By Emily Bary
This report has been updated to clarify details about Remitly’s Passbook mobile app.
Remitly Global Inc. sees plenty of opportunity to transform a huge category of money movement that’s still taking place in an expensive and low-tech way.
The financial-technology company is looking to simplify the process of sending remittances so that people can more easily, safely and cheaply send money back to their loved ones. The company calculates that it currently captures only 1% of the $1.5 trillion in estimated migrant remittance flow that takes place through formal and informal channels, and it’s specifically targeting some $540 billion or so of those flows going to low- and medium-income countries through formal means.
Remitly /zigman2/quotes/229492987/composite RELY -9.11% , which priced its initial public offering late Wednesday, sees itself as helping to tackle one facet of global income inequality. Remittances are often a major source of income for those in developing countries who receive money from family members abroad, but it can be difficult and costly to send these funds and deal with currency conversions.
The company is also aiming beyond the core remittance market, following its launch last year of an app called Passbook that lets users access digital-banking services through a partner bank.
Remitly sold 7 million shares through the offering priced at $43 each, above the proposed price range of $38 to $42 a share. The company raised $301 million at a valuation of $6.9 billion. Selling shareholders plan to offer an additional 5.16 million shares beyond what Remitly is selling.
The stock will start trading later Thursday on Nasdaq under the ticker RELY. Here are five things to know about the deal.
Modernizing money transfers
Remitly sees itself as a disruptor in an antiquated market where there’s been a “lack of innovation and financial inclusivity.”
The traditional market for remittances is “dominated by banks, operators of brick-and-mortar locations, and informal channels” that use legacy systems, resulting in “a poor customer experience and additional operating costs that are passed down to the customer,” Remitly said in its prospectus. The technology that leading players use in their offerings often doesn’t scale well or may not serve “cultural and local market requirements of the diverse immigrant communities,” Remitly argued.
A competitive market
While Remitly plans to challenge incumbent remittance operators with its offering, the company isn’t the only one taking up this task.
“The market for remittances is global, highly competitive and fragmented, and includes a mix of traditional and digital players, including traditional banks, digital-first cross-border payment providers, online- only banks and cryptocurrency providers,” Remitly noted in its prospectus. One risk is that Remitly’s competitors could bundle various services, potentially forcing the company to change its pricing strategy.
Among Remitly’s competitors in the remittance market is Revolut, which offers the ability for users to send money to family abroad , as well as other financial tools like early direct deposits, budgeting help and shopping rewards. Revolut fetched a $33 billion private-market valuation this summer.
The crypto question
Neobanks have been gaining in popularity, and some of them have leveraged cryptocurrency-related services in order to attract customers, according to Remitly.
“The advancement in the development of cryptocurrencies has led to new entrants in the market for remittances and financial services more generally, including companies that have traditionally focused on social networks,” the company warns among its risk factors. “Although still in early stages, cryptocurrency usage is growing, and, if we are unable to integrate cryptocurrency or other new financial technologies into our services, we may be unable to compete successfully.”
Growing revenue, shrinking losses
The company generated $202.1 million in revenue for the first six months of 2021, up from $105.1 million in the first six months of 2020. Remitly is still unprofitable, though net losses shrunk to $9.2 million in the first six months of 2021 from $21.1 million in the first six months of 2020.
Remitly generates remittance revenue from transaction fees as well as foreign-exchange spreads applied to a customer’s principal.
Remitly plans to grow the business by expanding to “thousands” more corridors beyond the 1,700 it already supports, while also adding more financial-services partners. The company intends to increase its marketing efforts to grow ints brand awareness. Additionally, it expects that by adding new features, it can generate more frequent usage among existing customers.
Remitly sees an opportunity to expand beyond the remittance business into broader financial services for its immigrant customers. There’s been “encouraging early adoption” of the Passbook mobile app since its February 2020 launch, and Remitly expects that it will be able to use “data and insights” gleaned from the remittance product to shape its financial offerings, per the prospectus.
“We expect this will broaden our customers’ options for accessing financial services while also diversifying our revenue base across multiple products serving the same core customers,” Remitly continued.
Passbook has a deposit function and the company plans to add other features.
Remitly also anticipates that it will be able to recognize marketing synergies between its remittance and financial services offering that will make the process of customer acquisition more efficient.