A battle is brewing over big-dollar remittances

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In the combative U.S.-to-India remittance corridor, Seattle-based Remitly just raised its game by increasing its daily transfer limits to $30,000 and hiring a Bollywood actor, R. Madhavan, as its brand ambassador.

Remitly’s moves are clearly in response to the growing competitive pressure being placed in a key U.S. outbound corridor. On June 4th Xoom (a unit of PayPal) increased its daily transfer limit to $25,000 to 50 countries including India, Canada, the U.K. and the Philippines.

Additional pressure comes from digital cross-border specialists that have made significant inroads to the U.S. market. These include WorldRemit, which received its New York money transmitter license just this March, and TransferWise, which cut its fees last November in response to the heating up of global competition. Both companies are based in London.

“The market is competitive and providers compete on not just price but brand trust, ease of use, transfer amounts and transaction speed” noted Sarah Grotta, director, debit and alternative products of Mercator Advisory Group.

The U.S.-to-India remittance corridor represents an almost $11 billion annual payment flow according to the Pew Research Group. This makes it the third largest U.S. outbound remittance corridor after Mexico and China.

The U.S. to India corridor has been very successful for Remitly, which likely wants to defend it market share.

“We launched our service in India in February 2015 in order to help India's hard-working overseas community have a secure, fast, and affordable way to send money back home," said Josh Hug, co-founder and COO of Remitly. "As a part of that mission, we've launched an industry-first same day $30k send limit to ensure our customers are able to send more when they need to."

It should be noted that for consumers to access these higher daily transaction limits, remittance companies are required by law to collect critical KYC information such as Social Security numbers, addresses and copies of government issued IDs. These enable companies to identify consumers, cross-check against appropriate Treasury SDN and OFAC lists as well as provide the necessary government reporting.

There are two major trends that are shaping the remittance industry, prompting companies such as Xoom, Remitly, and even Ant Financial — which tried to purchase MoneyGram last year — to build or consolidate their market share positions.

First, the payment volume of remittances is on the rise as the global economies continue to thrive. According to the World Bank, the volume of global remittances is expected to reach $642 billion in 2018, up from $613 billion in 2017 which is almost 5% growth. The single largest recipient country in 2017 was India which took in $69 billion, followed by China ($64 billion), the Philippines ($33 billion) and then Mexico ($31 billion).

The second major factor is that the market remittances being sent from the U.S. are going through a digital transformation and very likely globally as well. Using mobile phones to send money cross-border provides consumers with not only greater convenience to send remittances, but also allows recipients greater ease to choose how they want the funds to be disbursed.

"The remittance market is moving digital," Grotta said. "The availability to the internet through a variety of devices, particularly mobile has increased the competitive nature of international remittances."

Now there are several major digital-only competitors including Remitly, Xoom, TransferWise, Azimo, WorldRemit and WorldFirst that leverage not only mobile apps, but also social media. Also, the major money transmitters such as Western Union and MoneyGram have their own mobile apps to complement their agent networks.

Funding for the digital-only remittance startups has been flowing freely in recent years, attracting high level VC investors.

Xoom raised $104.3 million in seven rounds of funding before being acquired by PayPal for $890 million. Remitly has raised $200 million in capital raised in eight funding rounds according to Crunchbase, a website that tracks capital raised by fintech startups. In its most recent round, Remitly raised $115 million in October 2017 to accelerate its global expansion. Investors include Bezos Expeditions (Jeff Bezos’ personal venture capital investments), Silicon Valley Bank, DN Capital and PayU (a division of Naspers).

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Cross border payments U.S. India U.K.