In the middle of a pandemic, two remittance startups thrive

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The business of global remittances, in which immigrants and expatriates send money to family and friends back home, has been slammed by the coronavirus pandemic. But at least two remittance providers — Remitly and TransferWise — say the disruption has brought new customers to their door.

The World Bank has predicted the sharpest decline of remittances in recent history, 19.7% in 2020, because of the economic hit taken by migrant workers, who tend to be more vulnerable to losses of jobs or wages during an economic crisis.

“Some of our customers who work in the service sectors or hospitality have been inordinately hit by the COVID crisis,” said John Scrofano, vice president of Passbook, the bank account Remitly offers with Sunrise Banks in St. Paul, Minn.

Yet Remitly says its remittance volumes are growing and its banking services expanding, while rival TransferWise says it's at least holding its own. A closer look at how the pandemic has affected these companies and the steps they’ve taken to adapt provides a window into how remittances are evolving in this country, and how these kinds of companies are becoming stronger competitors to banks or the source of technology solutions banks can use to be more competitive.

Surprise surge in remittances

Most of Remitly’s customers in the U.S. send money to friends and relatives in developing nations. Fees range from $0 to $3.99 to send money to China, Colombia, India or the Philippines, for example, depending on the amount transferred, the origin and the destination.

Despite the overall drop in remittances, Remitly said remittance volume rose 40% from February to March. In May, new customer growth tripled year over year, the company said.

“This growth truly speaks to the essential nature of remittances and the accelerated shift to digital,” said Scrofano. “The resilience of our customers and their steadfast commitment to their loved ones continues to inspire us, and is the motivation behind everything we do.”

John Scrofano, vice-president of Remitly's Passbook
Remitly's new Cash Deposit feature allows users to add cash to their accounts at grocery and other stores in the Green Dot network, which tend to be essential businesses and have stayed open during the pandemic, said John Scrofano, vice-president of Remitly's Passbook account.

Immigrant customers are turning away from traditional providers that require them to go to a physical location, according to Remitly co-founder Matt Oppenheimer.

“It's really important that our customers feel safe and secure when they spend money and they don't feel safe when they go to a physical cash location right now, which is how most remittances are sent,” Oppenheimer said. “And so people are increasingly looking to digital providers like Remitly as a safe and secure way to get money back home.”

TransferWise’s customers in the U.S. are typically Americans looking to send money to friends and family abroad, or immigrants who are actively moving money back and forth between the U.S. and their home countries.

“While we can't go into specifics, what we can say is that our volume flows actually look pretty similar to what they would normally,” said Nicholas Lembo, head of growth, Americas, at TransferWise. “Remittances will always be needed, so we’re just focusing on how we can make the best possible way to send money abroad, rather than focusing on how we can adapt to lower remittance volumes. We’ve already launched a new peer-to-peer payments feature that allows people to send money using phone contacts, and we’re continuing to engage in ways to help enable cheaper and faster remittance transfers for customers around the world.”

Building out bank accounts

Both companies are also developing banking or banklike products to round out the services they offer immigrants and expats.

Remitly, which launched a bank account called Passbook earlier this year, partnered with the prepaid card provider and bank Green Dot in May to launch Cash Deposit, a feature that lets customers add cash to their Passbook account through stores in the Green Dot network, including CVS, Kroger, Walgreens and Walmart.

This agreement lets Remitly give customers a bank-branch-like option that most banks themselves haven’t been able to offer throughout the quarantine: Many of the locations in the Green Dot network are consistently open because they are considered essential businesses.

“Many of our core remittance customers rely heavily on cash as their predominant form of legal tender,” said Scrofano.

Passbook uses documents such as a passport, residence permit or visa to verify a customer’s identity if they do not have a Social Security number. The funds are federally insured and held at Sunrise Banks. Remitly declined to say how many users have signed up for Passbook.

“When we talked to our customers about what challenges they have getting into the financial system, banking came up over and over,” said Scrofano. “Traditional banks are not built to serve immigrants.”

That may be because they live paycheck to paycheck and can’t keep the minimum balance required to hold a bank account or avoid monthly maintenance fees. They may not have a Social Security number, or may wish to avoid traditional banks for privacy concerns.

For now, the features are fairly simple: a no-fee bank account with a contactless debit card (printed with a flag of the customer’s choice) and a flat $2 cash-back reward for international transfers through Remitly.

TransferWise’s “borderless” account — which it refers to as an electronic money account rather than a bank account — is more flexible for those dealing with multiple currencies but less cash-friendly.

Last year, the company brought its account and debit card to the U.S. It lets customers add, hold and convert money in more than 50 currencies and get paid as a local by generating bank account details as if the user lived in the U.S., United Kingdom, eurozone, Australia, New Zealand, Singapore or Poland. Funds are kept with several partner banks in the U.S. but are not backed by the Federal Deposit Insurance Corp.

“There’s been an evolution of this product to still have a really fast, convenient money transfer product but also build out features to help people manage their money efficiently and effectively across borders,” Lembo said.

TransferWise doesn’t allow for cash deposits, but the number of requests that TransferWise gets from customers for cash deposits is relatively small, said Lembo. Direct debits are in the works for U.S. customers.

Financial institutions around the world — including Novo and Stanford Federal Credit Union in the U.S. — are also integrating with TransferWise application programming interfaces to facilitate cross-border payments.

For now, these banking services are still fairly basic. They supplement, rather than replace, the capabilities of a traditional bank.

But, “by offering a bank account, Remitly is able to attract underbanked consumers to its platform and potentially expand its market share,” said Talie Baker, senior analyst at Aite Group. “I think this provides a valuable service to underbanked individuals that may be hesitant to open an account with a traditional bank.”

As for TransferWise’s digital account, it enables customers to move money across borders with less friction than what traditional financial institutions offer, said Baker. “I think this is the way of the future for digital wallets as the world continues to globalize.”

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