WorldRemit, a London-based startup with some 2 million users that offers a quick way for people to send money to each other with a focus on developing markets, has raised more funds to help it take on the likes of Western Union in the remittances market, estimated by the World Bank to be worth some $596 million globally this year.
The company has picked up $40 million — a Series C round that sources tell us brings the company’s valuation to around $668 million (or ‘just under £500 million’ in the figure we were given in local currency by our sources).
The funding was led by a new, strategic investor: LeapFrog Investments, the firm founded in 2007 and backed by billions from the likes of Prudential, JP Morgan and the Omidyar Network specifically to make investments into financial and healthcare businesses improving services in emerging markets, specifically in regions like Africa and Asia. Previous investors Accel, TCV and an unnamed individual backer also participated.
This represents a decent leap for the startup, which was valued at $500 million when it last raised money — $45 million in February 2016.
Ismail Ahmed, who co-founded WorldRemit with Catherine Wines and is its CEO, said in an interview that the idea will be to use the funding in three key areas.
The first of these is to increase the number of countries where payments will be able to originate. Currently, the company lets people from 50 countries send money through to 148 countries, and Ahmed wants to bring complete parity to those figures, so that people can transfer money from any country to any country where WorldRemit operates. Specifically with this round, that functionality will get turned on in Africa.
“Half of our transactions today go to Africa, and those are mostly digital transactions going into to mobile money accounts in services like M-Pesa. This means every day we trade with all the assorted currencies that are in use in Africa,” he explained. “I think the next phase of our growth is to turn those ‘receive’ countries into ‘send’ countries. That’s the demand we’ve seen. In the past we didn’t want to do that because we didn’t want to transact in cash, but now because our users are making most digital transactions, we can.”
He points out that 90 percent of WorldRemit’s customers — 1 million users — are using smartphones for their transactions, and that money transfer services are a key driver of getting those smartphones in the first place (that other? messaging services, he said; more on that below).
That is a pretty impressive statistic in itself, considering how low down African countries generally have been in world rankings for internet and telephony access. Targeting these wider problems, in fact, is one reason that WorldRemit was first approached by LeapFrog.
“This investment is an opportunity to bring a global leader in digital remittances into the LeapFrog portfolio,” said Stewart Langdon, partner at LeapFrog Investments. “WorldRemit’s model is uniquely suited to scale and offers a best in class service that is vital to the livelihood of millions of consumers in LeapFrog’s core markets. The company also has a huge potential to expand globally – a combination that puts it at the heart of our profit with purpose philosophy. I’m delighted that a world-class fintech company like WorldRemit is choosing LeapFrog as its partner for growth in the emerging markets.”
The second area WorldRemit is hoping to expand is in Asia. Specifically, the company is planning to open a new office in the Philippines with 100 more employees, to help build out its business in that region
This is also notable. To date, WorldRemit to date has mainly grown organically, and that is what it plans to do here. But there is a big opportunity to expand WorldRemit’s footprint by way of acquisition.
There are a number of startups competing with the likes of Western Union and MoneyGram to provide lower-cost and faster remittance services globally, but interestingly, many of them have been building their services with relatively little overlap of the regions that they are targetting first. (Remitly, for example, has been focusing a lot on the business of sending money from the US to India, recently raising $115 million to double down on that opportunity.)
“So far we have seen consolidation in the world of traditional money transfers, where the three largest players are still consolidating some of the smaller players,” Ahmed said. “But as companies like us become more global and taking a regional focus, we may see some M&A too.”
The third area of focus is to keep beefing up its business in the US. Today, the country accounts for 14 percent of WorldRemit’s origination traffic by revenues, and the plan will be to boost this to 40 percent.
The medium is the message
Ahmed said that when it comes to digital money transfers, the company’s mainstay for doing business is its own mobile app, although it and others in the remittance market are still working on ways of expanding this.
Specifically, most transfers are made alongside longer text or voice conversations in messaging apps like WhatsApp, Messenger and WeChat, so there has been a longstanding ambition to integrate services like WorldRemit more seamlessly into those platforms.
But although Facebook has been building peer-to-peer transfer capabilities in a couple of its very biggest markets (the US and UK), one big hurdle for turning them on in developing markets has been local regulation, Ahmed said.
“There are some trials right now for how to use messaging apps to transfer money in the region, but one reason we have not seen more is regulations,” he said. “When we talk about sending money from Africa, it’s about getting a local license in a local office. WorldRemit has done that but there is a lot of complexity there for getting licenses, meeting money laundering regulations and so on.”
I asked, and the reason we haven’t simply seen more API-based implementations, where a company licensed locally provides the transfer within the messaging app, is also because of those requirements.
“At the minimum, most of the regulators require that the company that is licensed is the one that is visible to the customer, so that the customer knows clearly who is safeguarding the funds,” said Ahmed. “Some of the ‘powered by’ models are not acceptable to the more conservative regulators in those markets.”
It’s not just Facebook that faces this problem, he added. “Google, Amazon, Microsoft and Alipay,” area all companies that could grow their businesses in the region were they allowed to work with more companies that could provide money transfer services to mobile phones, which for many individuals and small businesses have become their functioning proxies for bank accounts and credit cards.
Indeed, direct money transfers for basic needs is just one application. We’ve heard that Facebook has been interesting in building this area also so that it can grow its advertising business in the region, since small businesses today have a hard time buying ads because they don’t have cards to pay for them.
“This is part of the problem we are aiming to address longer term,” Ahmed said. “The flows of funds every day that we are sending works out to a lot of hard currencies and billions of dollars in emerging economies,” he said. “It’s easier for us to enable those who want to pay someone else. This is the kind of area where would seamless cross border payments would be very useful, for those who want to provide payments and provide digital services.”