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Remittance business analysis from US to China
- 1. Market Entry Strategy for Finablr
- 2. AGENDA Problem Statement & Market Analysis Managing journey: case studies Company & Customer Analysis Strategy Conclusion
- 3. The Challenge To create a market entry strategy for consumer remittance business from USA to China corridor for Finablr
- 4. Market Overview Global remittance market growing at 10.4% CAGR since 2000. $680 b transferred each year worldwide Managing journey: case studies USA remittance market size ~ $ 70 billion. USA sends most remittances, India biggest recipient. China balances out in receiving and sending. Digital remittance business ~ $17 B. CAGR 14.3% Average cost of sending money 7.2%. Pressure from govt agencies to reduce transfer fees Western union is biggest player (~ 40% market share)TransferWise fastest growing fintech
- 5. Revenue Estimation in US $ 2018 2023 Total US remittance market 70 B 100 B US-China remittance market (CAGR 10%) 20 B 32 B Market share 20% 4 B 6.4 B Revenue =Average commission (2%) 80 M 128 M in US $ 2018 2023 Chinese-American population in USA 4 M 4.5 M Users 1.3 M 2 M Market share 20% 0.26 M 0.4 M Avg Transaction value per user 13 K 13K Avg commission of 2% (Revenue) 250 $ 250 $ Revenue (Users * Avg commission) 62 M 100 M Estimation by market size Estimation by user revenue
- 6. Market Analysis Threat of new Entrants is high due to technological advancement Bargaining Power of Buyers is low due to limited no. of players Threat of Substitute Products is low since remittance involves huge payment ecosystem Bargaining Power of Suppliers is high due to control over payment networks Rivalry among existing competito rs is high due to falling commissio ns
- 7. Market Analysis – PEST Framework P E S T Technological Factors Technology is changing at faster rate and companies who can harness cost optimization due to technology platforms are at advantage Social Factors USA has highest number of Chinese immigrants who send money to China. China has huge population (98%) who has mobile internet access and has already adopted digital payments Economic Factors Currently China is facing slowing growth rate and is at its lowest growth rate . US is also predicted to have decreasing growth rate from 3 to 2% in next 2 years Political Factors There is ongoing trade war going between USA-China. USA has placed restrictions on many US companies while dealing with Chinese companies. China also levies huge restrictions on foreign companies operating in the country
- 8. Company analysis Customers’ wants differ by profile Shareholders want stable earnings and higher ROE New international and domestic laws and regulations to safeguard citizens’ interests and local economies Governments want banks to support national objectives New non-financial players are entering the market on the back of digital business models FATCA Basel 3 Solvency 2 Anti-Money Laundering IFRS 9 2.5 billion people do not have access to financial services Increase in ROE of over 15% per year 53% 87% of ‘Millennials’ are in Emerging Markets of ‘Millennials’ are convinced that their bank offers nothing different from other banks 1.5 bn People over 65 in 2050 Finablr Post-AQR Second largest MTO in world by Volume. Strong Presence in Middle East and world largest remittance receiver, India Diversified businesses in fintech industry - FX, remittance, payments, digital banking Strong network of offices. Strong experience in remittance industry Multiple brands - UAE Exchange,Unimoni,xpressmoney,Ditto,remi2india.com. In USA operating as moneydart.com
- 9. SWOT Analysis STRENGTHS : STRONG EXPERIENCE IN THE INDUSTRY WEAKNESSES : BRAND FAMILIARITY IN US MARKET IS LOW OPPORTUNITIES : US BIGGEST REMITTANCE MARKET THREATS : DIGITAL DISRUPTION & REDUCING MARGINS
- 10. Competition Analysis Moneygram US based remittance company with revenue of $1.5 B.Provides services via agents and financial instiutions. Large worldwise presence Remitly Charges fees and exchange rate markup for revenue. Brand familiarity Xoom Focused approach. Backed by PayPal group. Only focused on US market Transferwise Fastest growing MTO. Works on thing margin but working towards scalability. Does not earn on FX spread but on small client fees. Great and easy to use digital platform. Brand is wellknown. Recently launched ‘Borderless Account’ product Western Union Biggest MTO, twice of UAE Exchange. Largest presence of brick and mortar chain. Adding value added services like marketplace. Focusing on FX revenue 02 03 04 05 01
- 11. Competition Analysis 39% 15% 12% 10% 7% 5% 12% Cross border money transfer volume (in $Billion) Western Union UAE Exchange Moneygram RIA Transferwise Xoom Others
- 12. Competition Analysis FX Transfer Personal Corporate Virtual Bank Account Payroll Services Marketplace services Hedging Prepaid cards Western Union UAE Exchange Moneygram RIA Transferwise Xoom
- 13. Sender profile : Chinese immigrants/Asian- Americans working in USA Expect in-language support for the product Attitude for saving money for emergency purposes Targeted advertisement explaining the product helps Business Needs Receiver profile : Chinese citizens or immediate family of immigrants in china Customer Analysis Brand driven shoppers Prefer to do research before availing any financial services 98% people in China have access to mobile internet
- 14. Step 1 : Defining Business strategy • Finablr needs to first define the business strategy it wants to adopt in US market • Brick and Mortar network like western union provides ease to the customer but comes with huge capital investment • Digital only mode requires investment in technology and quick adoption rate but comes with lower operating costs compared to physical stores • Revenue generating channels - FX spread, flat fee • Scalability at lower margins vs high margins at low volumes • Traditional remittance model vs Marketplace model cStep 2 : Value proposition • Finablr needs to cope with decreasing fees and increased technological disruption • Differentiating product like Borderless Account by TransferWise needs to be introduced with the help of its group companies • Finablr can introduce different value added services along with core remittance business in US. This will ensure that switching costs for customers become high and their transactions increase with the MTO • Harness data to offer better services Entry Strategy - I
- 15. Step 3 : Marketing strategy • A small survey indicated that customers prefer the MTO which offers better rates and reliable transfer • Marketing campaigns should highlight the ease of use of the service, its reliability and transparency • Advertisements should avoid cultural stereotyping but appeal to the culture of the target consumers • Easy to recall service name • Language support for using the service cStep 4 : Ecosystem of Partnership • Since most of the senders and receivers of the remittance service use instant messaging services like WhatsApp/FB messenger /WeChat, possibility to integrate the remittance service with such apps needs to be explored • Tie-up with card companies to offer multi-currency cards at lower costs • Tie up with loyalty reward companies for customer engagement • Scratch card based rewards points to drive initial customer traffic Entry Strategy- II
- 16. Recommendation Business Model Digital.Since the demographic has mobile internet access Marketing Highlight ease of use and transparent rates Revenue Model Flat fee + Value added services Innovation Use Analytics to predict best FX rates and time for remittances Ecosystem Tie-up with Chinese tech firm like Alipay,weChat Scale Build scale to compensate thing margins Loyalty Loyalty points or membership benefitts
- 17. Challenges Pressure from government agencies to reduce fees. Falling margins Managing journey: case studies Technological disruption from new entrants Regulatory issues due to US-China trade war New business models like marketplace matching by Transferwise
- 18. Factors for strategy formulation Success of the strategy to be adopted for market entry will depend on factors like Amount of investment to expand in the market ? Risk appetite of the firm? Managing journey: case studies Timeframe for launch? Quality of technology ? Ease of use of the product? Brand recall value? Customer support provided? How quickly the company wins trust of it customer?