To the list of businesses that have been upended by the coronavirus outbreak, add this: the money transfer industry.
Global remittances are set to fall 20 per cent this year to $445bn, according to the World Bank. The pandemic has paralysed large parts of the global economy and thrown millions out of work. Those at the bottom of the economic ladder have been hit hardest.
This is bad news for those whose business is based on helping immigrants move money across borders. Western Union and MoneyGram International — two of the biggest traditional bricks-and-mortar participants — have reported a sharp drop in transactions since the outbreak. Workers whose jobs or hours were cut have less cash to send home. Those who still have means are hampered by shelter-in-place restrictions.
At Western Union, customer-to-customer transactions were down 30 per cent in late March and 21 per cent in April, although the decline eased to 5 per cent in May. Still, investors have marked down shares in the sector accordingly. Western Union has fallen about 25 per cent from its February high. It had been nursing a steeper decline before it got a boost from reports it was in talks to buy smaller rival MoneyGram.
The pandemic should hasten the rise of digital upstarts such as TransferWise. The London-based money transfer group is reportedly in talks to sell shares owned by early investors and staff at a £4bn ($5bn) valuation. It was valued at $3.5bn in a similar transaction just 14 months ago. Western Union has a market capitalisation of $8.7bn while MoneyGram is worth less than $200m.
TransferWise’s appeal is its ease of use and low costs. The group now processes about £4bn of payments every month and has branched out into new products such as debit cards and services for small businesses. It recently received permission to start offering investment products in the UK.
Even so, TransferWise is unlikely to come through the pandemic unscathed. The fact that current shareholders are cashing out for a second time in as many years should give would-be investors food for thought.
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