Wed, May 25, 2016 page15

• Fintech firms eye US immigrants

  • Reuters, MEXICO CITY
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  For two decades, Noe Sanchez sent money from California to his father in Mexico City through storefront outlets of traditional remittance firms such as Western Union.

  Now he grabs his smartphone and uses Remitly, one of several new competing mobile apps promoting cheap and quick international transfers. Sanchez quickly got over his initial unease of sending money through an unfamiliar company.

  “If it goes badly, I’ll cancel it and try another,” said Sanchez, a 44-year-old Mexican technical support professional in Oakland.

  Founded in 2011 and backed by Amazon.com Inc chief executive officer Jeff Bezos’s venture capital arm, Remitly is among a vanguard of financial technology — known as fintech — companies targeting what they view as an underserved immigrant market — traditionally disregarded as high-risk and low-margin.

  The upstart firms — along with expanding digital and mobile options from Western Union Co and MoneyGram International Inc — are helping immigrants deepen their roots in the US at a time when incendiary anti-immigration rhetoric dominates national politics.

  Many emerging companies in the fast-growing fintech sector view financial services for immigrants as an untapped source of revenue. They include remittance apps, such as Remitly, TransferWise and Xoom — an early player bought last year by PayPal Holdings Inc for US$890 million — along with companies such as Lendup and Oportun, which lend to high-risk borrowers.

  According to the World Bank, remittances to Mexico totaled nearly US$25 billion last year, their highest level since 2008. Globally, nearly US$600 billion is transferred each year.

  The World Bank reported that 700 million people opened bank accounts globally between 2011 and 2014 — making them more likely to use financial technology — and about 2 billion more people remained unbanked, representing huge growth potential.

  Immigrant communities increasingly access financial services through smartphones. Thirteen percent of Latinos in the US are dependent on smartphones as their only source of Internet access, compared to just 4 percent of white people, according to a Pew study last year.

  Those trends play into the strategy of remittance apps such as Remitly and Xoom. Many other financial tech firms are private and not required to share financial results, but some claim fast growth in customers or revenue when releasing selective data.

  Remitly said it transferred five times the amount of money in the first quarter of this year as it did in the same period last year. The company said it recently surpassed US$1 billion in annual transfers.

  Western Union — a public company worth US$9.36 billion — acknowledged new threats in its annual report last year.

  In a statement to reporters, the company said the transfer industry is teeming with new players and that competition had contributed to falling prices. Western Union’s digital money transfer sales last year reached about US$300 million, and the company expects online and mobile transfers to be a “major driver of overall remittance market growth,” it said.

  Arjan Schutte, the CEO of fintech investor Core Innovation Capital, said he had seen more than 100 different business plans for companies wanting to disrupt Western Union or Moneygram, but that is “not nearly enough relative to the market opportunity.”

  Smaller financial technology companies can be flexible in crafting creative solutions to serve customers on the margins, said Lisa McFarland, an executive vice president at Ingo Money, which charges between 1 and 4 percent to deposit paychecks through a mobile app.
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