PayPal + Xoom Merger

There is a lot of excitement in the industry after PayPal announced it was buying the remittance company Xoom. A lot many people have asked, how will this play out? What is my opinion of it? Well, here it is, feel free to disagree. I won’t talk much about PayPal + Xoom, I think it is a brilliant merger and one that would play out well in the years to come. Instead, I will focus more on the industry.

First, lets tackle where the remittance industry heading?

I would like to use two words to describe it:

  • Consolidation
  • Conformity


Remittances have been touted as the low hanging fruit. Ever since value-transfer has been made more portable, easy and available to all, everyone is  running towards it.

I’d like to draw parallels to the web hosting business when the Internet came out. Everyone wanted to be a web-host. Most of us remember this era well. If it weren’t a web-host, then it was providing paid email.

Why web-hosting or email? Because these were the low hanging fruits of the Internet.  Over the years, the markets consolidated. Now, instead of 100,000s of hosts, we have 10,000s hosts. Serious ones, perhaps a 1,000 hosts. Large hosting providers, probably a few hundred. This is how things consolidated.

The remittance industry is going to be no exception. Expect to see a lot many small players going out of business because of diminishing returns and competition from the like of TransferWise, Xoom, Remitly, WorldRemit, Azimo, etc., companies that control the send side to a larger extent with their marketing budgets, subsidized onboarding and transmission of money.

I personally know quite a few people who are essentially corridor-killers (i.e. they rule a particular remittance corridor) and even they see the competition rising and know the fine writing on the wall that nothing lasts forever. They will be transitioning out of the corridor in the next 6-12 months.

I would say the market would have the following type of consolidation:

  • Incumbent players (Western Union, MG, Ria, et. al.)
  • New entrants who are quickly taking away market share (TransferWise, Xoom, Remitly, WorldRemit, Azimo, et. al.)
  • Corridor Specialists (for example UAE-India or Saudi Arabia-India, these corridors are rules by the local exchange companies and banks, so not going to be seeing a shift here anytime soon).
  • Smaller players

The number of players will reduce.


Conformity is going to be a huge issue. Though it may sound contradictory to Consolidation, conformity has its own set of challenges.

Regulation: With more and more stricter regulation being asked for, the game is in favor of those who have economies of scale. Smaller players will charge higher in order to conform to the regulations, whilst for larger players, the cost on a per transaction basis goes quite low.

Access to Banking:  Maintaining bank account is now becoming a difficult task (see two articles I wrote on this specific financial epidemic):

Speed: The speed at which transactions can be made, is now important. Not only is speed important, what is also important is how quickly can the net settlement between the two MTOs / Banks be done.

Access to Working Capital: Many small MTOs have limited capital, hence, they rely on quick turn-around time to pre-fund their payout accounts. Any delays, etc. forces them to take a hit, or reduce the number of transactions they can process, resulting in lower income.

The larger players don’t have this problem. They can easily fund their prefund accounts in various territories and have additional money on hand to handle a spike in remittance traffic.

Mobile: More and more people are relying on their mobile phones for surfing the web, social media access and  communicating via various messengers. This is where players like WhatsApp, Viber, FB Messenger, Google, Apple, etc. would have a clear cut advantage. The smaller players are struggling just to keep their web presence in check with the technology out there today.

Niche startups who are pitching mobile as the on-boarding/off-boarding mechanism have a decent chance to disrupt the market, provided they can get enough traction. Traction is the key. The incumbents are fighting for traction (i.e. retention), the new players are fighting for it, with their large advertising budgets and the smaller players are desperate to hold on to what they have and try to make the best with their limited budgets for advertising and client acquisition.

Mobile Operators: Albeit late in many territories, mobile network operators (MNOs) are now seeing how they can leverage their distribution network for remittances. As a matter of fact, remittances is not the only area they are focusing on. They are focused on payments. Be it remittance payments, small value, B2B, value-remittances (where money is exchange for goods, etc.), these players are now going to showcase the strength of their distribution network and the power of local P2P payments to which they natively integrate.

Brand Power (or Attention as I call it): Expect the incumbents and new (large) players to capitalize on their brand power. Western Union, Ria, MoneyGram will not give up the fight so easily. The will innovate (who says they are not?) and will continue to dominate the remittance space int he years to come. Remember a very large swath of the population doesn’t have access to smart phones or are not that mobile/internet savvy to attach their bank accounts and remit money. Many are still unbanked. This is where the brand power of Western Union, et. al. remains extremely powerful and relevant. Do not expect this to diminish over the next 3-5 years.

Seeking a user’s attention which all the internet companies can do, will be a powerful motivator to switch. Being able to pay from your FB account or Google account is something that is inevitable. This is where the internet companies have a one-up on the incumbents.

Small Value Remittances / Cross-border Micro-Payments: This particular vertical will be huge. My personal estimation is that in 10-years time, Small Value Remittances / Micro-Payments (sub $100) will be a $500Billion to $1 Trillion industry (if not more). This is anyone’s game, but internet companies are better positioned to capitalize on this.

Distribution vs. Software?

With regards to the question will software win? or will distribution win? I think both have a place and role. It would be naive to think Western Union will do nothing and be complacent. It will not. Neither will the other incumbents. There is nothing that stops the incumbents to offer nearly very same value offering for transfers that the new age internet remittance players are going to be offering.

Whilst no one can predict for sure, and examples like Blockbuster are always brought up, personally, I don’t think Western Union and other incumbent players will be complacent and see their decline.

The incumbents might just even acquire the new age internet remittance players, thus have a firm monopoly, though I don’t see that happening anytime soon due to competition laws.

I feel the number of players in the market will reduce, and the value of services being offered by each players will rise vertically.

For the next 3-5 years, the Old and the New will battle it out together.

This page was last updated on July 7, 2015.

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