Finance
How the Money Transfer Industry has Changed Since 2019
By Crispus Nyaga, MoneyTransfers.com
The world is substantially different in 2021 than how it was in 2019. We are all wearing masks, traveling less, using Zoom more, and even working differently. The financial industry has also changed significantly. Meme stocks like AMC and GameStop have become the talk of Wall Street while cryptocurrency prices have had their ups and downs. The money transfer industry has also gone through changes that will last a lifetime.
Digital payments are the norm
A key theme in how the money transfer industry has changed is on how digital payments have become widely acceptable in the US and around the world. While this trend existed long before Covid, the pandemic was a catalyst that helped to propel it forward.
This trend was driven by several factors. For one, governments around the world mandated that people should stay at home. This led to the embrace of digital payment options. In the US, peer-to-peer payment solutions like Cash App and Venmo recorded their best growth in 2020.
At the same time, the aviation industry suffered its worst collapses on record as governments halted local and international travel. The Trump administration was the first to bar flights from Europe from coming to the country. As a result, many people and companies embraced digital wire transfers to send money.
As a result, remittances in 2019 declined only marginally. A report published by the World Bank in April 2020 predicted that remittances to low and middle income countries would drop by more than 28% during the pandemic year. In reality, remittances declined by just 1.6% to $548 billion during the year.
Another evidence about this transition is looking at available results of publicly-traded companies. In 2020, Western Union reported an annual revenue of more than $4.8 billion, down from $5.29 billion in the previous year. The company attributed this weakness to the weak performance of its agency business. It also attributed the smaller-than-expected drop to the double-digit growth of its digital platforms like app and WU.com.
The same trend was seen in other companies like MoneyGram, whose revenue declined from $1.285 billion to $1.121 billion. Its digital payments had double-digit growth.
Other companies that reported a dramatic increase in the number of transactions and volume were publicly traded firms like PayPal and Square.
Valuations rose
Another way in which the money transfer industry changed since 2019 is that investors have embraced the industry and poured billions of dollars in it. These days, highly unprofitable money transfer companies are receiving a bigger valuation than decades-old companies that generate significant revenues and profits.
For example, in July 2021, Wise went public in London and achieved a valuation of more than $11 billion. This valuation was significantly bigger than that of Western Union, which is valued at more than $9 billion.
Other startups in the money transfer industry also achieved strong valuation multiples. For example, PaySend raised more than $120 million at a $700 million valuation. Remitly, on the other hand, raised $85 million in 2020 at a valuation of more than $1.5 billion. The company is considering going public through an Initial Public Offering (IPO).
Many other companies like AirWallex and Transfermate raised millions of dollars from investors. This means that many of these firms will soon go public as investors attempt to recoup their investments.
Also, increasing valuations will lead to more mergers and acquisitions in the sector. In 2020, WorldRemit acquired SendWave in a $500 million deal. In 2020, it was reported that Western Union was considering bidding for MoneyGram. In July 2021, it was reported that Advent was considering placing a bid for the company. Therefore, there is a possibility that M&A activity will increase.
Alternatively, more established companies will launch their payment solutions. In Europe, Santander has already moved into the space with the launch of its PagoFx solution.
Decentralized finance
The money transfer industry has also changed because of the relatively new concept of decentralized finance (DeFi). This is an industry that is aiming to shift the finance industry from a centralized format into one that is decentralized. On a broader scale, the industry has achieved some success as the total value locked (TVL) in the industry has risen to more than $54 billion.
While most of the biggest DeFi platforms are all related to lending, some of the fastest-growing ones are in the payment industry. Some of the best known money transfer and payment DeFi platforms are Flexa and Tornado Cash. This industry was significantly small in 2019 and it is expected to achieve substantial growth in the next few years.
At the same time, decentralized currencies have gone mainstream, pushing central banks to study and launching digital versions of their own currencies. The People’s Bank of China (PBOC) has already started testing the digital version of the yuan. The ECB has confirmed that it will launch the digital euro while the Fed is studying the pros and cons of a digital dollar.
Therefore, these developments will likely have an impact on everything related to banking, finance, and money transfer. For one, it is estimated that digital currencies will be more cost-efficient than fiat currencies.
The future of money transfers
The money transfer industry is going through substantial changes. The rising competition has led to relatively lower costs and more transparency by companies. This trend will continue as the world transitions from lockdowns. At the same time, more companies built to provide services to companies in the industry will keep coming up.
Produced in association with MoneyTransfers.com
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