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 Now he grabs his smartphone and uses Remitly, one of several new
competing mobile apps promoting cheap and quick international
transfers. Sanchez quickly got over his initial unease of sending
money through an unfamiliar company.
"If it goes badly, I'll cancel it and try another," said Sanchez, a
44-year-old Mexican technical support professional in Oakland.
Founded in 2011 and backed by Amazon.com Inc <AMZN.O> Chief
Executive Jeff Bezos's venture capital arm, Remitly is among a
vanguard of financial technology, or fintech, companies targeting
what they view as an underserved immigrant market - traditionally
disregarded as high-risk and low-margin.
The upstart firms - along with expanding digital and mobile options
from Western Union Co <WU.N> and MoneyGram International Inc <MGI.O>
- are helping immigrants deepen their roots in the United States at
a time when incendiary anti-immigration rhetoric dominates national
politics.
Presumptive Republican presidential nominee Donald Trump recently
attacked remittances from illegal immigrants as a form of "welfare"
for Mexicans. Trump threatened to impound such money transfers
unless Mexico agreed to pay up to $10 billion for his proposed wall
on the southern U.S. border.
 Many emerging companies in the fast-growing fintech sector, by
contrast, view financial services for immigrants as an untapped
source of revenue. They include remittance apps, such as Remitly,
TransferWise and Xoom - an early player bought last year by PayPal
Holdings Inc <PYPL.O> for $890 million - along with companies such
as Lendup and Oportun, which lend to high-risk borrowers.
"We're part of a community of companies that is helping (immigrant)
customers understand the landscape of financial services" in the
U.S., said Raul Vazquez, chief executive of Oportun.
GLOBAL CASH FLOW
It remains unclear whether Trump's campaign attacks represent a real
threat to the remittance industry. He proposes regulating remittance
firms through U.S. anti-terrorism laws that now apply to banks and
other financial institutions.
The plan has been criticized in part because of the difficulty in
differentiating between the transfers of legal and illegal
immigrants.
"Good luck with that," U.S. President Barack Obama quipped, reacting
to Trump's proposal at a recent news conference.
Trump's campaign did not respond to request for comment from
Reuters.
Many financial technology companies expect a continuing boom in
cross-border transfers and other financial services for U.S.
immigrants. According to the World Bank, remittances to Mexico
totaled nearly $25 billion in 2015, their highest level since 2008.
Globally, nearly $600 billion is transferred each year.
 The World Bank reported that 700 million people opened bank accounts
globally between 2011 and 2014 – making them more likely to use
financial technology – and about 2 billion more people remained
unbanked, representing huge growth potential.
Immigrant communities increasingly access financial services through
phones. Thirteen percent of Latinos in the U.S. are dependent on
smartphones as their only source of internet access, compared to
just 4 percent of white people, according to a 2015 Pew study.
Those trends play into the strategy of remittance apps like Remitly
and Xoom. Many other financial tech firms are private and not
required to share financial results, but some claim fast growth in
customers or revenue when releasing selective data.
[to top of second column] |
Remitly said it transferred five times the amount of money in the
first quarter of 2016 as it did in the same period a year earlier.
The company said it recently surpassed $1 billion in annual
transfers.
Western Union, a $9.36-billion public company, acknowledged new
threats in its 2015 annual report.
"We are seeing increased competition from, and increased market
acceptance of, electronic, mobile, and Internet-based money transfer
services," the company told investors.
In a statement to Reuters, the company said the transfer industry is
teeming with new players and that competition had contributed to
falling prices. Western Union's digital money transfer sales reached
about $300 million in 2015, and the company expects online and
mobile transfers to be a "major driver of overall remittance market
growth," it said.
Arjan Schutte, the CEO of fintech investor Core Innovation Capital,
said he'd seen more than 100 different business plans for companies
wanting to disrupt Western Union or Moneygram, but that's "not
nearly enough relative to the market opportunity."
ECONOMIES OF SCALE
Smaller financial technology companies can be flexible in crafting
creative solutions to serve customers on the margins, said Lisa
McFarland, an executive vice president at Ingo Money, which charges
between 1 and 4 percent to deposit paychecks through a mobile app.
McFarland previously worked at Visa Inc <V.N> setting up prepaid
products for the immigrant market. She said more established
financial companies have long struggled to serve lower-income
markets because of high development costs and low profit margins.
"The problems have to be solved, in many cases, in unique ways," she
said. "That's what opens the door to technology players."
Oportun and Lendup, for instance, use their own underwriting
formulas rather than traditional credit scores to underwrite risky
borrowers, and they offer declining interest rates over time for
those who pay reliably.
The alternative online lending sector as a whole has faced new
scrutiny in recent months in the wake of scandals at industry leader
Lending Club.
But Lendup says its customer base of half a million borrowers is
growing at 15 percent per month. The company says it can charge less
than traditional payday lenders because of its underwriting software
and because it saves money by not opening physical branches.
"If the work is lower margin, technology has a real opportunity to
allow you to reach that profitability," said Leslie Payne, who runs
public affairs at Lendup. "Once you reach scale, the economics can
work out."
(Reporting by Gabriel Stargardter; Editing by Jonathan Weber and
Brian Thevenot)
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