, $500 transfer, bank-to-bank linked accounts, May 12, 2018TransferWise’s pricing is both, typically, lower and more stable when compared to other providers. We already showed a pricing graph for WorldRemit, now look at fluctuations for MoneyGram and Xoom:

Xoom Mexico FX Markup till June 23 2017

MoneyGram FX Markup Philippines and Mexico till June 23 2017

In rare cases, TransferWise could be expensive in corridors where customers are price sensitive and less loyal, so all providers have to compete on price, and some are even willing to lose money in order to preserve or gain a market share. See the table below for an average remittance amount from USA to India and check other corridors with SaveOnSend app:

Comparison of Providers - USA-to-India, $1,500, bank-to-bank, May 12, 2018If margins start to decline, the difference in prices across providers in absolute dollars (or other currency) would be getting smaller, thus, creating an ever diminishing incentive for customers to switch.

WorldBank Cost of Sending $200 till Q3 2017


But the most impportant differentiation is CULTURE AND EXECUTION. For example, all of these companies have a referral program, but for some it brings 50% of their customers and for others it is a minor channel. All of them have quality employees, but some companies are liked much more than others while paying their employees below the market. All these companies have a mobile app, but some are much better than others:

X-border Mobile App Google Store Comparison Scores May 6 2018

For the same reason why TransferWise has accomplished so much more than Remitly, culture & execution will be defining factors in separating winners vs. merely survivors in this race against time. To a large degree, it will be up to these ten highly capable leaders:

Leadership of Remittance Providers - June 2015

Top row: WorldRemit, TransferWise, Azimo, Remitly
Bottom row: Ria Money Transfer, MoneyGram, Western Union Digital Ventures, Xoom, Transfast

When writing about Bitcoin in another SaveOnSend article, we encountered plenty of teams among Bitcoin remittances startups who are good-hearted, idealistic and hard-working, but not that knowledgeable about consumer remittances. Our interactions with startups mentioned in this article point to a more cynical and, at times, less respectable approach to growth, but also to much stronger teams. There is no question that in the online part of remittances (albeit, currently only 10% of all international money transfers), these startups present formidable global competitors and TransferWise removed any lingering doubts with this announcement in June 2015 that it zoomed past Xoom:

Cross-border Revenue_ Online Providers

In this context, it is helpful to understand Xoom’s history as one of the scenarios for startups mentioned here – read this SaveOnSend article. Plus, up till now, it has been relatively easy to raise money for remittance startups:

However, when another downturn comes, investors will again remember the millennial-old adage:

Sam Altman Quote on Importance of Earnings

As we already discussed, most of remittance startups understand that they are running against the clock and only have another couple years to get acquired or go public. When hype disappears, a startup with $100 million in revenues, declining growth, and zero-to-negative profitability is called a “struggling business” and gets subjected to a boring analysis like any publicly-traded company. Here is an example from a founder of another “fintech startup,” a hedge fund that invests in small-cap companies in financial services (July 7, 2015):

“I think that MGI should be at discount to WU because: (1) MGI 5% market share vs. WU 15% for a fixed-cost business drives MGI gross margin 14% vs WU 26%, (2) MGI has higher financial leverage at 60% vs WU 16% so should have lower P/E or free cash flow yield, and (3) Walmart overhang — Walmart introducing their own private label and is still ~15-20% of MGI transactions / revenues from 25-30% 12-18 months ago. Now MGI should be cheaper than WU, but the question how much cheaper and that’s more art than science. It’s at 6.4x EV/EBITDA trailing vs WU 8.8x and projected ’16 4.2x ’16 EV/E vs WU 8.4x. One problem is that when your trailing EBIT margins at 6% (vs WU 21%) and the business still declining and has financial leverage, it can go to 0% margin quick and then stock ain’t that cheap. It seems that the management discussed that earlier this year that they expected double digit growth resuming in Q4’15, but there remains to be lots of uncertainty. My guess that if consensus ests for 2016 right, the growth resumes, then the stock too cheap at ~4.2x EV/E and 9x P/E.”


Hopefully, you found this overview helpful in developing your own point of view on which of these startups has a shot at becoming a remittance incumbent in the foreseeable future. Which startup do you think is capable of eventually catching up with TransferWise? Please explain your brief rationale in the comments section below.

We will be keeping this post regularly updated, so come back soon!

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