Capitalizing Connection: FinTech and the Immigrant Market Michelle Ofiwe

Like many first-generation kids, for me, “home” is dualistic. As a child, I [quickly] learned to differentiate between “home” (the physical space I shared with my family) and back home, the implicit nod to our extended family in Nigeria. One simply needed context, but there were plenty of opportunities to practice: the two always carried equal weight. My parents were fastidious in keeping the connection (literally and figuratively) alive, often sinking hundreds of dollars into cheap cell phones and remittance transfers. Some of my fondest childhood memories are punctuated with my mother’s pilgrimages to refill prepaid phone cards, or to the counter of Western Unions. Though necessary, the visits carried their own financial burdens: my mother complained of exorbitant fees and high markups that ate through her funds. In that sense, I understood family to be, in itself, a luxury - tethered together by what we could afford, but still out of reach.

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The Remittance Industry Today The remittance industry responsible for holding my family together has changed drastically in the past two decades, mostly with the development of smartphones. As the technology expands, so does the remittance industry. Addressing the industry’s largest issues - like curbing high fees and integrating app platforms - is prioritized mostly to avoid falling behind a rapidly-innovating communications market. Apps like WorldRemit and Remitly have forced tried-and-true storefronts like Western Union and Moneygram to embrace the digital age with instant transfers, less info collection, and suitable functionality. The result is a complete overhaul in the way we communicate and facilitate funds. Lying within this Great Expansion is the “immigrant market” - the demographic of Western-based immigrants who rely on remittance technology to support their families across borders. Traditionally regarded as “too high-risk” to target, the steady growth of this dutiful population has since caught the attention of financial tech (fintech) leaders, venture capitalists, and eager startups in search of an easy buy into the now-$600 billion market.20 Comprised of perpetually separated families like my own, “immigrant market” gives vague representation to thousands of families “locked into” remittance services by their desire to support loved ones. This market is extremely attractive to corporations: a captive base that suffers fees and other inconveniences quietly, often against their own interests. To that effect, the remittance industry and the immigrant market are inherently tied together: the latter almost always refers, in some way, to the former. With this in mind, the industry itself will always be po20 “Financial tech startups compete for overlooked U.S. immigrant market,” Gabriel Stargardter, Reuters, May 24 2016. http://mobile. reuters.com/article/idUSKCN0YF0EE 24

litical. Earlier this year, the anti-immigration backlash stoked by Republican presidential nominee Donald Trump drew special attention to the cash flow being generated by American-based immigrants transferring funds. In April, he referred to the over 24 billion dollars transferred by US-based Mexican immigrants as “welfare,” and later threatened to impound transfers unless Mexico would provide between $5 and $10 billion to fund his highly-controversial “border wall.”21 Trump’s comments illuminate an underlying anxiety around the relationships between the United States and other “third world” countries, as well as the outflow of potentially useful capital to such countries. Many, like Trump, see remittance transfers as a type of “shadow foreign aid”; as Dara Lind writes for Vox: “Immigrant workers in wealthier countries sent back roughly $435 billion to the developing world in 2015. According to the World Bank, that’s three times the size of official development aid from governments — and larger than private sector investment. In the United States, immigrant workers officially sent $56 billion back home in 2014 — a number substantially higher than the $36 billion from the US foreign aid budget. And economists agree that substantially understates remittances, since it only counts two of the ways migrants can send money home... The World Bank estimates that the true number might be closer to $130 billion in remittances — nearly four times what we send in foreign aid.”22 Unlike traditional foreign aid, remittance transfers are direct and can be difficult to trace - some platforms may 21 “Trump Now Wants To Block Immigrants From Sending Money To Their Families,” Esther Yu-Hsi Lee, ThinkProgress, April 5 2016. http:// thinkprogress.org/immigration/2016/04/05/3766450/trump-moneyremittances/ and “Financial tech startups compete for overlooked U.S. immigrant market,” Gabriel Stargardter, Reuters, May 24 2016. http:// mobile.reuters.com/article/idUSKCN0YF0EE 22 “Remittances, explained for Donald Trump (and everyone else),” Dara Lind, Vox, April 8 2016. http://www.vox.com/2016/4/8/11385842/ remittances-immigrants-mexico 25

not operate according to the World Bank’s standards, or within its radar at all, which can make it difficult for the government to keep track of the outflow. (This alone makes Trump’s plan to impound money transfers functionally useless, because even if it were possible to track every transfer being sent to Mexico, there is virtually no way to know whether the funds were sent by a documented immigrant.) Nonetheless, as the popularity of remittance platforms continues to grow, so will this fear of untraced capital to foreign countries. It’s definitely up to platform proprietors to address the fear of foreign capital in a way that their users cannot. Doing so will first require an innate understanding of the demographics and needs of the vastly diverse base remittance platforms serve, starting with an introspective look into the wide breadth between the industry’s primarily White, non-immigrant male makeup and the users that need their services. Data suggests that frequent users of remittance platforms are overwhelmingly people of color, with some of the most profitable remittance streams stemming from India, the Philippines, and Mexico. Audiences in these locations face a myriad of obstacles that can often vary by location or federal policy alone - for example, universal wi-fi access, exchange rates, and each country’s individual relationship with the United States. Yet, like much of the app market and tech at large, remittance platforms often utilize traditional avenues of funding to research and build headquarters in mostly white tech meccas. Remitly - one of the largest remittance apps on the market with over $1 billion in transfers annually - is based in Seattle, Washington (a city where 67% of citizens are white), and sports funds from firms including TomorrowVentures and Stripes Group. On the other side of the spectrum, brick-and-mortar shops have received funding from financial institutions as old as themselves: Western Union (headquarters in Englewood, Colorado)

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still receives backing from Wells Fargo23. Its neighbor, WorldRemit - with a US office based in Denver - additionally boasts offices in Montreal, Sydney, and London. Platforms housed in mainly-Western, usually-White populations inherently imbibe cultures that do not readily reflect that of their users. A particular kind of economic disparity is created by this dynamic - one where a market can continue to profit on the backs of an immigrant population it doesn’t have to “technically” learn much about. The drive for newer, better technology is supported by the rapid expansion and consistent engagement of immigrant users, but the users themselves cannot afford to buy into this tech or to oversee its development. In fact, due to wildly varying fee structures that can drain an additional 5-13% per transfer, these users can barely afford it. Companies who hope to enact long-lasting change within the remittance industry via the immigrant market must diverge from this precedent, and instead strive at every turn to do what’s best for their users.

What’s Important to Immigrant Users From my personal experience using remittance apps to communicate with my family, here are some essential and desirable features for Western-based immigrant users: Lower fee structure. Thankfully, proprietors have begun to address this in the past decade. Additional taxes on remittance funds are expected to drop to 3-4% with mobile payments, which continues to drive the immigrant population to adapt digital alternatives to the standard three

23 “Western Union Investor Contacts.” http://ir.westernunion.com/ investor-relations/investor-contacts/default.aspx 27

big players: MoneyGram, Western Union, and Ria.24 This is also an excellent way to keep the market competitive. Users will often weather higher fee structures to send transfers, but will remain considerably loyal to platforms that address this particular financial burden. Increased security options. Many immigrants select remittance apps for convenience, but also for the limited amount of information necessary for use. The standard remittance app requires nothing more than one’s email or phone number to send and receive funds, and users can easily deposit into a personal bank account. This contrasts strongly with brick-and-mortar storefronts that may prompt for name, address, ID, check stubs, or similar identifying documentation. Immigrant users may feel more comfortable utilizing platforms that offer the maximum amount of safety via the least amount of datamining. Less federal oversight. For similar security reasons, it benefits the migrant base when remittance platforms operate outside of the scrutiny of the World Bank and other more restrictive financial institutions. Transfer standards have changed significantly since 9/11, with global legislation on money laundering expanding significantly to address the financing of terrorist networks via remittances. In 2001, to reflect anti-terrorism or anti-immigration sentiments, the United Nation’s Financial Action Task Force released its 8 Recommendations on Terrorist Financing25, calling for increased oversight on funds being transferred to certain countries; remittances to Indonesia and the Philippines were severely damaged in the aftermath. Some international banks have since followed suit and completely shut down remittance streams 24 “A Sector Snapshot on the US Remittance Market, 2015,” Let’s Talk Payments. https://letstalkpayments.com/a-crisp-report-on-the-usremittance-market-2015/ 25 “FATF IX Special Recommendations,” United Nations, October 2001. http://www.un.org/en/sc/ctc/docs/bestpractices/fatf/9specialrec/ fatf-9specialrec.pdf 28

to certain countries - most notably, Somalia.26 Stable accessibility via associated technology. Immigrant communities increasingly depend on being able to access financial services - bank accounts, transfer funds, and remittance - via their smartphones. According to the Pew Research Center’s 2015 study on smartphone use, 13 percent of Latinos living in the United States use smartphones as their only source of Internet access. Additionally, much of the immigrant market includes younger, tech-savvy, employed first-generationers like myself or undocumented immigrants who are much more comfortable using online platforms to communicate and send money. The remittance industry, in an effort to accommodate its younger audience, has since integrated functionality with modern social media communication platforms, like Gmail, Facebook, and Snapchat (Snapcash), but expansion for more convenient transfers should continue. Transparency to earn and build trust. The remittance industry has struggled with a lack of trust amongst its audience, and has historically lacked transparency around its pricing and fee structures. Fee structures vary wildly among platforms and across borders, sometimes reaching as high as 13% (in African countries.)27 Unexplained fees foster an uneasy relationship between a service and users who resent such a markup. Apps and platforms should become increasingly clear about their fees, how they calculate exchange rates, and transfer time frames. A sensitivity to financial literacy. This would extend primarily to the banks and other financial institutions back26 “Migration and Remittance Flows: Recent Trends and Outlook, 2013-2016,” World Bank. http://siteresources.worldbank.org/INTPROSPECTS/Resources/334934-1288990760745/MigrationandDevelopmentBrief21.pdf 27 “Remittances, explained for Donald Trump (and everyone else),” Dara Lind, Vox. http://www.vox.com/2016/4/8/11385842/remittancesimmigrants-mexico 29

ing remittance platforms, like Wells Fargo via Western Union. Many of the migrant population lack financial literacy as we’ve come to understand it in a Western context. Understanding how money is best managed, how it is sent/received/deposited, and how external factors impede this process can benefit immigrant users and their families. Companies may address these issues in a myriad of ways, but perhaps the best method would be prioritizing the hiring of Western-based immigrants or American-born first-generationers who understand the dynamics of using remittance apps. As the primary target of these services, Western-based immigrants can be an incredibly valuable source of knowledge for companies looking to better design, market, and evaluate the usability of their own services. Those especially interested in progressing their market would find it wise to immerse themselves in the politics influencing it - mainly that of anti-immigration and antiterrorism policy that severely impacts their audience and its breadth. Global politics are crucial in this arena; remittance services themselves are a global product. Even a slight change in a relationship amongst countries can affect accessibility, fee structures, and access to necessary resources, like Internet connectivity. The remittance market undoubtedly relies on the continued patronization of an ever-increasing immigrant population. Those merely concerned with exceeding their bottom line may adopt these suggestions and find success, but longevity will ultimately be achieved by paying special care to the needs and expectations of this long-established market. Companies that continue to improve their services in the audience’s favor will enjoy a competitive stance. The need to connect and communicate with home will never cease, and thus the remittance market is here to stay.

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