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This week: Alpha FX, FairFX, JP Morgan, MoneyGram, OFX, Payoneer, Tipalti, TransferWise, Western Union
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New data, new insights on international payments. Every week.
 

What makes a crazy valuation?

Before we get to TransferWise (as important as they are), this past week I became a father. I will simply tell you that’s it awesome and I’m thankful that everyone is well. With all the lack of sleep, I want to especially thank all of my team globally that ensures our ship keeps steaming ahead at all times. In particular for the newsletter, Ian who heads up our Data and Research and Cameron leading our pricing product - thank you guys.
 

To TransferWise...
TransferWise is reported to be seeking a share sale valuing the company at £3bn ($4bn). This would make it one of the most valuable fintechs globally. 

What is driving this valuation? Is it continued high growth off a real revenue base and how does it compare to its peers? Let's see where TransferWise fits in. 
We can clearly see from the analysis above that high annual growth is what is driving a high valuation. TransferWise is unique as the only group still growing at its pace even with a substantial nine figure revenue base (we've estimated a repeat of the 100% annual growth seen from March 2017 to March 2018).

Alpha FX has the richest valuation and FairFX is close behind but both are growing off relatively small revenue bases. OFX has been picking up the pace and it will be interesting to see if its valuation follows. 

With a reported $3bn/month of FX flow (c.$36bn/year), TransferWise still has a small fraction of the overall market implying plenty of room to keep growing. 

Which would suggest their 12x Price to Sales ratio doesn't look crazy. Which means it's hard to say a $4bn valuation is crazy either...as long as the growth rates hold up.
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Valuing big digital cross-border businesses

As impressive as TransferWise's growth rates are and its estimated $250-300m of current digital revenue, let's not forget what Western Union and MoneyGram have been doing in the space.
If TransferWise's business (all digital) is valued at $4bn, should Western Union’s digital business (which is quasi digital as it pays to cash too) be worth $8bn?

In which case, since the current value of Western Union is $7.8bn, the rest of the business would be worth nothing (and Western Union just announced the sale today of its bill pay business for $750m).

Which means either Western Union's digital business (growing at circa 20% per annum, no small feat), is undervalued or TransferWise is overvalued. But it can't be both. 

And spare a thought for MoneyGram, having no easy time right now but still running a digital business with annual revenue of over $230m.
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Pricing insight #5

In early February, the FCA released its new policy on “General standards and communication rules for the payment services and e-money sectors." This is something lots of people reading this letter will need to take a close look at.

Last year, working with the FCA, we surveyed consumers who had recently transferred money and found they had misplaced confidence in their understanding of FX terminology. While respondents tended to say they understood FX pricing terms they went on to select incorrect responses when tested on this knowledge. This can be seen in the chart below.

For instance, the majority of FX consumers assigned incorrect definitions to “Best exchange rate”, “lowest fees”, and “guaranteed best rate”, while almost half of respondents answered ‘Exchange rate’ incorrectly.

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Want to track your competitors pricing in real time, benchmark yourself against the market, or set a better pricing strategy? Access our FX Pricing APIs. Get in touch to find out more.
 
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On our radar this week:
Curated by FXC Intelligence's Team 
JPM Coin gets more CEO love

JP Morgan's CEO says the coin (covered last week) could be used for consumers

CNBC
Tipalti goes multi-currency

By launching a new multi-FX payout product

Global Banking & Finance
BNY Mellon also goes multi-currency

New service pays in 125 currencies, receives in 40 currencies.

Verdict
Payoneer moves into lending

The ecomm giant launches a working capital product

PR Newswire

Missed the last few weeks - it was pricing and the blockchain

Our FX pricing APIs - benchmark competition (here)
How will JP Morgan's new coin impact the sector? (here
Analysis of Western Union, MoneyGram and Ria 2018 results (here)

 
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Have a really wonderful week,

Daniel
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