Afghan Remittances Under Pressure & Remitly Gears up for IPO (The Monito Briefing Issue #13)

Hello and welcome back to the Monito Briefing! Following the recent turmoil in Afghanistan, we take a look this week at how the US Treasury Department's foreign currency controls have impacted the country's remittance market to date.

Then, we take a brief look at Remitly ahead of its anticipated IPO and how its most recent financials stack up against those of its competitors.

Industry Highlights

Before we get going, here are a few interesting headlines from the past weeks:

• Remittances to Mexico surged to a new all-time high of US$4.54 billion in the month of July, spurred largely by fiscal stimulus in the United States;
• Dubbed "Project Dunbar", the central banks of South Africa, Australia, Malaysia, and Singapore are set to work with the BIS to trial the use of central bank digital currencies (CBDCs) for international settlements.
• Visa has agreed to collaborate with Arab regional payment platform Buna to provide access to fast and cost-effective channels for cross-border payments in Arab and international currencies.

Remittances to Afghanistan Under Renewed Threat

The recent announcement of the withdrawal of US troops from war-stricken Afghanistan has set in motion a chain of events in the country's remittances industry that ⁠— although improving ⁠— remains far from resolved.

Here's a summary of the situation so far:

• 13 August: The US Treasury Department begins taking steps to prevent a humanitarian crisis in Afghanistan, including blocking bulk USD shipments to the country and access to the Afghan central bank’s reserves.
• 15 August: Taliban forces take over the Aghan capital of Kabul, leading to the collapse of the US-backed Islamic Republic of Afghanistan.
• 18 August: Western Union ceases all service to Afghanistan, telling Reuters in a statement that they would "monitor the situation closely". MoneyGram follows suit. The IMF suspends Afghanistan's access to its resources on the same day.
• 25 August: The US Treasury Department authorizes the delivery of some humanitarian aid to Afghanistan, including food and medicine.
• 2 September: Financial institutions are given the green light to process personal remittances to Afghanistan. Western Union and MoneyGram resume services to the country on the same day.

Fast-forward to today, and Western Union and Moneygram have both begun temporarily offering fee-free money transfers to Afghanistan as of 7 September. However, according to the Wall Street Journal, both companies have also expressed concern that partner banks and third-party agents in the country might not have the required liquidity to process transactions.

While Western Union and MoneyGram were quick to resume services to Afghanistan following the US Treasury Department's updated guidelines, Small World — also among the three largest money transfer operators to Afghanistan according to Monito's comparison data — continues not to support international money transfers to Afghanistan as of 7 September.

Zooming out and looking at the bigger picture, the impact of recent events on inbound remittances to Afghanistan hasn't been restricted only to traditional banking channels and remittance systems. According to a New York Times feature, even the hawaladars — informal payment brokers used by many Afghans abroad to exchange foreign currency for Afghan afghani — have faced a surge in demand and a concurrent shortage of physical currency, putting further pressure on the country's already strained remittance market.

In 2020, around 4.00% of Afghanistan's GDP (which equated to approximately US$789 million) was driven by remittance inflows alone, making them a lifeline for some of the country's most vulnerable communities.

Remitly Files S-1 Ahead of IPO

As Remitly gears up to go public (with a valuation expected to be around US$5 billion), the company has reported an impressive set of financial results up to Q2 2021 in its recent Form S-1 filing. Here are some of the highlights of the report:

• Transfer speed: 75% of transactions in 2020 were completed in less than one hour.
• Doubled revenues: Remitly's total revenue grew to US$257 million in 2020, up 103% from US$126.6 million in 2019.
• High mobile app engagement: Around 85% of Remitly's customers interact with the mobile app platform.
• High concentration in three countries: Remittances to India, the Philippines, and Mexico represented around 75% of Remitly's revenue and send volume in 2020.

Armed with fresh numbers, let's take a look at how Remitly sizes up against other public IMTOs (and WorldRemit for comparison) in terms of key business metrics:

In the fiscal year 2020, Remitly brought in US$257 million in revenue. This places the company firmly among the world's largest digital IMTOs by revenue, coming in slightly behind WorldRemit with US$280 million but ahead of MoneyGram's digital business segment, which brought in revenues of US$188 million in 2020.

However, in terms of annual digital revenue growth — although Remitly is still bringing in less revenue than Wise and Western Union — the company is nonetheless growing around twice as fast on average:

The picture is similar when it comes to the total number of customers using digital channels such as web apps, mobile apps, and other applications hosted by third-party white-label or co-branded digital partners. Here, Western Union and Wise led the pack in 2020, with Remitly coming in with less than half the number of active customers of each, but still ahead of MoneyGram:

Remitly also set forth a bold vision in the report, asserting that several key trends are likely to support their growth going forward. According to the S-1, cross-border remittances and banking are "two of the largest financial services markets in the world", representing over US$1.5 trillion in volume. However, current players in the market rely on "disparate legacy systems and processes" that ultimately lead to "poor customer experience and additional operating costs that are passed down to the customer."

According to the report, Remitly seeks to hone in on this market by offering integrated digital solutions built to address diverse immigrant communities' cultural and local market requirements — with Passbook being but the first step on this road.

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