The Xoom-Ria Deal Shows Cash Still Rules Remittances

In a way, the deal seems old school. PayPal-owned money transfer operator Xoom said this week that its new agreement with Euronet Worldwide’s Ria will enable Xoom customers to pick up cash remittances from more than 150,000 Ria network locations.

Cash, huh?

It’s not as ancient as it sounds.

The new PYMNTS Global Cash Index shows that cash continues to thrive in India, even after authorities there launched their demonetization push in 2016. A large rural populations with limited internet access, distrust of the country’s financial system, a thriving underground economy and other factors all support the ongoing use of cash. In fact, India’s rate of cash use is expected to rise at a compound annual growth rate of 10.47 percent from 2016 to 2021.

Cash Factors

Globally, inertia and familiarity keep remittance customers loyal to cash, according to Xavier Martín Palomas, stream lead and experience director at the Digital Frontiers Institute.

“Although it is true that there is a certain commoditization of remittance services that offers little room for differentiation and forces companies to compete mainly on price, it seems that there are other factors, like being able to make a transfer in person at a familiar agent location, that customers are willing to pay for,” he wrote in a recent article for the Consultative Group to Assist the Poor, or CGAP. “This might be reflective of discomfort with using a digital product, or it could be that the agent-based product is well-known, trusted, and liked.”

Convenience plays a factor, too. Palomas said that many migrant workers are paid with cash or checks, and that their workplaces are near agents who cash checks and enable remittances. “That might seem a lot more practical than going to a bank to make a deposit and then going online to send the money,” he said.

Market Growth

The Xoom-Ria deal allows Xoom to “grow [its] global footprint and significantly expand [its] services in the African diaspora and across Eastern Europe,” said Julian King, Xoom’s vice president and general manager. Both remittance markets have recently experienced renewed growth after a general decline for low- and middle-income countries that ended in 2017, according to World Bank data.

“Officially recorded” remittances to low- and middle-income countries reached $466 billion in 2017, up 8.5 percent year over year. All global remittances increased 7 percent year over year in 2017, reaching $613 billion. Remittances to low- and middle-income countries in 2018 will increase 4.1 percent year over year, and all global remittances will increase 4.6 percent.

The increases were driven “by growth in Europe, the Russian Federation, and the United States,” the World Bank said. “The rebound in remittances, when valued in U.S. dollars, was helped by higher oil prices and a strengthening of the euro and ruble.”

Broken down by market, remittances to Europe and Central Asia grew 21 percent year over year in 2017, a rate that will slow to 6 percent this year, and according to the World Bank, remittances to sub-Saharan Africa increased 11.4 percent year over year in 2017, a rate that will slow to 7 percent this year.

Much of those remittances will be in cash, no doubt, given the trends and the expectations behind the Xoom-Ria deal. But digital is making gains. Evidence for that comes from the latest financial report from Western Union.

Its latest quarterly earnings showed revenues of $1.4 billion were up 2.2 percent year over year, missing estimates by $20 million. The reported earnings of 46 cents per share were off by one penny when measured against the consensus.

But it was on Western Union’s website where consumer-to-consumer revenues shone, up 22 percent — or 21 percent as measured in constant currency. The transaction count was up 26 percent year over year, and Western Union said that its website’s revenues made up 11 percent of total consumer-to-consumer sales in the quarter.

Of course, that’s only one earnings report. Cash remains king for millions of money remittance customers, and the Xoom-Ria deal demonstrates how loyal consumers are to paper money.