International remittance has been a hot area of discussion in the FinTech communities over the years. The segment, once dominated by banks, has seen the emergence of a number of exciting FinTech players, who have revolutionized the market. Every now and then, we hear about new startups disrupting the market by means of their advanced technology-driven innovation.
We, at LTP, have always been fascinated by the opportunities in the modern remittance industry. By virtue of our domain expertise and the network of industry thought leaders, we are always ahead of the curve when it comes to insights and industry trends. Recently, we had an opportunity to interact with one such thought leader from the remittance industry: Mr. Nishu Thukral, CEO and President, Pangea Money Transfer.
In this article, we will share the excerpts of our discussion with Mr. Nishu Thukral.
LTP: What are your general thoughts on the growing role of foreign exchange and cross-border remittance?
Nishu Thukral: The World Bank attributes 10% of the top 25 developing countries’ GDP to remittance inflows. This influx of cash translates to an increase in investments in those countries that directly help improve the quality of life for their residents. As the volume of cross-border remittances continues to grow, finding efficiencies in currency conversion will become increasingly important both for the consumer and the remittance service provider.
At Pangea, we understand the direct impact each transfer has, and we are committed to helping improve the life of our users and their families. We use technology to empower our users to make the best choice when picking a service they can trust and rely on. We make sure we always provide a fair exchange rate through the use of our proprietary exchange rate algorithm, and we are currently pursuing new initiatives in digital currency that will help with additional savings.
LTP: What are the opportunities and challenges for a FinTech startup in both P2P and B2B remittance?
NT: There are four major technology movements over the past decade that have combined to enable a fantastic opportunity for FinTech companies in the remittance space. Machine learning, big data, and the cloud allow a young FinTech such as Pangea to operate with fundamentally lower costs than industry stalwarts. Combining those back-end efficiencies with the omnipresence of mobile and the general consumer’s increasing comfort converting on a mobile device gives a young company an outstanding opportunity to build long-term user relationships, add immediate value, and scale efficiently.
However, well-meaning regulation presents an incredible challenge for a FinTech startup, especially in the world of remittances. Navigating federal, state and foreign regulation, which can be ambiguous and contradicting, puts young companies at risk when they are at an early stage. At Pangea, we have navigated these hurdles by engaging directly with regulators and banking partners, and we’ve leaned into the technologies mentioned above to stay focused on what is best for the user while protecting the company.
LTP: What are the major challenges while entering a new market? How does the strategy differ from country to country?
NT: The main challenge when working with any new market is building the initial infrastructure to support the expansion process. Having already built out a successful platform, we have the experience to not only launch our product in new markets but also to quickly build a team to scale in each of them.
Each country has different restrictions or “Know-Your-Customer” requirements. For example, China has a unique rule around the maximum amount a person can annually receive from abroad. We never had this requirement before, but we had to implement that filter. Our platform was born in a flexible way to adapt to the complex landscape we have globally.
LTP: What are some emerging trends and technologies in the remittance space?
NT: Pangea has always placed an emphasis on anti-money laundering (AML) compliance and fraud prevention. As such, it is great to see the emergence of RegTech companies that increase scalability and compliance automation. Regulatory constraints are a significant barrier to entry and barrier to innovation in the remittance space. With continued improvements to RegTech (built on the previous trends of big data and machine learning), we’re seeing smaller companies scale and innovate at a faster pace.
LTP: What are the problems encountered by SMEs/SMBs while making low-value, high-volume payments internationally through SWIFT transfer? How are modern FinTech startups solving this problem?
NT: SMBs remain a really attractive market because they tend to be extremely loyal. We have explored this B2B opportunity extensively and, throughout the process, realized that small businesses suffer cash flow management problems due to settlement delays and exorbitant fees. They are often using their banks because they trust the funds are flowing within a trusted system that they can easily track through online portals.
Bringing the values of the Pangea experience to the B2B market could help small entrepreneurs access better and transparent rates, as well as give them visibility into the status of their transfers and historical details around them. For now, we’re focused on an international expansion strategy to support consumer remittances across major corridors, but we are excited about opportunities like this waiting for us in the years to come.
LTP: Why are international customers struggling with remittance giants like Western Union?
NT: Most people view the remittance market as a single market. The reality is that each corridor is unique and should be treated as such. Companies like Western Union have a single platform and infrastructure built out that operates under the assumption that all markets are the same.
Pangea understands the differences between its users and the importance to remain culturally relevant. Our mobile-focused platform has the advantage of being built from the ground up to cater to the changing paradigm in the remittance market. Unlike the remittance incumbents, we provide a solution that adapts to the changing lifestyles and needs of our diverse user base. About 95% of our transfers are sent from a mobile device, and more than 70% select their language of origin as the language to navigate the app.
LTP: What are your thoughts on the security and fraud-prevention aspects of remittance? How can FinTech startups provide high-level security and fraud prevention without sacrificing the usability?
NT: There is a wealth of data and services to help us detect security and fraud issues, most of which work by telling us about the risk of a given transaction based on what the system knows. The key for us, as a FinTech provider, is to not simply accept that our expert systems have identified risk but understand how to interpret the models our systems return. This lets us empower the user to de-risk a situation and leverage our services.
The great benefit of the mobile space is that we have the opportunity to reduce risk and add value for our users by acting as a concierge of sorts; personalizing the experience to ask just the right questions and pinpointing real versus theoretical risk. Understanding the user and the risk models means we can create simple, successful experiences and maintain high safety margins.
LTP: How will the rise of FinTech affect the banks in the remittance space?
NT: Two truths have emerged between banks and FinTech: FinTech is dependent on banks and FinTech is an incredible opportunity for banks. For a regional bank, FinTech can provide access to customers on the other side of the company or the other side of the world. For large banks, FinTech provides a new skin to maintain volume and deposits.
Pangea has realized great opportunities from the buzz around FinTech and the realization by many banks of the opportunities above. Now, banks realize that while Pangea and FinTech companies might be tackling compliance in new ways, often times, those new methods are substantively more effective than past “best practices.” As the market continues to see the opportunity and understand the technology, we are seeing banks warm to the remittance space – at least for FinTech companies.
LTP: What is your view on the potential of Bank-FinTech partnership in the area of cross-border remittance? Who will capture the customer experience?
NT: FinTech companies have mastered the user experience angle, whereas banks have struggled to serve specific remittance customers. At Pangea, we have a dedicated focus on making sure the design of our mobile apps makes it clear that this product was meant for our target user. Banks will benefit from this when they make the right FinTech partnerships because they have to focus on their main audience, while companies like us can follow a niche-based interaction design approach.
LTP: Thank you Nishu! This was a great discussion.