International migration fuels fintech opps in remittance systems - a use case

Profile picture for user angelica_muri By Angelica Mari May 3, 2018
WorldRemit boasts fintech that is ahead of the game technology-wise, but is also tackling the challenges of a particular customer segment.

Money in the sky.
The global market around remittances - the payments that immigrants send back home - is estimated to generate $616 billion in 2018 according to the World Bank - and new ventures are capitalizing on that trend, propelled by the rise of mobile technology.

One such business is WorldRemit, a London-based, mobile-first remittance startup valued at about $670 million, which competes with the likes of Western Union and wants to grow its current customer base of 2 million to 10 million by 2020.

The firm offers instant transfers to over 130 million, mainly "unbanked" individuals through mobile money accounts in emerging markets. More than 65% of its transactions are currently sent from smartphones, from about 50 countries to over 145 receiving destinations.

However, developing this international network - particularly in on the receiving side of the business - has required a considerable amount of time and effort when it comes to technology integration with pay-out partners, according to the company's Chief Technology Officer Russ Thornton:

For our customers, using WorldRemit is easy because we do the hard bit, connecting over the years hundreds of banks, money agents, mobile operators and payment systems around the world. These were originally never designed to work together, but we make it happen.

The underlying tech

When it comes to the software underpinning the fintech's operation, the engineering platform at WorldRemit has a mix of database technologies and modern development techniques at its core.

According to the CTO, technology at the company is evolving so quickly that the intention is to double the size of the engineering team, currently 75-strong, in the next 12 months.

The company uses tools to develop its data pipeline, data lake and data warehouse to support machine learning and Artificial Intelligence services. In addition, the platform team has also developed core internal transactional automation, fraud and compliance engines, as well as micro services for the transactional platform.

Global cloud automation, resilience and auto-scaling capabilities - the company uses a mix of Microsoft Azure and AWS - are also key areas of focus for IT at the company, according to Thornton, as is security and customer experience:

Our mobile developer teams are constantly working on ensuring our apps and website offer a great user experience.

Fending off competition

The company faces considerable competition, from traditional sector incumbents and older digital payment players like PayPal to other hyped start-ups like Circle, so what differentiates WorldRemit from these firms?

According to Thornton, the fintech is ahead of the game technology-wise but is also tackling the challenges of a particular customer segment. He says:

WorldRemit is transforming the remittance industry from offline to mobile. The vast majority of remittances today are still sent from corner shops and bricks-and-mortar money transfer agents.

He adds:

People in the diaspora have to find the time in their busy lives, where many have multiple jobs, to visit a money transfer agent during business hours and then pay extortionate fees to send money home.

As well as having what it claims to be the largest online network of any remittance company, Thornton argues that on the sending side, WorldRemit's customers are increasingly using the mobile app to send money transfers.

The receiving side is also being digitized. According to the CTO, the company is now connected to 34 different mobile money services in 26 different countries. This in turn enables people to instantly receive remittance payments rather than traveling - often long distances - to foreign exchange bureaus to collect cash.

Future innovations

On emerging technologies that would be applicable to WorldRemit and the benefits these innovations could bring, Thornton sees significant potential in machine learning. According to the executive, the recent introduction of a model using the technology has "dramatically reduced" fraud risk.

Despite placing a lot of efforts on security, the CTO says the company's existing rules-based system for identifying fraud was not keeping pace with the rapid growth of the business. He says:

Some problems are perfectly addressed by a rules-based system, but fraud isn’t one of them. Fraud patterns change over time, some subtly and over long periods, others drastically in a matter of hours as new fraudsters enter the system and existing fraudsters change their approach.

Thornton adds:

Rules, by their nature, are fairly static and rigid in their application but machine learning models can be dynamic and reactive to a customer’s actions.

According to the CTO, the development of the company's own machine learning model enabled it to better react to individual situations and cut down a high degree of manual checking - therefore reducing inconveniences to customers such as transaction holds, as well as the ability to identify fraud more efficiently.

When it comes to challenges ahead, as the fintech adds more countries to its service, it will be expected to meet local regulations. In addition, Thornton points out that the company wants to ensure its service is "as inclusive as possible". He says:

We constantly use data on our user journeys to influence the next round of UX and UI design to reflect how people are using it. But obviously, our user base includes a huge variety of tech understanding and devices. We need to ensure our service is as intuitive and simple to use as possible. These are areas where we are constantly working to improve what we do and a big area of focus for us as we look to scale our user base.

In a similar vein, the business is looking at developing its send-side partner API and is also looking at developing its own chatbots and messaging interfaces. On the topic of APIs, the company is also working on one that will allow banks or other fintechs to partner with the service to offer their customers direct access to the startup's low-cost digital remittances.

My take

As the international migration population increases, the stability of the flows of money sent by immigrants to their families in their home countries is expected to remain stable, according to World Bank research. That represents a steady source of income to sector players, particularly those focusing on addressing the needs of the unbanked population. As options for international money transfers provided by traditional banks are still limited as well as cost-prohibitive, the market has until recently been dominated to companies like WesternUnion and MoneyGram - who are not necessarily cheap either.

Factors such as conflict, demographic pressures, environmental change and the actual economy will continue to drive migration and remittances will remain a lifeline for many in developing countries. In that market context, expanding fintechs like WorldRemit also reiterate that despite the fact profit is the main motivation, providing more user-friendly, mobile-centric and cost-effective mechanisms to move money to the financially disadvantaged is almost undoubtedly a good thing.