Remittance stalwarts expand to meet the crypto threat

Blockchain and cryptocurrency innovations threaten to upend mainstream remittance providers, but there are still market gaps that may be best served by a large bank footprint.

PayPal has expanded Xoom to 32 markets in Europe, enabling people in these markets to send money to 130 international destinations. That comes as other incumbents such as Western Union and MoneyGram have diversified in a way that uses their physical network as an advantage.

Blockchain-based cross-border payments are also infiltrating the market. Ripple contends it can convert traditional currency to its XRP token on the front and back end of remittance to perform cross-border payments in seconds for low fees. Ripple is also starting to woo banks to XRP. But other banks, such as Santander, are using Ripple's distributed ledger to streamline cross-border payments — without XRP.

There are lingering challenges to the crypto cross-border model, according to Julian King, vice president and general manager of Xoom at PayPal.

“With blockchain, there is a cost to bring fiat currency to crypto and another to bring crypto to fiat on the receiving end,” King said.

Xoom is making its move as immigration expands and the addressable market for remittance gets larger. The U.K., for example, received 626,000 immigrants in 2017, a 10% increase over the prior year, while Germany, Spain and France also has six-figure immigration totals in 2017, as total European immigration for the year passed 4.4 million.

“These markets have been historically underserved by the High Street transfer companies,” King said. “And some of the digital companies may not move funds as fast.”

Like Venmo, Xoom is a large part of PayPal’s diversification strategy. PayPal acquired Xoom in 2013, bringing Xoom’s alternative funding model and ability to attract remittance users via digital rails that cut out intermediaries.

In the past several years, Xoom has expanded its markets beyond traditional U.S./Latin America corridors to support transfers to and from other regions, adding India, China, Japan and Bangladesh, among other markets.

Xoom has built bank partnerships in these markets to allow settlement for near real-time payments, know-your-customer compliance and onboarding through links to the banks’ core processing systems. This enables transfers of up to about $11,000. Xoom's transfer fees vary by country, but are generally similar to TransferWise or MoneyGram.

In an email, Ripple's external public relations agency mentioned MoneyGram, Amex and Santander as general clients for its blockchain technology, adding xRapid (the product that incorporates XRP) has been deployed at MoneyGram, JNFX, SendFriend, Transpaygo, FTCS and Euro Exim Bank. Ripple does not break out stats for number of clients that use specific products.

“A significant amount of tech and process needs to be wrapped around any crypto platform,” said Tim Sloane, vice president of payments innovation at Mercator. “Getting value moved from point A to B at low cost isn’t that hard. Doing it while tracking the ID of participants, addressing [regulatory mandates] and establishing exchanges that will convert crypto to cash on receiving and sending sides is the hard part. Hard translates to cost.”

The overall market is for remittance is getting larger. The global remittance market reached $689 billion in 2018, up from $633 billion in 2017, according to the World Bank. And in 2019, remittance flows to low- and middle-income countries are expected to reach $550 billion, becoming their largest source of external financing.

In addition to Ripple and Xoom, investment is flowing to other firms, as Visa and Mastercard make acquisitions and WorldRemit and Remitly attract new venture capital.

Traditional players Western Union and MoneyGram have added ways to directly connect to mobile wallets, with Western Union collaborating with TerraPay and MoneyGram launching a digital app. MoneyGram has also received an investment from Ripple to add to its development bench.