Is Bitcoin The Future of Money Transfer?
“If bitcoin could help us be more efficient, we’d use it.” Those are the words of the CEO of money transfer disruptor, XOOM, when asked whether the crypto currency could disrupt the money transfer business. John Kunze sat down with PYMNTS CEO Karen Webster to talk about how he’s surviving and thriving in the face of enormous entrenched competitors and whether bitcoin could disrupt this $500 billion market.
KW: Let’s talk a little money transfer. What place does XOOM occupy in the industry?
JK: Money transfer is a huge industry. More $500 billion is sent cross-border per year typically from people who have moved from a developing to developed country like the U.S. Part of their dream is sharing the opportunity they have with the loved ones that they left behind back home. It’s an inspiring use case for us all at XOOM.
Specifically, we are digital money transfer company, which separates us from most of the other offline companies that serve the market. Our value proposition to the consumer tends to be based on convenience – we offer the easiest way for users to move money back home to their native countries. XOOM is speedy, priced fairly and transparently to the consumer, and highly convenient. Customers can avoid having to go to a physical location to fill out a form and can avoid paying large fees.
All of our customers have bank accounts and usually will use those accounts to send money directly. They also have access to the internet through laptops, PCs or smartphones.
KW: That’s a huge differentiator for XOOM but also a requirement for someone to use your service. They’d need some sort of account or funding source to enable that digital payment.
JK: Yes, and the good news there is that most of the people in the U.S. who are sending money home in this industry do have bank accounts and are in the serviceable market for XOOM.
The serviceable market, as compared to the total available market, for us can range as high as 90 percent and only gets as low as 65 percent depending on the country we’re serving. So no matter how you look at it, the majority of the opportunity is serviceable by XOOM.
KW: You’ve been in the business since 2001, and I’m sure you’ve seen a lot of change over that period of time. What about the remittances business do you think has changed the most, and how has the change advantaged XOOM?
JK: I think it’s remarkable that the sending patterns of the consumers have mostly stayed the same. So for example, consumers might be sending money home to Mom so she can pay bills or eat and pay for her kids’ education, or put clothes on the backs of the family. It’s sometimes a maintenance use case and sometimes a sustainable use case, but it’s often very predictable. A consumer might send $300 home every two weeks, for example, and will do so for a very long time. We see in the average cohorts of behaviors that there isn’t much change.
What has changed since we got into the business is that more people are getting computers and connecting to the internet – there’s a secular shift happening because of that, digital channels are becoming more available as time goes on. It’s intuitive that one day almost every consumer in the US will have access to the internet and will be banked.
KW: One of the changes relates to the regulatory environment around remittance. I’m sure you’ve seen the news about banks withdrawing from that aspect of their business. What is it about what you’re doing and what you’re able to accomplish at a different cost structure that allows you to service this market and not the banks?
JK: Recent news shows some of the banks getting out of this space entirely, including their willingness to bank money services businesses that are fully licensed and operating. That’s not just to get out of the business themselves, but more so the latter.
This is a very common challenge that we all face in this business – it’s a risky business so banks that want to minimize their risk will often give up in this space, balancing the tradeoff of driving revenue and taking on risk. It’s been going on for a lot longer than recent articles suggest.
This is why a company like XOOM has to have many banking relationships so we can spread the risk among them, and it’s also why MSBs (money service businesses) have to run a tight ship from a regulatory point of view in order to satisfy their banking partners, ensuring that they’re running a clean shop and not introducing other unnecessary risk.
From day one, we have been working endlessly to build risk management systems to allow us to defend against threats from a compliance, money laundering, and anti-fraud point of view.
KW: Where are you seeing most of your growth, and how has that changed over time? Do you see growth within markets – for example people sending money within the country?
JK: We only do cross-border money transfers, and no domestic transfers. We would not be experiencing any volume from that part.
As far as the growth question goes, we’re seeing growth across the board in all corridors – some are growing faster than others as a result of markets being more highly penetrated already by us or in markets where we have more differentiation that we can more easily put into advertising.
For example, the differentiation we have in India, where we are competing for consumers who are already embracing digital channels because they are mostly online and banked – they’re using online means to move money back home.
For us, there is no cash origination, or cash-in network – all money is sourced from bank accounts directly. But we do have cash-out businesses in the Philippines and Latin America where we operate networks that are very traditional –cash payout networks.
KW: It’s pretty hard to talk about moving money anywhere these days, especially cross-border, without talking about bitcoin. As you know, a lot of people believe that this currency opportunity and protocol is the superior way to move money from person to person. How do you feel about that?
JK: I think anyone that wants to move money from point A to point B has to deal with two very important challenges that, for bitcoin to succeed, players in that ecosystem must also solve in addition to still being efficient and not costly.
The two problems are being able to on-board good and clean funds – defending against money laundering threats, and not moving money that was sourced from or used for illegal purposes. Money that’s on-boarded also should not have been fraudulently been put into a user’s system.
The other problem is off-boarding funds on service levels that consumers expect to get, with customer operations that will support transactions even if there are mistakes in the transaction.
So, if I wanted to move money to a bank account in India, I have to have an off-boarding relationship with that bank and operationalize that off-boarding so that it’s available 24/7/365, and I have to be able to deal with anything that slows down or interrupts the quality of service. Obviously, that bank has to agree to this, and we have to have an economic relationship. We do this over and over with all big banks in markets that we serve. It’s the only way that we can effectively move money into any bank account in any country with the right oversight.
Once you deal with on-boarding and off-boarding of funds, you’re basically a money transferring company. It remains to be seen if these problems can be solved by bitcoin while incurring much less cost. And even today, with these very good bitcoin operators, they are on-boarding U.S. dollars at interchange rates that are higher than that of credit cards. Moving money through Coinbase, for example, is going to be much more expensive, for example, than moving it through XOOM.
In the end, though, if bitcoin could help us be more efficient, we would use it. But unless the bitcoin ecosystem self-regulates and gets consumer protection in place, and deals proactively with money laundering risks, the regulators will start regulating them like we’ve seen in New York, and once that happens it also remains to be seen if they can operate on a less-cost basic than classic MSBs (money service businesses).
KW: This is a very complicated business that does require the rules, regulation, compliance, risk-management systems. You’re trying to address all of that but so are very large competitors in the space who’ve been there for a very long time and who feel that regulation and compliance is a competitive advantage. Why did you guys decide to get into this business?
JK: We wanted to be a disruptor in a big market and take on some of the giants, because we felt that we could win as a disruptor in a big space. You can also build a great company especially if your mission is inspirational – to provide consumers a way to send money without being exploited, and do so through the most convenient medium possible on a cost structure that’s fair to the consumer.
When we got into this business, this was one of the only industries that we could think of that was as big as it is and only served by offline brick and mortar players, which was the case more than 10 years ago.
KW: So what’s on the roadmap? What’s next?
JK: Mobile is a big product initiative for us. More than half of our users are sending with our mobile app, which was a great milestone that we hit. Our repeat customer experience on mobile is incredible – you just open your phone, press a button, and Mom has the money seconds later, no matter where you are.
We will continue to press the mobile agenda. It’s no doubt that over time the large majority of volume in the money transfer space will originate from mobile phones, and we intend to be the leader of that secular shift.
That, on top of improved distribution, is also an omnipresent initiative here. Last year, we took India down to four-hour deposits, and now we’re taking them to instant deposits. We’re now at instant deposits with the top banks in the Philippines, and have instant cash pickup in our Mexico and Philippines networks. The simplicity of the experience is another big omnipresent initiative of ours, where we are constantly optimizing the consumer experience to be even easier for the customer.
President and CEO, XOOM
John Kunze, who joined Xoom as a director in 2004, was named President and Chief Executive Officer of Xoom in 2006. Prior to Xoom, John was President, Chief Executive Officer and member of the Board of Directors of Plumtree Software, Inc., a provider of enterprise software solutions, until they were acquired by BEA Systems, Inc. in 2005. Before he joined Plumtree in 1998, John worked at Adobe Systems Inc. in a variety of product roles. John holds a Bachelor of Arts degree in Economics from Franklin & Marshall College in Pennsylvania.
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