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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Payments and Remittances meld further as PayPal acquires Xoom

02 July 2015  |  3019 views  |  0

When I first entered the remittances industry the separation of these two industries was seen to be one of the laws of the universe, just as mobile was isolated as the solely desired channel for which new silos had to be built. 

I wrote The Digital Money Game to address the issues I foresaw with the convergence of industries and services into a multi-trillion dollar space we at Shift Thought continue to map out as Digital Money through our research in each country, as it transforms industries we have so far taken for granted.

While the remittances industry is alone worth over $580 billion, when you consider the melding of industries into Digital Money the prize increases exponentially as I prove in my book. Why would a consumer care to sign up to a new service (with perceived security, identity and operational inconveniences) for executing what is likely to be at most a single transaction a month? Would the consumers who choose to stay with cash as an economy goes digital really be the segment the brand wishes to deepen relationships with?

So it is no surprise that PayPal announced a few hours ago that it acquired Xoom for $890 million, as it prepares to leave eBay. As I see it, there was no option. When viewed from the Western perspective PayPal seems like a market leader, but as I studied each Asian country in depth, many challengers came to light as far back as 2011, when we announced that Alipay claimed to have way more digital wallet users than PayPal. Since then the Alibaba Group has grown substantially and Ant Financial Services has become a comprehensive digital money brand, as we report in our China analysis.

In our recent analysis of PayPal versus the Alibaba ANT Financial Services Group we discovered that while PayPal, Paydiant and Venmo together form a strong capability this still leaves a big gap to fill. To what extent will Xoom help fill this gap? This will depend on how soundly it goes international leveraging the PayPal footprint.

Xoom founded in 2001 today operates only to send money from the US, with 1.3 million active customers who send $7 billion to 37 countries, and this will have to change rapidly. Xoom has been recently entering emerging markets such as Mexico, India, Philippines, China and Brazil, but this has been in terms of receiving money electronically. What Xoom has capitalised on is the real-time payment infrastructure beginning to be established around the world, and this is how it entered India for instance. What it is has yet to do is to establish Send operations from other markets.

So for me the success of this venture hinges on the question of whether with Xoom, PayPal has better success in the last mile in India and China, and other key emerging markets but more importantly, how it plans to address the first mile across key Send Countries. To achieve the ubiquity of Western Union and MoneyGram PayPal will need to address remittance corridors in 200+ countries and territories, and do this rapidly.

As I've said before, brands are being built and broken by the trend towards Digital Money and we've entered the age of mega-groups, but it will not be easy to get this right. There are substantial differences between the market segments, as I've learnt through numerous studies, focus groups, interviews and research we carry out in each part of the world. However it is well worth attempting, and indeed as I repeat, I see little other option. 

And of course the bigger question still remains - Who will buy PayPal itself? Your thoughts?

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