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Xoom Money Transfer: The Disruptor That Wasn’t

“Xoom…. think Western Union without the excessive fees…”

TechCrunch, Sep 28, 2007

Xoom’s fifteen-plus-years history is full of missed opportunities and second chances. The child of the so-called “PayPal Mafia” and protege of Sequoia Capital, Xoom was founded in 2001 to disrupt cross-border remittances. At that point, Western Union already had a website where customers could initiate and track money transfers, but it seemed clunky and wasn’t attracting much usage. The shift of remittances online was expected imminently, so creating an online-only provider with a better user experience was a no-brainer.

The early years

The Xoom website was formally launched in 2003…

… and its troubles started from the first years with frequent hiring mistakes and allocation of a significant portion of resources to a B2B pivot which ultimately failed. In 2010, Keith Rabois, an early investor and Board member of Xoom, provided this summary of the early years:

By 2007, six years and five funding rounds later, Xoom had evolved into the business model known today: digital-only instant money transfers and a great user experience. During those early years, Xoom remained a relatively small company with revenues of less than $20 million (compared to Western Union’s $3 billion). However, the growth strategy was clear and simple: persuade as many customers in as many corridors as possible to give its application a try.

Xoom Money Transfer: Online to India, Mexico, Philippines, China
Xoom Money Transfer: Digital tools

In the subsequent years, Xoom successfully accelerated its growth, tripling revenues from $26 million in 2009 to $80 million in 2012. Thanks to this strong performance and its inclusion in the “Top 50” VC-backed companies list, Xoom was well-prepared for an IPO. On the first day of trading in February 2013, Xoom’s stock surged by nearly 60%.

Hitting the wall

The timing for the IPO was impeccable, coinciding with Xoom’s growth slowdown that year. The deceleration was slight in 2013 but became more pronounced in 2014.

Xoom change in growth trajectory 2010-2015 Annually

With each quarterly result, it became increasingly evident to investors that Xoom wasn’t positioned to become the “next big thing.” The company’s stock started to plummet, falling below its IPO price.

To compound the challenges, in late 2014, Xoom experienced a massive fraud case. More crucially, in 2015, the company’s money transfer volumes entered negative territory every other quarter.

Xoom change in growth trajectory 2014-2015 Quarterly


Xoom became the slowest-growing digital cross-border money transfer provider among notable players, including the digital divisions of Western Union and MoneyGram:

digital-remittance-providers-yoy-revenue-growth-2016-q2

Xoom today

This brings us to the current state of Xoom, which continues to be a marginal player in the consumer cross-border remittances space. Its transaction volumes not only significantly lag behind the leading traditional incumbents but also trail behind newer fintech competitors, such as Remitly, which entered the market a decade after Xoom.

One newer fintech in particular, Wise, formerly known as TransferWise, has achieved remarkable success. It surpassed Xoom’s transfer volumes in 2015, just four years after its inception. By 2022, it had become the world’s largest player in terms of transfer volumes.

Why has Xoom not succeeded in becoming the primary disruptor or achieving a position among the top 10 global players?

Running fast was not fast enough

Xoom did many things right. Recognizing the importance of robust risk management, the company intelligently leveraged customer data, resulting in an approval rate of over 90% for transfers linked to customers’ bank accounts—a remarkable achievement at that time. Moreover, Xoom understood the drawbacks of relying solely on online marketing to establish credibility with migrants who were entrusting a new type of provider with their money. To build trust, Xoom made substantial investments in traditional TV advertising and tailored its commercials to resonate with various ethnic groups, showcasing a nuanced understanding of its target audience.

Xoom also recognized that pricing was not a critical factor for a large portion of migrants, so it was often one of the more expensive providers in the market.

Comparison of Providers - USA to Mexico, $500 transfer, bank-to-bank linked accounts, May 12, 2018

Moreover, Xoom continually games its FX markups to maximize profits, often at the expense of customer peace of mind. Unfortunately, this practice is common among other providers like Western Union and MoneyGram, although it’s less prevalent with Remitly and WorldRemit, and not an issue with Wise.

Xoom Mexico FX Markup till June 23 2017

So, why did Xoom hit the wall in 2015? The macro context shifted, and the company failed to adapt. Until 2013, a significant number of tech-savvy and price-sensitive customers were transitioning from using expensive wire transfers to opting for remittance providers. These customers, primarily migrants from India or younger European expats, required only a slight push to try out a widely promoted service. However, once this surge of unmet demand was met, digital players like Xoom had to figure out how to alter an individual’s preferred sending method or attract entirely new customers, amidst the growing competition from other digital providers.

Price was starting to matter

The most widely recognized strategy for gaining market share in a fiercely competitive and uniform environment is to offer lower pricing. Although Xoom aimed to maintain its high profit margins, other providers, including incumbents, reduced their prices in specific corridors where it had a noticeable impact (e.g., USA-to-India). Eventually, Xoom reluctantly followed suit – its foreign exchange markups from the US to India dropped to half of those to China, Mexico, and the Philippines. However, this adjustment proved insufficient. The CEO of Xoom elucidated the loss of market share in this corridor during the Q1 2015 earnings call on April 28th (for the complete transcript, find the source here):

“I think what’s going on in India is this, starting in Q3 (2014)… we’ve seen one or two or three names selling rupees between 30 and 70 basis points, and those names include Ria, MoneyGram primarily… it’s hard to see how they can consistently stay down at those rates. But, of course, competition can behave irrationally if they want to.”

However, another quarter passed, and all providers further reduced their margins to even lower levels. Below is a comparison of the change in foreign exchange markups between April 1st and August 1st 2015:

FX India till Sep 20 2018

Naturally, faced with the risk of being completely excluded from this critical digital remittances corridor, Xoom had to change its approach. Right after that April 28th statement, the company swiftly dropped its FX markup to all-time lows:

FX Markup USA-to-India: Xoom, Q4,2014-Q2,2015

However, since many other providers also followed suit (for instance, TransferWise reduced its fees for this corridor by 40% in October 2015), Xoom’s fees remained significantly higher than those of its top competitors:

Comparison among money transfer providers for USA-to-India: $1500, Bank-to-Bank, November 8, 2015
Comparison among money transfer providers for USA-to-India: $1500, Bank-to-Bank, November 8, 2015

This led to an additional loss of market share, as indicated in Xoom’s Q2 2015 report released on July 29, 2015:

“For example, our competitors have offered coupons for free money transfers and, in India, have offered better exchange rates than we have in certain periods and established no fee services. As a result, we have experienced attrition of rate-sensitive customers, particularly those customers who send money transfers to India.”

When operating on a 1% margin leads to a market share loss, it should provide an appreciation for the competitive nature of digital remittances. But how were Xoom’s competitors able to “behave irrationally”? Traditional players, at that time, still conducted 90% of their business through higher-margin cash agents. Meanwhile, certain fintechs like TransferWise and Remitly had more streamlined operating models, enabling them to pass on savings to their customers.

To stem the tide of market loss, in late July 2015, Xoom adopted a peculiar advertising strategy of frequently promoting “best ever” rates. These rates were deemed “best” not due to a reduction in Xoom’s FX markup, but simply because of a higher dollar-rupee exchange rate prevailing in the market at that time:

Xoom Twitter Ad - Aug 3, 2015

Xoom’s decline in market share within the crucial USA-India corridor persisted. In response, in August 2017, the company reduced FX margins for transfers exceeding $2,000. The irony of this threshold was apparent given PayPal’s CEO, Dan Schulman, nauseating preaching for financial democratization to combat poverty. While virtue signaling is often the end objective of Western executives, rather than fostering genuine change, it also redirects media attention away from the company’s actual profit generation methods:

America first backfires

Another factor contributing to the Xoom slowdown was the limited number of corridors it had launched by early 2015. Serving 37 countries outbound from the US seemed respectable at the time, particularly given that US residents account for around 20% of the world’s remittances. However, this coverage was incomparable to the extensive digital remittance network offered by incumbents like Western Union (SaveOnSend article for more details):

Western Union Online Send Markets - July 2015

Remittance startups like TransferWise and WorldRemit were also surpassing Xoom’s number of serviced corridors. Initially, Xoom’s operating solely out of the US might have been a logical strategy, given the substantial growth potential in the world’s largest outbound market. However, this approach did not align with the scaling expectations of investors for a high-flying fintech IPO. Xoom’s management appeared fatigued and not eager to accelerate growth, experiment, and learn new operating muscles.

White knight on a white horse

The news of PayPal’s acquisition of Xoom wasn’t entirely unexpected. Xoom’s leadership and board members were aware of their circumstances and had attempted to sell the company since mid-2014, reaching out to various potential buyers without success. Given the shared origins, investors, and board members between Xoom and PayPal, the merger was within the realm of anticipation.

However, the acquisition details were astonishing: PayPal ended up paying an 80% premium for a company experiencing a rapid performance decline. In the beginning, by early April 2015, Xoom’s stock had stabilized at around $14, but acquisition rumors were starting to propel its value higher. This trend continued even after the disclosure of Q1 2015 results, revealing a mere 6% year-over-year growth in transfer volume, significantly lower than the previous year’s 49%. Typically, stocks that surge due to acquisition rumors are purchased at their value on the acquisition day. However, PayPal unexpectedly paid an additional 20%+ premium on top of the already massively elevated stock price.

Xoom Stock Performance 3 months ending on Aug 3 2015

Moreover, PayPal didn’t try negotiating Xoom’s asking price, even though there was not a single alternative bidder. Finally, being forty times larger than Xoom, PayPal didn’t have any urgency in pursuing this acquisition. Instead of moving forward, they could have waited for another couple of quarters to see if Xoom could reverse the slowdown in growth. Just imagine where Xoom’s stock price might have been after the company announced a decline in transfer volumes in late July 2015.

What could have been the rational reason for the above? According to PayPal’s CEO:

“Acquiring Xoom allows PayPal to offer a broader range of services to our global customer base, increase customer engagement and enter an important and growing adjacent marketplace. Xoom’s presence in 37 countries – in particular, Mexico, India, the Philippines, China and Brazil – will help us accelerate our expansion in these important markets.”

Each point in that statement was misleading:

  • PayPal was already offering cross-border money transfers to consumers and didn’t need Xoom to start offering this service. PayPal had simply chosen not to compete aggressively in this space by maintaining a relatively high FX markup. This was exactly why Xoom planned to continue operating as a “separate service” after PayPal’s acquisition. Why wouldn’t PayPal offer the convenience of a single platform for all possible customer needs? Similar to its approach to separating Venmo, PayPal wanted to preserve high margins for its core business-related transfers.
  • It’s the same story with “increase customer engagement.” Xoom was losing market share, and even among its existing customers, the average transfer amount had dropped 17% compared to a year prior to the acquisition. How exactly could PayPal’s customer engagement benefit from this track record?
  • Finally, Xoom did not have a real presence in other countries in 2015. Fundamentally different from providers with local field offices, Xoom had contracts with local banks or retail chains to distribute funds and, in some countries, Xoom even worked via 3rd parties like Earthport to obtain such service. How would those contracts with Xoom “accelerate” PayPal’s own expansion in those markets, and in that case, why wouldn’t PayPal just sign its own agreements with intermediaries like Earthport? Wouldn’t that ensure much faster expansion and be much cheaper than spending almost one billion dollars on buying Xoom?

Xoom’s performance since PayPal’s acquisition

In 2016, Xoom’s revenue reached approximately $200 million, marking only a 10% increase compared to the previous year. By November 2017, Xoom attempted to put a positive spin on its performance, citing vanity metrics while withholding details about its revenues or transfer volumes. Behind this lackluster growth was an increasingly odd focus on outbound corridors from the United States.

During that period, Xoom expanded its coverage to 67 destinations, adding one destination in Q1 2017 and 11 more in Q2 and Q3. However, all were limited to outbound transfers from the US. Can you guess the impact of adding the 67th country out of the US, even assuming a massive 20% market share? Less than 0.5% in additional transfer volume.

USA outbound countries ranked 60s
Source: http://www.pewglobal.org/interactives/remittance-map/

Only in December 2018, more than a decade after formally focusing on remittances, Xoom finally launched its second outbound country, Canada. It wasn’t until July 2019 that Xoom announced the addition of 32 countries in Europe. In contrast, newer fintechs managed to add outbound countries in less than half the time.

The integration with PayPal wasn’t progressing rapidly either. It took 11 months after completing Xoom’s acquisition, with PayPal finally announcing integrated workflows in October 2016, supposedly offering Xoom as one of the transfer options to its customers:

In reality, PayPal customers would indeed observe more transfer options on the initial screen. However, for the actual transaction, they would still need to use a separate Xoom application:

paypal-usa-to-mexico-oct-19-2016

With Xoom’s stagnant business performance, PayPal ceased to share any useful data, dropping instead relative performance of vanity metrics such as Net New Actives (NNA):

As years went by, Xoom’s financial results remained stagnant, while the price and quality of its offering remained among the worst among digital competitors:

Money-transfer-app-comparison-Apr-18-2021

By mid-2023, with PayPal’s stock price having plummeted by 80% from its peak and a new CEO taking the helm, rumors started circulating about Xoom being put up for sale. While Wise and Remitly are valued around $5 billion, it remains to be seen if PayPal can recoup its original $1 billion investment.

In Conclusion

Thank you for reading. As with all of our analyses, this article will be regularly updated so please check back with us frequently or after big news. If you think we got anything wrong or if you know why PayPal really acquired Xoom in such an unusual way, please share your thoughts in the comments section below.

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