This year, migrants around the world will send a record $610 billion across borders, according to World Bank projections. And although that would be a 25% surge from 2010, some things haven't evolved: namely, the high fees associated with the service and the long waits for the money to go through.
A handful of startups in the burgeoning fintech space are trying to change that. Some of these companies, including TransferWise, Zenbanx, Ripple, WorldRemit and Currency Cloud, are gaining customers and payment volumes. But hurdles remain, including a lack of interoperability among countries' payment systems and the hodgepodge of correspondent banks that funnel money between countries.
In 2015, 244 million people, or 3.3% of the world's population, lived outside their country of origin, according to the United Nations. According to the World Bank's latest numbers, migrants to the U.S. sent $56 billion to their home countries in 2014.
The average cross-border payment is around $200, according to the World Bank, and the average cost per transaction is 5% to 10%. (Sending money from the U.S. cost an average 6.3% at the end of last year.) A cross-border payment sent from a bank or money transfer operator today takes two to five days.
"Anything that can reduce friction, cost and time is something that as a financial institution is a worthwhile contributor to moving society along," said Arkadi Kuhlmann, founder and CEO of Zenbanx.
His company and TransferWise, among others, are addressing the market with mobile apps. International remittances sent via mobile technology accounted for less than 2% of remittance flows in 2013, according to the World Bank's latest data.
A study released last month by Juniper Research shows demand for mobile remittances. Among nearly 3,000 users of international money transfer service users from migrant communities in the U.S., U.K., and Germany, 82% of those who sent money across borders using money transfer operators and banks said they are dissatisfied with their current options; 83% said they are willing to use mobile payments for these transactions, provided they are offered a service that is more secure, more convenient, faster, and competitively priced.
Kuhlmann's Zenbanx account and mobile app, which officially launched in the U.S. in December 2015, lets people store money in multiple currencies in an FDIC-insured account (held by Delaware bank partner WSFS) and send mobile payments in those currencies to users in other countries for a set fee of $4.95, regardless of the size of the payment. A few thousand U.S. users have signed up so far. (In Canada, where Zenbanx launched first, more than 20,000 customers have joined.)
"The differentiators with Zenbanx are the ease with which a person can send money internationally from their mobile device versus a brick-and-mortar location and the flat fee for sending," said Kuhlmann, who previously pioneered direct banking as the founder of ING Direct.
Money sent internationally with Zenbanx is available in the recipient's bank within two days. The person sending the money is notified when the recipient receives it.
"It takes the guess work out as both parties get notifications," Kuhlmann said. The sender is also notified if the recipient doesn't pick up the money she's been sent, so the sender can check in with the recipient to make certain everything is OK.
Zenbanx users can send messages and photos along with their payments. While this feature brings to mind Venmo, the payment app and social network popular among U.S. millennials, Kuhlmann said his customer base is mainly immigrant communities.
"When they travel, they don't travel for pleasure, they travel because they're seeing family, they're working, they're importing and exporting, the children are going to school," Kuhlmann said. "So they're very industrious, they work very hard for their money, and they support family members and investments back in their native countries. There are 35 million first and second generation Chinese Americans. This is not for the American Express gold card member."
Another provider of a cross-border mobile payment app, London-based TransferWise, says its users move $750 million a month over its service. It launched in the U.S. market in February 2015 and hit $1 billion in U.S. dollar transfers within eight months.
"I've often heard people describe us as international Venmo and I use that description myself sometimes," said Joe Cross, U.S. general manager at TransferWise.
The company started when its founders, Taavet Hinrikus (Skype's first employee) and Kristo Käärmann (a former management consultant with PriceWaterhouseCoopers), realized how much it cost to transfer money between the U.K. and Estonia. Hinrikus was based in London but was paid in euros; Käärmann worked in London but paid a mortgage in Estonia in euros. They figured out a way to exchange money between themselves, without the markup rate and fees charged by banks. They saved thousands of pounds and realized there might be a market for such a product.
"The founding principle of our company is fairness — otherwise you'd be screwing over your friend and no one wants to do that," Cross said.