REMITTANCES EXPLAINED: How funds are transferred across borders, and why digital is poised to disrupt this century-old industry

Over the past few centuries, the world has become increasingly globalized. Immigrants are pouring into developed countries like the US, where many jobs pay higher rates than in their home markets.

As migrants shuffle around the globe, they have family members and friends back home who they continue to support through cross-border money transfers, called remittances.

Three remittance companies — Western Union, MoneyGram, and Ria — have dominated this market for years, operating a combined 1.1 million retail locations across 200 countries to facilitate cash pickups. However, digital-first players are emerging, leveraging mobile and online platforms to compete with the legacy firms on scale and fees. Fees remain a huge pain point for migrants sending money home, and offering lower fees gives startups a huge advantage.

In a new report from BI Intelligence, we size the total remittance market, the countries on both the send and receive sides that dominate remittance volume, and how remittances differ depending on payment mechanisms. We also look at the top challenges faced by remittance companies and what factors digital-first remittance startups are capitalizing on to disrupt the traditional remittance model.

Here are some of the key takeaways:

• Remittances — primarily payments sent by foreign workers to their relatives back home — is a massive global industry that digital players are just beginning to disrupt. $583 billion was remitted globally in 2014, according to estimates from the World Bank.
• The remittances industry is a highly imbalanced one, with certain countries dominating send volumes and others dominating receive volumes. The US sent 22% of global remittance volume last year, and India received 12% of global remittance volume.
• Different types of companies offer remittances, but it is money-transfer operators (MTOs) that primarily focus on these cross-border transfers. Banks actually dominate the remittance market, while MTOs, including Western Union and MoneyGram, have about half as much market share as financial institutions.
• Digital players are finding an opportunity to update the remittance model and gain a foothold in this industry by lowering overhead costs and passing savings on through lower fees. Digital-first MTOs use mobile and online channels to send money, bypassing costly agent-send networks. They also use more efficient and cost-effective computer modeling to meet compliance standards.

In full, the report:

• Sizes the remittance market and assesses total revenues earned through facilitating cross-border transfers
• Examines which markets and regions are the top for sending and receiving of remittances
• Lays out the different types of companies offering remittances and why certain players dominate the industry
• Unpacks the challenges to facilitating remittance, including sociopolitical instability and major compliance burdens
• Considers ways digital-first startups have begun to disrupt remittance companies and bring down fees 

Interested in getting the full report? Here are two ways to access it:

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CHATBOTS EXPLAINED: Why businesses should be paying attention to the chatbot revolution (FB, AAPL, GOOG)

Advancements in artificial intelligence, coupled with the proliferation of messaging apps, are fueling the development of chatbots — software programs that use messaging as the interface through which to carry out any number of tasks, from scheduling a meeting, to reporting weather, to helping users buy a pair of shoes. 

Foreseeing immense potential, businesses are starting to invest heavily in the burgeoning bot economy. A number of brands and publishers have already deployed bots on messaging and collaboration channels, including HP, 1-800-Flowers, and CNN. While the bot revolution is still in the early phase, many believe 2016 will be the year these conversational interactions take off.

In a new report from BI Intelligence, we explore the growing and disruptive bot landscape by investigating what bots are, how businesses are leveraging them, and where they will have the biggest impact. We outline the burgeoning bot ecosystem by segment, look at companies that offer bot-enabling technology, distribution channels, and some of the key third-party bots already on offer. 

The report also forecasts the potential annual savings that businesses could realize if chatbots replace some of their customer service and sales reps. Finally, we compare the potential of chatbot monetization on a platform like Facebook Messenger against the iOS App Store and Google Play store.

Here are some of the key takeaways:

• AI has reached a stage in which chatbots can have increasingly engaging and human conversations, allowing businesses to leverage the inexpensive and wide-reaching technology to engage with more consumers.
• Chatbots are particularly well suited for mobile — perhaps more so than apps. Messaging is at the heart of the mobile experience, as the rapid adoption of chat apps demonstrates.
• The chatbot ecosystem is already robust, encompassing many different third-party chat bots, native bots, distribution channels, and enabling technology companies. 
• Chatbots could be lucrative for messaging apps and the developers who build bots for these platforms, similar to how app stores have developed into moneymaking ecosystems.  

In full, the report:

• Breaks down the pros and cons of chatbots.
• Explains the different ways businesses can access, utilize, and distribute content via chatbots.
• Forecasts the potential impact chatbots could have for businesses.
• Looks at the potential barriers that could limit the growth, adoption, and use of chatbots.
• And much more.

Interested in getting the full report? Here are several ways to access it:

1. Subscribe to an All-Access pass to BI Intelligence and gain immediate access to this report and over 100 other expertly researched reports. As an added bonus, you'll also gain access to all future reports and daily newsletters to ensure you stay ahead of the curve and benefit personally and professionally. >> Learn More Now
2. Access the Ultimate Digital Media Reports Bundle and save 92% today. You will gain immediate access to the Chatbots Explainer and 45 other in-depth research reports covering the most important topics impacting the digital media space. >> Bundle & Save Now
3. Access the Ultimate Mobile, Apps & Platforms Reports Bundle and save 95% today. You will gain immediate access to the Chatbots Explainer and 75 other comprehensive research reports covering the most important topics impacting the mobile. >> Bundle & Save Now
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Learn more:

• What is the Internet of Things? Definition, Industries and Companies
• IoT Ecosystem - Forecasts and Business Opportunities
• IoT Market Size, Share & Growth Forecasts

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10 things in tech you need to know today

Good morning! Here's the tech news you need to know this Thursday.

1. Apple could be on the hook for $19 billion (£14 billion) in taxes in Europe, and the Obama administration is livid. The European Commission is expected to hit Apple with a massive tax judgment in the next few months.

2. Uber is quietly testing flat fares that make it almost as cheap as a bus. The test, which is running in San Francisco, lets users pay $20 (£15) to lock in a set of 20 flat-fare trips.

3. One of Peter Thiel's fellows has created a new startup that will fund your lawsuit. It uses algorithms to calculate which legal cases might be likely to win, and invests in them.

4. We took a look inside Building 87, Microsoft's mad science laboratory. It's where the company prototypes new ideas.

5. Pokémon Go has a new way to block cheaters. It is going to start showing captchas to users that make them prove they're not a robot.

6. Tim Cook took over from Steve Jobs as permanent CEO of Apple five years ago. The stock price has doubled, but Cook has yet to produce a product that can rival the iPhone.

7. A sports writer says he was permanently banned from Twitter after posting GIFs of the Olympics. Jim Weber wrote a blogpost about his ban on LinkedIn.

8. Vice boss Shane Smith predicts a "bloodbath" of media consolidation in 2017. The CEO says his media organisation is building a "war chest" to "go out there and buy market share."

9. Apple has bought a lot of startups we don't even know about. Eddy Cue, the exec in charge of internet services, says Apple buys between 20 and 30 startups a year.

10. An ex-Yelp engineer has raised $6 million (£4.5 million) to make tastier beer. Scott Clark is CEO of artificial intelligence startup SigOpt.

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Top City CEO: Crowdfunding has 'a long way to go' but will be 'massive part of fundraising market'

The CEO of a top City of London stockbroker believes crowdfunding will become "a massive part of fundraising" but thinks the regulator needs to take more action to make sure people are not being "ripped off" by "sky-high valuations."

Sam Smith, CEO of finnCap, told Business Insider: "It’s got a long way to go. But I think it will be a massive part of the fundraising market and should be, because it’s great to get retail money involved in startups."

Crowdfunding is where ordinary people — so-called retail investors — put money into startups, investing as little as £10 or £20 at a time. A huge number of platforms have sprung up in the last half a decade. The biggest is Crowdcube, which has raised over £185 million ($243.9 million) for 438 companies.

Smith says: "I think it needs to develop a process of working out what it’s going to be: is it funding startups, is it funding slightly bigger businesses? How do you do due diligence things and make sure people aren’t been ripped off and put into sky-high valuations?"

The risks involved with investing in startups

There have been several high-profile failures of crowdfunded businesses in the last year, but Smith says most crowdfunding platforms do a good job of conveying the risks involved with investing in startups. The vast majority of startup businesses fail, but Smith believes people should be allowed to take that risk. For those that do succeed, the returns to investors can potentially outstrip investments in publicly listed companies.

But Smith is concerned about investors falling foul of unrealistically high valuations, which mean crowd investors could end up with little or no profit when the business is sold or listed.

Smith told BI: "I hear plenty of times an institution will come into something at one valuation but it will say, ‘On the crowd, we can get double that valuation so we’ll go there.’ To me, that’s saying I know I can rip off the retail customers so I’m going to do that."

The lack of independent valuations

Most crowdfunding platforms do not have independent valuations, letting companies pick their valuations and then advising on them.

Luke Lang, cofounder of Crowdcube, told BI earlier this year that his platform has a team of 6 in-house analysts who "benchmark valuations against industry standards and... offer guidance to try and rein them in or increase them when they’re not high enough."

But if businesses are too highly valued when they crowdfund, future fundraising or IPOs could see the business take a write-down on their valuation or just a small rise in its valuation. In these cases, investors who cash out wouldn't make much money and could even stand to lose it. 

Smith didn't single out any specific platforms but said of the industry: "That doesn’t sit well with me, that because they don’t know as much you can charge them more. That does need to be looked at because you don’t want the whole market to be ruined."

Despite these reservations, Smith says crowdfunding is a "brilliant" innovation. "If you’re a startup, where did you go 5 years ago?" she says. "You might use a credit card, you might go to the bank for an overdraft but that’s not happening anymore. It’s actually filling a real gap."

finnCap is the biggest broker to companies on London's growth stock market AIM and is one of the top 5 stockbrokers for the London Stock Exchange.

finnCap invested in crowdfunding platform PrimaryBid in May. The platform aims to offer retail investors access to stock market flotations and secondary fundraisings on public markets using the technology of crowdfunding.

Numis, another City of London stockbroker, has also made a bet on the crowdfunding market, investing £6 million in Crowdcube last year.

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Fintech CurrencyFair poaches ex-AO World chairman to supercharge growth

Peer-to-peer online money exchange platform CurrencyFair has poached Richard Rose, the former chairman of AO World, to be its new chairman, hoping Rose can help CurrencyFair grow to a similar size as the listed white goods retailer.

Veteran businessman Rose was the CEO of tea company Whittard of Chelsea in the early 2000s before going on to chair businesses such as online home appliance retailer AO World, butchers Crawshaw's, and retailer BlueInc.

Rose told Business Insider he specialises in chairing businesses that need "either corporate turnarounds or smaller companies that have an ambition to grow."

He joined AO World when it was, in his words, a "small fledgling private company" in 2007, steering it to a £1.2 billion ($1.58 billion) stock market listing 7 years later in 2014.

Rose told BI that CurrencyFair is "another AO scenario", saying: "What appealed to me about CurrencyFair is I thought it was operating in a very interesting space and presents a fantastic opportunity. For too long the banks have cleaned up by ripping customers off with hidden charges."

CurrencyFair's online platform lets people exchange money directly with other people looking to make the same trade in the opposite direction. The model offers customers cheaper prices than the traditional brokerage model, where middle men sit in between and take a bigger cut.

Rose says: "At AO, it took a number of years to build it to scale that would command the price we were looking for [from an IPO]. I think we could definitely get there quicker in the case of CurrencyFair because it's such a compelling customer proposition but there's no set timetable for an IPO at this stage."

CurrencyFair CEO and founder Brett Meyers says in an emailed statement:

"I’m extremely excited to be working with Richard as CurrencyFair enters its next phase of growth. He has an incredibly impressive track record of delivering value to shareholders and keen insight into the scaling of businesses."

The Irish company, which has been operating since 2010, raised €8 million in May and hired a new chief marketing officer as it looks to mount a marketing and growth push.

Alongside the appointment of Reed as chairman, CurrencyFair is also launching into money transfers for businesses.

Reed told BI: "We're entering a new market to target our offer to SMEs [small and medium enterprises] which is showing great promise. SMEs pay high fees through the banks and we've customized our offer to suit their needs."

CurrencyFair's peer-to-peer model was recently criticised by the CEO of traditional Australian forex broker OFX Richard Kimber, who told BI: "The major challenge with the business model in peer-to-peer is inherently it assumes you’ve got an equal amount of buyers and sellers is any given currency."

Rose says: "He would say that. We offer a dual model, so where that issue persists we can step in and offer a more traditional model and our customers choose both. We're the only provider that can offer that true alternative."

As well as traditional brokers like OFX and big players such as Western Union, CurrencyFair must compete with well-funded startups in the foreign exchange space such as TransferWise and WeSwap. Roses says CurrencyFair will differentiate itself through "great customer service, competitive prices, and an easy platform to use."

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