The world of fintech has taken a few hits in the past few years. Klarna, the “buy now, pay later” credit provider, had its valuation slashed from $46bn to $6.7bn last year — although it has since posted its first quarterly profit since 2019. Meanwhile, Revolut, perhaps Europe’s most successful neobank, is still awaiting a licence in the UK, its home market.
But despite the setbacks, there are still significant areas in which fintech innovation plays a key role. One of them is cross-border transfers, a service for which traditional banks and money changers have faced persistent criticism over their high charges.
“In the UK, in particular, international payments and remittances used to be a huge money spinner for the banks,” says Shamir Karkal, co-founder of Sila Money, which provides an interface for fintechs to access the US payment system. “Folks like WorldRemit, Wise, and so many others, have basically taken over that business.”
WorldRemit, founded in 2010, acquired fellow money transfer provider Sendwave in 2021 and created Zepz as its parent company, to oversee both brands. The UK-based group has raised more than $800mn in debt and equity financing from investors including Accel, TCV and Leapfrog Investments, with a $292mn funding round in 2021 valuing the business at $5bn.
“We acknowledge that migrants have specific financial needs and, in many cases, face barriers and challenges when they move to a new country, and so we are creating a hub of products that are tailored to them,” says Mark Lenhard, the group’s chief executive.
Hannes Leitner, an analyst at Jefferies, says that the subsector, as a whole, had enjoyed steady levels of business despite — or, in some ways, because of — the upheaval of recent years. Global remittance flows reached $830bn in 2022, according to the World Bank.
“Everyone needs money remittance,” says Leitner. “You saw that when there was a spike in geopolitical unrest: you had millions of Ukrainians leaving the country who couldn’t pay with their currency.”
Leitner says that there is a divergence within the market between players such as Wise, which has been traditionally used for those in more white-collar jobs, and WorldRemit, Western Union and others, which have found more use among those in blue-collar industries.
The impact of growing digitalisation and the rise of the gig economy is a further boon for World Remit, adds Leitner. In the past, if gig workers were originally from countries in Africa or south Asia and wanted to send money home, they typically had to choose between Western Union or more informal methods — such as the honour-based hawala system, which has faced scrutiny for decades over potential criminal uses. Now, they have cheaper digital remittance options.
“WorldRemit has seen a big acceleration of people who used to go to offline [systems] moving online,” notes Philippe Botteri, a partner at Accel, one of the company’s investors.
“Remittance receivers rely on the hard-earned money delivered by remitters for vital things like day-to-day expenses — such as food, transportation and clothing — healthcare and educational support,” Lenhard adds.
He points to a study that Zepz carried out earlier this year, which found that users were facing growing pressure from inflation — making low-cost cross-border money transfers increasingly important. The company is committed, Lenhard adds, to reducing remittance transaction costs to less than 3 per cent, in line with UN targets for 2030.
But, while the market remains a buoyant one, it is also competitive. In its most recently published results, for 2021, WorldRemit’s revenues increased by almost 30 per cent to £154.4mn, with a loss, in terms of adjusted earnings before interest, taxes, depreciation and amortisation, of £69.7mn. That was more than double the loss in 2020.
By contrast, Wise’s revenues in the year ending March 31 2023 were £846mn, up just over 50 per cent, with adjusted ebitda of £238.6mn.
Lenhard argues that Zepz is on a “growth trajectory”, and is “actively assessing” market consolidation to increase its customer growth. The group reached full-year ebitda profitability in 2022.
“Looking ahead, Zepz will continue to increase its profitability margins into 2023 while exploring . . . strategies to actively diversify our portfolio, expand our global customer base, and ultimately better serve our mission,” Lenhard says.
Even so, like other fintechs — including Klarna, PayPal, Stripe and Robinhood — WorldRemit has had to make job cuts. In May, Zepz announced it was laying off 420 staff, roughly a quarter of its total workforce. At the time, Lenhard said that the cuts were “an important and necessary step” to integrate WorldRemit with SendWave.
Plans for an IPO in the US were also shelved last year, and Lenhard says the company is not actively pursuing a public listing at the moment.
He insists, however, that the group is determined to capitalise on high demand for remittance services. “Zepz sees an incredible growth opportunity to serve our customers around the globe,” he says.
