Yahoo Finance 
Xoom has removed remittance friction
(BI Intelligence)
This story was delivered to BI Intelligence "Payments Briefing" subscribers. To learn more and subscribe, please click here.
PayPal-owned remittance platform Xoom announced two key updates to its platform on Thursday.
These updates could help draw more customers to the firm and away from legacy players at a time when the remittance space is experiencing considerable disruption and digital-based players are gaining traction because of their ability to offer lower fees and smoother transfers.
Xoom and PayPal will be tightly integrated. Xoom and PayPal have been running as two separate platforms. But now when a PayPal user wants to send funds cross-border, they’ll be redirected to the Xoom website or app, where they can log in with their PayPal credentials and send money using funding options already affiliated with the account. That reduces friction and makes it easier for PayPal’s 79 million US users to turn to Xoom, which could grow Xoom’s active audience. But it also makes remittance sending more closely resemble mobile peer-to-peer (P2P) transfer, which could bring in new customers looking for that functionality.
And Xoom will add a request feature. Previously, the sender of a remittance transaction would bear the burden of entering all the recipient’s information ahead of sending the transaction. Now, recipients can enter their financial and pickup data and “request” the sending of funds. This platform will allow users to request money transfer, but also airtime top-up and bill pay — two growing segments of the remittance market. That could help decreased failed transactions, and might also encourage users that didn’t want to ask for money to complete a send transaction.
The updates could help Xoom grow its volume and build its network. The new updates help Xoom more closely resemble mobile peer-to-peer (P2P) platforms like PayPal’s other offerings, which are growing quickly in the US. Xoom could benefit by attracting customers that are looking to make cross-border P2P transfers, which could help it attract a new group of clients. But the update also positions the platform to capitalize on PayPal’s vast network of users and financial institutions, which could help it scale extremely quickly and ultimately make it a key player and strong competitor against legacy firms in the space.
Every year, migrants send hundreds of billions of dollars worth of remittances back to friends and family in their home country. And there's a massive industry that facilitates these payments — and has for more than a century.
The legacy remittance industry has been long dominated by cash, which requires physical locations where customers can hand over or pick up money. Building out those retail networks is a huge investment. It's left just a few players, called Money Transfer Operators (MTOs), controlling a bulk of the industry.
But these companies' comfortable hold on the industry is now being challenged by digital remittance startups. Digital-first remittance companies are competing on fees and usability, and capitalizing on the way people's expectations have changed with the advent of digital and mobile channels.
Evan Bakker, senior research analyst for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on digital remittance that sizes the total remittance market, company-specific market share, digital's market share, and digital's growth at major remittance firms. It also assesses how disruptive digital startups have been by comparing their fees with market leaders, and by juxtaposing their business models with those of legacy companies.
Here are some of the key takeaways:
Digital's share of the global remittance industry is still fairly small at 6% — but growth is extremely fast at digital-first startups and legacy companies.
Fourteen year-old Xoom makes more revenue from electronic channels than 75 year-old MoneyGram, the second-largest remittance company in the world.
Startups are undercutting incumbents' fees in certain corridors; however, legacy firms have matched prices in many major corridors.
Legacy firms' businesses are already responding to the threats posed by digital by lowering fees and adjusting business strategies. However, they face lower margins if they continue to compete with startups on pricing.
In full, the report:
Sizes the remittance market and calculates major remittance companies' market share.
Estimates digital's share of the market vs. cash.
Quantifies digital's impact at remittance startups and legacy firms.
Breaks down the business models employed by each type of remittance company, and determines which ones are in a better position for growth.
Compares transfer fees in various corridors to assess the competitiveness of each firm.
Explores other platforms that could completely upend the industry from the outside.
Determines how legacy remittance companies will fare in the digital age – the answer may surprise you.
To get your copy of this invaluable guide, choose one of these options:
Subscribe to an ALL-ACCESS Membership with BI Intelligence and gain immediate access to this report AND over 100 other expertly researched deep-dive reports, subscriptions to all of our daily newsletters, and much more. >> START A MEMBERSHIP
Purchase the report and download it immediately from our research store. >> BUY THE REPORT
The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of digital remittance.
More From Business Insider
