The $600 billion global remittance industry is getting disrupted by small technology companies. App companies are not only poaching their share of business from long-established remittance bigwigs, but they're also finding a new customer base by offering small transactions. Here’s how the mobile world is reshaping the remittance market.

The Remittance Market

According to a tWorld Bank report, global remittances were approximately $581.6 billion in the year 2015. However, despite the high volume, there are still around “2 billion adults (who) remain without an account,” this illustrates that there remains a significant market to be capitalized upon, and the smaller mobile app companies are finding new client base around this opportunity. (For more, see: Three Things to Know About the Remittance Economy.)

The Mobile Money Edge

The Global Findex report by the World Bank shows how mobile technology promotes financial inclusion: “While just 1% of adults globally say they use a mobile money account and nothing else, in Sub-Saharan Africa, 12% of adults (64 million adults) have mobile money accounts (compared to just 2% worldwide); 45% of them have only a mobile money account.” Such a high usage of mobile-only accounts in the developing African regions indicate the deep penetration and future growth potential available for mobile money transfers globally. 

The traditional remittance street shop model requires physical visits, long wait times, and high transactional costs often making them unfit for small value transactions. Compared to that, mobile app based transactions offer instant low costs transfers suitable for the masses, including the lower value transactions. Established money transfer businesses have not been able to design and offer suitable solutions to the lower-income customers, and have largely ignored this class.  Thus, smaller, private technology companies have the edge in providing mobile-based solutions, which better cater to the needs of the larger migrant population, irrespective of the value of the remittances. (For more, see: Mobile Money: Using Your Cell Phone To Transfer Funds)

For instance, Remitly, backed by Amazon investments, finds its increasing user base in low-income groups, which were traditionally considered a low margin and high-risk segment. It recently surpassed $1 billion in annual transfers, indicating a 400% year-over-year (YOY) growth. Other players in the market include TransferWise and Xoom, which offer similar mobile apps for quick and economical international money transfers. For instance, TransferWise charges only 1.2 % and takes only 0.5 seconds to move funds with its mobile app.

The Bottom Line

With the threat looming large on the traditional money remittance players like Western Union (WU), Western Union has acknowledged the “increased competition from, and increased market acceptance of, electronic, mobile, and Internet-based money transfer services”. For now, healthy growth is expected for mobile tech firms, unless traditional players bring in something more innovative at a lower cost. (For more, see: Find The Top Money Transfer Services.)