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In the late 1990s, my mother and father moved to the UK from China, initially for my mum’s education, then to work. I stayed with my grandparents back in Nanjing for 18 months, and my parents would send part of their paychecks home to support us.
Back then, remitting money abroad from the UK meant going into a Western Union or MoneyGram branch and handing over cash in exchange for a paper receipt. There followed an anxious period when my parents were in the dark about the payment’s progress. They would call my grandparents every other day to see if it had arrived. They had bills to cover, and it was all quite stressful and slow. It was also pretty expensive: £6 in every £100 disappeared in fees.
My parents’ experience came to mind in 2021, when Keystone Positive Change started looking at Remitly. The Seattle-based company helps migrant workers send a portion of their earnings back home, usually to lower-income countries.
The flow of money from developed to developing countries worldwide exceeds $600bn every year. In 2023, Remitly processed more than $30bn in transfers, representing about 5 per cent of the sector.
Help where it’s needed most
This money has an enormous impact on the lives of the world’s poorest. As much as 75 per cent of each remittance goes towards essential goods and services, including food, shelter and healthcare. The money also helps kickstart economic development. It is often the biggest source of foreign income for developing countries, exceeding the total of foreign direct investment.
Remitly’s mobile app is simple. You enter your card details, those of the recipient and the amount you want to transfer. Then click send. The money arrives instantly, or within two hours for a lower fee. Users can send funds to overseas bank accounts or the mobile wallet apps popular in developing countries, where many people don’t have access to banking. The flat fee, which varies from country to country, is low, and its exchange rates are typically better than those offered by offline providers.
We first considered investing in Remitly when it floated on the Nasdaq Stock Market in September 2021. We were impressed by co-founder Matt Oppenheimer. His experience working for a global bank in Kenya inspired him to make remittance more transparent, more secure and less stressful. We were quickly convinced of the firm’s positive impact at the ‘base of the pyramid’ – the Trust’s term for the world’s lowest-income people.
As well as his sense of mission, Oppenheimer seemed aware of the realities of a competitive industry and specifically of a need to focus on costs and to invest most in the busiest country-to-country payment ‘corridors’ whose potential volume offers the highest return on investment. He seems to be making the right decisions about where the company needs to expand next and how to price its services.
Doing our homework
Remitly isn’t the only company in this field, so we took our time to monitor progress and gather evidence of competitive advantage. To get a sense of the company’s culture, I visited the head office in Seattle and met its management team, software engineers and other employees. There’s lots of competition for tech talent from the likes of Microsoft and Amazon in the city, but there was a strong sense that they were happy to be working for this company.
By the end of 2022, we had enough conviction to invest. We were encouraged by its investment in software to streamline the complex process of sending money across so many borders. Know-your-customer and anti-money-laundering compliance requirements can be expensive, but Remitly benefits from economies of scale here. Its investment in artificial intelligence helps it detect fraud and set prices. And as it processes more payments, each one costs less.
Growth also allows Remitly to spend more on marketing and build on its brand advantage. It is already adept at tailoring advertising to the cultural specifics of multiple migrant communities – Mexicans or Filipinos in the US, for example – rather than putting out generic global messaging.
Our confidence also stems from remittance being a surprisingly ‘sticky’ business, unlike with the traditional providers of my parents’ day. Remitly has an annual customer retention rate of 90 per cent. That’s higher than Netflix.
World of opportunity
Although remittance from the US is still the biggest activity, Remitly’s international business is growing more quickly. It appeals to migrants who have gone to Europe or the Middle East and want to send earnings back home. Those are two big markets where the firm thinks it can grow quickly.
In the longer term, it’s looking at migrants in Australia, New Zealand, Japan, Hong Kong, Singapore and elsewhere. We expect Remitly to have comprehensive global coverage within five to ten years.
Jeff Bezos has backed Remitly, and Oppenheimer told me that Amazon was his model for handling complexity. Think about the phenomenal investment in logistics needed to deliver hundreds of thousands of parcels around the world within 24 hours of clicking ‘buy’. Remitly’s challenges are on that scale. In the US alone, people are sending money to 100-plus countries. Altogether, it has 4,000 different cross-border pathways, all with fluctuating exchange rates, their own licensing and compliance regimes, and barriers to new financial players.
Consider how expectations have changed since the days of my parents’ anxious long-distance phone calls. Customers are in charge now, and they don’t care how much complexity is involved. They want the transaction done quick, quick, quick.
It’s not easy to find high-growth companies that improve the lives of those at the base of the pyramid. The goods and services these people use tend to be very local, and the firms providing them don’t usually grow into investible multibillion-dollar companies. But we’re confident there will be more like Remitly, using apps and other technologies to reach underserved populations and make their lives a bit easier.
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The Trust invests in companies that make a positive impact on society and/or the environment. This means the Trust won’t invest in certain sectors and companies, limiting the investments available to it. Therefore, the Trust’s returns may be different to a fund or trust which has no such restrictions.
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