How migrant markets are paying off for U.K. fintechs

Register now

International migration has hit an all-time high in recent years, with 250 million migrant workers across the globe. According to the World Bank, these workers now collectively send more than $600 billion home to their families every year, which has created a booming new international payments market for remittance providers.

The growth of this sector, in parallel with advances in digital payments technology, has provided new opportunities for emerging fintechs such as U.K.-based online remittance providers Azimo, WorldRemit and TransferGo.

While high street companies like Western Union and MoneyGram have traditionally had a duopoly on migrant payments, their business has been increasingly pressured by rivals who seek to undercut their transfer fees, which can be as high as 29% between countries.

Azimo – which allows customers to transfer money in more than 80 different currencies to over 190 countries through its website or app – has been the major beneficiary, handling more than $1 billion of transactions last year, and seeing its customer base grow in excess of 1.5 million. One of the main keys to its success has been faster services for a fraction of the fee.

“If you look at the aggregated statistics, the average user of our platform will be sending 25 to 30 percent of their monthly salary home,” said Azimo CEO Michael Kent. “They use it fairly frequently, sending money more than 20 times a year, and they send about $450 each time, generally to one or two people … banks tend to charge significantly more than they need to on the foreign exchange.”

Kent says that while the average remittance fee lies somewhere between 7 and 10 percent, Azimo charge between 1.5 and 3 percent. “We try and be 70 to 90 percent cheaper than Western Union,” Kent said. “We can do this because we don’t have retail locations, and we’re replacing people with technology. For example, Western Union [has] to pay a cut to the newsagent offering the service, that's something in the value chain we don’t have to feed.”

Azimo’s platform works through integrations with a massive network of payments providers across the globe ranging from banks to card processing companies. Last month, it announced a partnership with African payments group Interswitch, enabling migrants based in the U.K. and 22 other European countries to make digital money transfers to Nigeria, Africa’s largest economy.

But the other key aspect of their business model, which particularly appeals to migrant communities sending money to the developing world, is the flexible range of payment options provided. Through Azimo, users can send money to a bank branch, a mobile wallet, a cash pick-up location or home delivery. “In the Philippines, we actually have a courier partner who will go round delivering envelopes full of cash,” Kent says. “This is really popular. Because of our customer base, we have to offer a whole bunch of ways of receiving that money.”

Having launched as a company in 2012, much of Azimo’s rapid growth has stemmed from the fact that despite the size of the migrant market, this audience has been largely ignored by the major banks and digital money transfer giants like PayPal and TransferWise.

“Banks are very focused on customers where they can cross-sell credit products,” Kent said. “Over 50 percent of the retail banking revenue pool in the U.K. is mortgages … but my customers tend not to borrow money or buy houses so they’ve largely been overlooked. And companies like PayPal are primarily focused on cross-border payments between the U.S., Europe and Australia, the traditional e-commerce markets. TransferWise’s biggest market by a long way is the U.S.”

However, Kent suspects it may not be long before other major money transfer businesses launch their own attempts to tap into this market.

“The world is becoming more open, people are moving around a lot more,” he said. “The major countries we transfer money to are the Philippines, India, China, South Africa, Nigeria, Brazil and Colombia. People are beginning to wake up to the surprise and opportunities presented by these emerging markets, compared to cross-border payments in many developed countries.”

For reprint and licensing requests for this article, click here.