The old music hall song went: “It’s the same the whole world over, it’s the poor what gets the blame…”
Most of the time they get the bill too.
According to the World Bank, migrants sending money home to Africa pay 12 per cent in fees. And when they moving money between African countries the fee can go as high as 22 per cent.
That’s loads higher than in mature markets.
Why? It all comes down to the cash economy, which is expensive to maintain (branch networks, security) and brings with it the risk of fraud and embezzlement.
Isn’t there a better way?
After all, the World Bank also says the African Diaspora sends home around $60 billion every year.
In fact, the overall remittance market may be worth $600bn.That’s a juicy space to disrupt.
WorldRemit’s founder knows about both being a migrant and the practice of international money transfer.
Ismail Ahmed moved to London from Somaliland, studied for a PhD from the University of London and an MBA from London Business before joining the UN as a compliance advisor.
From his unique vantage point of being both an African immigrant and an expert in the global remittance market, it occurred to him that there may be an alternative to Western Union.
In the old-school model, those wishing to send money home queue up to deposit cash at a high street office, which then transfers it to a sister office in another country.
The recipient then queues up to take the money out (also in cash) minus a bit of interest.
It’s not a very efficient system in a world that’s de-materialising money fast.
All that queueing. Those fees.
Of course, it’s all very well talking about digital remittance market services when you have a PC and a broadband connection. The truth is, vast numbers of people don’t.
Especially in the countries to which immigrant workers are sending money.
Ahmed’s ephiphany, back in 2010, was that they didn’t need PCs. They had mobiles.
And not only did these mobile handsets provide online access, they also stored money.
The rise of services like M-Pesa, Ecocash and Tigo gave African consumers the ability to send and receive money to each other instantly. They can turn cash into mobile money at a licenced agent, and then send it like a text message to anyone else using the service.
WorldRemit set out to help their relatives in other countries do the same.
Today, the company lets users in 50 countries forward money to recipients in 120 countries. They send from a bank account through the app, but the recipient can redeem the sum by bank transfer, cash pick up, phone airtime top-up or mobile money.
According to Alix Murphy, WorldRemit’s senior mobile analyst, the latter is by far the most dynamic.
She says: “It’s growing very fast. We do 250,000 transactions a month and about a quarter of are now via mobile money – and a half of all sent to Africa. It’s a major differentiator for us.”
Murphy knows a bit about the remittance market having previously worked at the m-money unit for the telco trade body GSMA.
And she says it’s not all about Kenya’s showcase M-Pesa program either. “There are 21 services that have over a million active users, and five with over five million,’ she says.
Although some estimates suggest WorldRemit’s fees are around half those of established remittance market companies (four per cent vs eight per cent), Murphy insists cost is not the big selling point.
She says: “For us, it’s all about speed and convenience. We’re finding that people in Africa and elsewhere can text their friends and family in, for example, London and request money.
“They can get that money in seconds. This is such a drastic improvement on the existing remittance market systems. It’s hard to quantify just how transformative it is.”
If that’s the case, one wonders why Western Union and MoneyGram don’t do more of it.
“Their whole model is based on an agent network, and they don’t want to cannibalise it,” says Murphy. “Their CEO even said very recently that most of their business is cash based and it will remain that way. It’s not how we see it.”
To be fair, recent Western Union financials showed revenues from its digital unit, westernunion.com, were about four per cent of the company total, but had grown at 45 per cent and 31 per cent in the last two quarters.
Still, it’s plain that the remittance market is under siege from digital disruptors. Along with WorldRemit, there’s Xoom, TransferWise and Aximo.
And there’s no doubt the VCs are watching carefully.
In February, WorldRemit announced an eye-catching $100m in Series B funding, led by Technology Crossover Ventures. It followed the $40m Series A from March 2014 led by Accel Partners.