Changing The Remittance Business Model

Money transfers have finally gone digital for both senders and receivers — opening the door to new business opportunities and ways to disrupt the traditional remittances industry.

But in the crowded and growing remittances market, it takes a very unique approach to stand out.

To do this, BillMo saw an opportunity to change the entire business model of remittances in the traditional sense, by putting the recipient first rather than focusing solely on senders and collecting fees from them to pay for money transfer services.

The U.S.-based company supports a low-cost money transfer application that enables individuals in the U.S. to send money to family and friends in Mexico via smartphones.

“Our entire model relies on how the receiver spends the money — we make money on the use of the funds versus on the sending of the funds,” Steve LaBella, CEO of BillMo, explained.

Because BillMo participates in how that money is spent by giving the receiver access to a variety of services directly from the app — ranging from paying bills to shopping — the company makes money from the companies where receivers spend their funds.

Essentially, BillMo is able to subsidize the sending of the funds, which is something that bigger, more established players in the space don’t do. LaBella explained that BillMo’s focus isn’t necessarily on being the lowest provider of money transfers in the space, but that it’s been able to offer more affordable services simply because it makes its money in a different way.

“To us, we see that as incredibly disruptive to a massive market, and it’s been very successful for us so far,” he added.

The Visible Receiver

Typically, the recipient of a money transfer will pick up their funds in cash, and from that point, how and where they spend their money is essentially untraceable.

Remittances are traditionally all about cash-to-cash or direct-to-cash, making them extremely difficult to monetize.

But by enabling a digital transfer of funds that the receiver can use in a digital fashion, BillMo can not only make the receiver more visible, but also ensure their behavior can be monetized.

With BillMo, receivers can pay bills, buy prepaid airtime and even shop at participating retailers, all directly through the mobile app, LaBella said. They are presented with a variety of ways to digitally spend their money, in addition to the ability to simply pick up cash from the money transfer, if desired.

“None of this works unless [users] also have access to their cash, so that’s always an option. But over time, we are driving the behavior to the digital channels as opposed to the cash channels,” he explained.

While these services act as a way to incentivize senders and receivers to transact digitally, LaBella said that initially he expected receivers to opt for cashing out their funds 100 percent of the time.

“We knew that this industry and the people we target are very cash-centric, and certainly when they are first trying the service, the first thing they are going to do is take the cash out to make sure they can get to it,” he explained.

But the company has actually seen its services grow faster than its send volume.

BillMo has been able to incentivize and drive the behavior it wants, LaBella noted, by offering promotions and discounts around activities like buying airtime for family and friends or receiving a credit for trying out different services.

BillMo’s Wallet Play

“If you think about the traditional money transfer model, everybody is focused on getting as many senders as possible, and recipients just come along for the ride because nobody really thinks about the recipients,” LaBella explained.

BillMo’s business model is the exact opposite.

Though the company still markets to try to get as many senders as possible, LaBella said it’s all in an effort to ultimately get more recipients onto the network, which is what BillMo calls its “wallet holders.”

With all the knowledge it has about the receivers — exactly when they get the money, how much they receive, where they are when they get it, past behaviors and how they use it — BillMo is able to offer the types of services that bring value even after the money transfer itself is complete.

For BillMo, the goal is to break even on wallet send; therefore, any services that are performed on the wallet are positive gross margin for BillMo, LaBella explained.

He noted that the company is already working with retailers in Mexico to build in more services that make sense for its receivers, such as a pharmacy that has doctors on call and a promotion to customers with a certain amount of money in their account balance for a discount on a doctor’s visit or products at the pharmacy, if they pay with the BillMo app.

“There are lots of different options out there, and that’s 100 percent of our focus right now,” LaBella said.

“Our goal has never been to be a remittance company — we’re really utilizing remittances today to fund our wallets. We didn’t just launch in Mexico and say ‘Please use our wallet’ — we launched as a remittance company because we knew that’s where the money was flowing, and we can offer a value to get people to load their wallets.”

Navigating the Political Waters

With the election of the Trump administration in the U.S., there has been a greater influence by the political environment on companies like BillMo that focus on operating and serving customers in Mexico.

While the impact was initially unforeseen by LaBella, what he’s communicated to employees and the company’s board is that BillMo’s business model is equipped to handle such concerns. He sees this situation playing out in three phases.

Right now, the country is still in the first phase, which, admittedly, is some general panic. After Trump won the election in November, BillMo and other players in the remittances space saw huge and unexpected spikes in their business because people got nervous and started sending as much money home as they could, due to the uncertainty, LaBella explained.

The next phase, which he said the country is just moving into now, is continued uncertainty around what will actually be implemented by the administration and how aggressive the changes will be.

“I think once we settle into exactly what it is they’re doing, it will start to look more like business as usual for us,” he said. “Yes, they might get more aggressive on deportations and things like that, but for the most part, most of our business comes from banked consumers in the U.S. who have been here for years, and so we don’t see too much of an impact long term.”

In 2016 alone, approximately $26 billion was sent from the U.S. to Mexico, which LaBella said is a market that is not going to just disappear into thin air.

“There’s a lot of upside for many years to come for us, regardless of how aggressive the administration becomes to that corridor,” he added.

While BillMo still plans to continue its work in Mexico, the company also has its eye on other countries in Latin America, including El Salvador, Honduras and Guatemala, which, combined, are bigger than the Mexico market.

Going forward, LaBella said the company will not only expand to new markets but will also work to grow its product within the countries in which it currently operates by offering additional ways to load money onto its wallets, whether that be via government assistance, payroll or cash-in.

“There’s going to be a variety of ways for us to grow within the countries in which we operate,” he said. “Remittances are just our first step to get us launched and build the brand, then later expand within the market.”