The current business model for remittances will become obsolete in the long term – margins from transfer fees and fx is going to decrease as both the underlying payment rails get cheaper, competition intensifies and new technology (e.g. blockchain) creates new mediums for international money transfer (e.g. Telgram ICO, Sureremt RMT tokens)
Customers will switch if cheaper, faster, secure alternatives emerge that can gain consumer trust. I hear from remittance providers that they have extremely good customer retention, but most have been the services that customers are switching to because they provide a step function better customer experience.
Existing remittance businesses are not going to cover operational costs at super thin margins and entrants like messaging apps with no customer acquisition cost and no requirement for profit beyond retention in their apps (Whatsapp, WeChat) will kill all small remittance startups as well as inefficient, expensive incumbents (e.g. Moneygram, Western Union)
In order to grow revenue existing remittance firms will need to leverage their unique knowledge of the sender->receiver relationship to retain their customers better, and make higher margins per dollar transferred. I think this will require significant product innovation – e.g.
- Bill Pay – will drive customer retention because of the monthly payment cadence for bills, will improve monetisation as receiving companies (e.g. tv company or water company) will often pay a commission of a few % and the remittance provider can also batch transactions to pay many bills at the same time reducing the cost of each transaction
- Credit – remittance companies can use historical remittance data to lever up a remittance in shock – e.g. family death or a medical bill, and then the sender can pay the remittance business back over time vs. the receiver who would not qualify or credit or get credit on much worse terms (note: this requires lots of new licenses which is a large barrier to entry)
- Savings – if remittance companies know what receivers are going to buy and when they plan to buy the product, they can monetize it through referrals or asset finance
The remittance companies that are best placed to execute on this already have users in their platform. They will need to track retention of customers to make sure they are not losing these customers to alternatives, and then invest in new products and transfer methods to drive retention and better monetization.