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Payments start-ups can be sure of raising plenty of money if they can promise to disrupt the money transfer market. Ten-year old Remitly — whose stated mission is to “transform the lives of immigrants and their families” — is just the latest. The Seattle-based company went public this week at a $7bn valuation. It is a big step up from the $1.5bn it was valued at just 14 months ago.
The excitement is understandable. Remittances are big business. Some $445bn were sent to developing countries through formal channels alone last year, according to the World Bank. The industry has long been dominated by banks and traditional brick and mortar money agents such as Western Union and MoneyGram.
Fees are often high and transfer times lengthy. That has encouraged start-ups that can leverage technology to make it faster, easier and cheaper to send and receive money around the world.
If Remitly makes it cheaper for migrants to send money home, its shares are anything but for investors. The stock is currently valued at about 27 times its 2020 revenue. That is the same as Wise — the UK-based money transfer start-up that went public earlier this summer. Yet Wise makes twice as much revenue and is profitable.
To be sure, there are differences between the two companies. Wise’s focus is on inexpensive bank-to-bank transfers between developed markets. Remitly concentrates primarily on immigrants where cash and prepaid mobile top-ups are the more prevalent means of transfers.
Both companies compete against Western Union on price. That is not a sustainable competitive advantage given the flood of new entrants into the remittance market.
The pandemic accelerated the shift from physical to digital transfers. But payments companies with diversified revenue bases look like better long term bets than so-called “mono lines”. Wise is making better progress here, having branched out into products such as debit cards and services for small businesses.
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