At around $750 billion pa, the global remittance or “deliverable” industry is a small but vital subset of the global foreign exchange industry. It is also an important element of global capital flows and for some labour exporting/developing countries, a critical driver of local GDP, > 10% for eg in the Philippines.
Once the almost exclusive preserve of commercial banks, the sector has been plundered by the advent of a cohort of nimble, tech savvy, specialist providers. Each have their own take on USP, but all, to varying degrees, are riding a wave of mobile adoption, positioning offerings around transparent low fees, faster, just-in-time services, and a superior user experience via always-available digital interfaces.
With the holy grail of real time payments (instantaneous receipt) promised by introduction of digital assets such as blockchain/distributed ledger technologies as well as the EU’s Revised Payments Services Directive (PSD2), which require open standards based API’s, the sector is ripe for further transformation and inexorably, horizontal diversification.
Given sensitivities around AML/CTF, the global regulatory community has become much less accommodating of the sector. Increasingly burdensome compliance and KYC regimes have usefully weeded out dodgy players but also increased (transaction, client acquisition) cost and operational complexity for reputable participants.
Calling a spade a spade and albeit to varying degrees, banks don’t like this sector. Putting the compliance and regulatory risk aside, providers here compete directly with the commercial banks, undermining a particularly lucrative, low risk revenue source. In Australia today the dominant gorilla is no longer one of our “Big 4”, rather (by volume and transaction count) is a non-bank provider. Many banks around the world have exited the sector entirely, de-banking any and all such clients along the way. So much for a level playing field.
To the extent however that the business/revenue model at the heart of the sector is essentially “utility” in nature, the industry remains an attractive investee destination for the global private equity community as well as an appealing acquisition target in an industry consolidation/trade sale scenario.