The growth in remittance providers' digital customer sign-ups accelerated as the U.S. went into a nationwide lockdown in the middle of March, and has continued through the summer despite store reopenings that could pull customers back to their old habits of paying in person.
The fintech startup Remitly has been able to grow quickly over the last few years, fueled by over
Clearly, COVID-19 pandemic has accelerated a shift to digital remittances market-wide.
“The pandemic has dislodged the payment habits of remittance customers,” said Matt Oppenheimer, co-founder and CEO of Remitly. “People forget that 70% of remittances originate in physical locations. In our customer segment, trust is paramount. Unless the customer trusts the [remittance] service you can’t even talk about faster speed or better price. Getting over that trust hurdle is huge and it takes time. However, as many agents have closed locations or reduced store capacities and handling cash is now perceived as being unsafe and inconvenient, it’s a different situation.”
It should be noted that Western Union and MoneyGram have the largest physical store agent footprints and the most to lose in a ‘physical-to-digital’ conversion. Additionally, agents vary in type and size ranging from small check cashers and liquor stores to larger convenience stores and bakeries. This means many agents have been forced to close or reduce store capacities during the pandemic, but also that many remittance locations have remained open if they are situated within essential businesses such as grocery stores.
And a loss of in-person remittances isn't necessarily a gain for Remitly and other fintechs. Western Union and MoneyGram both have digital offerings — and certain customer bases, such as cruise ship workers, have been unable to send money digitally or in person because they've simply stopped earning it.
But even with these issues taken into account, the shift to digital remittances has clearly accelerated. In the case of Remilty, the number of new customer sign-ups it added in May was triple the same number seen a year earlier.
“COVID-19 has compressed five years of remittance cash declines into five months for Western Union and MoneyGram as consumers go digital,” said Richard Crone, principal at Crone Consulting LLC. “What you are seeing is that Remitly is drafting behind the rising tide of electronic payments. If there’s a question that this shift could be temporary, it’s important to remember that it only takes 66 days to change any habitual behavior and I think we’ve reached that point.”
Western Union reported in its first-quarter
Similarly,
“If you look at remittance, March is where you saw the abrupt shift,” added Oppenheimer. “It’s also where the trust with an existing provider was shaken and the virus has forced remittances to go digital much faster.”
The shift to digital was not unexpected, even before the pandemic began.
Reports emerged in June that Western Union is trying to buy
Remitly is focused on growth by targeting the 250 million immigrants that work around the globe sending money back home to their friends and family. The company reported that it serves 3 million customers around the globe in nearly 20 send and over 50 receive markets.
One recent example of product development targeting this consumer segment was its launch in May of a cash deposit service for its digital bank account holders,
“The wind is roaring at the backs of companies such as Remitly, which is why we invested in them very early on,” said Nigel Morris, managing partner and co-founder of QED Investors. “As an investor we look for people who can transform what is being done in analog fashion, such as remittances at Western Union, and can do it digitally.”
QED Investors first participated in Remitly’s Series A round, which closed in January 2014, and then again in its Series B round, according to
