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The “Solutions to reaching the unbanked” panel discussion at this month’s inaugural Innovate Finance Global Summit had an unenviable mid-afternoon slot – you know the one, just as delegates fall into the post-lunch slump, but before they have re-energised themselves with enough caffeine to kill a horse – yet it touched upon a sector that is currently receiving not only a huge amount of attention but also eye-popping levels of investment to back that up.

Not to mention it has the added kicker of being able to affect real social change and enhance the lives of millions across the globe.

So, what’s the problem?

It’s no secret to anyone who has attempted to send money across borders how frustrating, not to mention expensive, it can be with the more established players charging high transaction fees, taking a long time to process transactions and offering a lack of transparency as to the forex rates they are charging their customers.

In addition to the poor service being provided, there are vast swaths of the world receiving none at all. There are various facts and figures quoted here, but the most popular you hear is that there are currently 2.5 billion “unbanked” people in the world; a staggeringly large number, accounting for a third of the world’s population.

And the problem is not just there for migrant workers, but for small businesses too.

What’s fintech doing?

There is a huge untapped market that, as the more traditional banks retreat to focus on meeting increasingly onerous regulatory demands, is opening up for the more nimble and dynamic fintech start-ups.

Typically we are seeing two types of businesses developing in this space.

The one that I’d say gets the majority of attention focuses on the global remittance market – “banking the un/under-banked” – and for reasons touched on above this is a stale market that is ripe for disruption (and media attention, given its social utility). Smartphone and web-based money transfers are offering a low-cost and quick alternative to heading down to the (often not so) local branch.

Even a small slice of this US$550bn remittance market has the potential to make would-be investors happy.

The second business-type focuses on account-to-account transfers between currencies of more developed countries; rather than looking to the ‘remittance corridors’, they cater for flows going in both directions – the problem ‘solved’ is that of the big margins banks traditionally charge rather than the payment method itself.

Small businesses and entrepreneurs operating across borders stand to see significant savings through greater transparency, leading to smaller transaction fees and better exchange rates.

As investment and buzz (in their ever symbiotic way) grow, fintech businesses are rapidly improving upon the financial systems and networks in place, decreasing consumers’ costs, and reaching (huge!) untapped markets.

Venture capital continues to flow

  • WorldRemit: the London-based global leader in the smartphone and web-based money transfers market, secured a Series B round of US$100m last month with TCV joining Accel’s party (the round coming less than 12 months after they themselves invested US$40m, which itself was one of the largest European Series A rounds ever). WorldRemit is now valued at US$500m.
  • TransferWise: the London-based P2P foreign exchange service recently attracted a US$58m Series C funding round led by Andreesen Horowitz, having previously attracted funding from Richard Branson and Index Ventures, leading to a reputed US$1bn valuation.
  • Azimo: not so recently, the UK-based start-up raised US$10m in a Seires A round led by Greycroft Partner, but their footprint continues to grow as they now serve 192 countries worldwide including, most recently, China (the second largest market behind India).

What next?

As money transfer demand continues to grow and fintech start-ups push into new territories – Azimo seemingly announcing a new jurisdiction into which it has pushed on a weekly basis – a picture of these demographics will begin to develop and vast amounts of data generated (e.g. WorldRemit were surprised to see that their first remittance from Iceland was to the Philippines). I’m sure that data will be valuable to someone…


Sam Brown, corporate specialist and principal associate in Wragge Lawrence Graham & Co’s Tech sector team