This week: InstaReM, JP Morgan Chase, OFX, PayPal, Swift, TransferMate, TransferWise, Wells Fargo, Western Union
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New data, new insights on cross-border payments. Every week.

Will a new King be crowned?
(and we don't mean in Game of Thrones)

In early March, we asked the question was TransferWise worth $4bn. Turns out the correct answer was $3.5bn after its $292m fundraise announced yesterday. More on TransferWise and also how JP Morgan changed its FX pricing structure later.

First, OFX announced their full year numbers on Tuesday. With a broad product set of consumer, SME and ecommerce offerings, OFX has a competitive set that overlaps with many players in the space.

OFX's stock price has had a hard time over the past six months but investors reacted very favorably to the full year results above pushing the stock back up c.15%.

We spoke with Skander Malcolm, OFX's CEO, late last year as he laid out his vision for the company. The slide in margins has been halted and the firm continues to invest. A few other observations:

1. OFX has been successfully optimising its pricing 
We care a lot about pricing so what does this mean? The company reported an improvement on its FX margin (the difference between the amount of FX its customers trade and the revenue OFX makes on these trades) from 52 to 55 basis points. That's a 6% improvement, worth nearly A$7m in extra income as pricing improvements go straight to the bottom line. At a current 13x EBITDA multiple that work is worth A$87m of value. This tells me our pricing data is way too cheap!

2. OFX's growth is coming from North America and Asia 
Both markets are showing nearly 20% improvements year on year. This growth is currently expensive with little additional contribution to profits for now. Investors will be looking for EBITDA margins in line with the rest of the group (around 27%) to follow.
Track OFX and the cross-border sector in our online portal

(When) will TransferWise be number one?

Both TransferWise and Western Union like to report their total FX flows to the market. With TransferWise recently reporting a new milestone of £4bn FX flow/month, we can now forecast when we think they'll catch Western Union if both companies continue on their current paths. 

At current rates, we have TransferWise catching up in one to two years and directionally the trend is clear. In terms of FX margin (and therefore revenue), Western Union has a much bigger lead which will not be closed in two years. (Contact us for a deep dive on TransferWise versus the competition).

Where will TransferWise find its growth from?
Growing from $50-60bn of annual FX flow to $100bn is going to require some effort. In the consumer market, TransferWise's current run rate is still a small fraction of the c$2trn market. Note the World Bank numbers of c. $700m, which focus on migrant remittances, exclude large parts of the market that cover TransferWise consumer customers.

Which means growth has to come from:

  1. Taking an increasing share of more geographical markets. Whilst it may be number one in the UK, in most other markets it still has plenty of room for growth
  2. Grow the SME segment. TransferWise is reworking its business product that currently accounts for around one sixth of its total flows. The SME market overall dwarfs the consumer market but growth often also needs human intervention meaning exponential growth rates are much harder to achieve.
  3. Win more white label deals to add to BPCE, N26 and Monzo. These banking deals take a long time to do are hard to win but can add a lot of flow very quickly (note recent wins for TransferMate in the US and InstaReM in Thailand).
What might slow TransferWise down?
To think about this, we need to broaden the competitive set. Western Union will not stand completely idly by  - it has a substantial digital business but its target customers primarily miss TransferWise. 

PayPal has the clout  - it's worth $100bn, has over 200 million customers and its FX flows are around double those of TransferWise.

Visa and Mastercard are increasingly getting into the cross-border space and then finally, we have to ask what Facebook, Google, Amazon, Tencent and Ant Financial may do.

Exciting times... 
Which Unicorns are in our Top 100 Market Map

When fees drive pricing

We track fees across a large number of banks and payment companies. It is impossible to analyse price without looking at both fees and FX margins together. 

Not too long ago, we saw that JP Morgan Chase in the US had substantially cut their fees on international payments. Suddenly, small value transfers looked a lot more competitive.

To stay up to date on pricing changes like these, start using our pricing data. 

Do you have all the pricing data you need?

Need it via APIContact us to get ahead.

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Last few meeting slots left. Get in touch to schedule a time to meet and discuss how our insights can help you.

Meet us at Money20/20
On our radar this week:
Curated by FXC Intelligence's Team 
Wells Fargo chooses TransferMate

Two years of work to power Wells cross-border inbound payments business

Marqeta raises $250m

The card-issuing platform raises a giant Series E round.

Swift messaging standards

Deutsche Bank warns of the work ahead to transfer to ISO20022

PayPal and Pakistan

PayPal is choosing to stay out of Pakistan for now. 

Technology Times

Missed the last few weeks?

Finablr's IPO analysis, Revolut's fortunes change (here)
MoneyGram's next move, Visa closes its Earthport acquisition (here)
The 100 Most Important Cross-Border Payments Companies list (here)
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Have a lovely weekend 

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