The digital revolution has yet to sweep up the money remittance business as it has other retail payments services, but change is coming fast.

As an example, witness the recent $40 million investment in online money transfer business WorldRemit this month. The beneficiary of one of the largest Series A venture capital funding rounds done in Europe, the London-based online payments company enables migrants and expatriates to send money to any one of 100 countries via the Internet or mobile devices only. Last year, WorldRemit conducted just over 1.3 million transactions.

Rival Azimo, also headquartered in London, received a $10 million investment earlier this month.

While the market for online remittance represents less than 5% of the overall money transfer business, nowadays dominated by companies like Western Union and MoneyGram, WorldRemit's founder and CEO Ismail Ahmed predicts online and mobile transactions will account for 30% or more of the transfer business within a few years.

Currently, WorldRemit's biggest markets are Canada, Australia, and Europe. The cash infusion will allow the company to double the number of countries where users can send money, with a keen eye to expand in the United States, according to Ahmed. "Our aim is to become the go-to player in this space," he says.

There is a clear opportunity in the growing ubiquity of mobile phones and broadband Internet, coupled with the potential to improve processes for under-served markets, says Michael Kent, CEO and founder of Azimo.

"Traditional money transfer agents are going the way of the old travel agent," Kent says. "It's an inefficient process."

Companies like WorldRemit and Azimo represent a new breed of remittance providers, says Aleia Van Dyke, payments analyst for Javelin Strategy & Research, a unit of Greenwich Associates. As purely digital players, both companies capitalize on the growing global presence of online and mobile channels, and use these cost-effective electronic avenues to move money quickly and cheaply, she says. Remittance users are already better equipped for this digital shift than the average consumer. According to Javelin's research, 58% of all remittance users own a smartphone compared to 47% all consumers; 43% have an unlimited data plan versus 33% all consumers; and 39% have a tablet compared to 34% all consumers.

"Banks are looking to mitigate risk and decrease costs, and so for many FIs remittance isn't a lucrative service.  We're also seeing lots of investment in digital remittance channels, which is new since remittance transfers have historically been a predominantly cash-based enterprise," says Van Dyke. "Smaller, digital-only providers are having some success though because they can offer their services at a lower cost."

Right now, the U.S. still represents the largest market for out-going money transfer. The United States had official remittance volume of $51.6 billion in 2011, according to WorldBank estimates, Van Dyke points out. Javelin's data shows that 21% of consumers without a checking account have made a remittance transfer in the past year, compared to 11% of all consumers. Remittance providers collected $1.55 billion from outbound U.S. remittance transfers in 2012, with the average fee equating to approximately 3% of the total amount transferred, Javelin says.

But Kent, in particular, sees a sweet spot in the markets outside the United States, which he says have not been as well-served by traditional money transfer businesses. Azimo is currently focused on Europe and plans to use its cash infusion, in part, to expand its presence in Eastern Europe as well as open up new markets in Asia and interior Africa. The key, he says, is not only making it easier for users, but less costly; while rates vary from country-to-country, he says Azimo averages about a 2% fee on remittances.

Likewise, WorldRemit's digital focus allows it to charge lower fees that might appeal to people who want to make smaller, more frequent transfers, Ahmed says.

"In terms of the shift to online, what's helping that is the fact that we're seeing recipients wanting to do much smaller transactions, maybe 10 euro, which simply was not possible with the traditional money transfer," says Ahmed.

Using the WorldRemit platform, customers can send funds using a debit or credit card or via bank transfer; recipients may receive funds via bank deposit, direct transfer to mobile wallets, cash pickup or delivery, as well as airtime top-up for their mobile phones.

WorldRemit also has lower compliance risk, Ahmed says. Rather than having remittance recipients pick up cash at the corner store with no audit trail to follow, he says his service can trace the source and destination of funds.

Javelin's Van Dyke says there is a lot of regulatory upheaval within the remittance market due to banking reform and anti-money laundering laws, which are pushing providers such as banks out of the market.

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