The global COVID pandemic has propelled payments, and specifically online and contactless transactions, into new highs. Based on McKinsey’s Global Payment Report for 2021, a “V shaped recovery” was witnessed in international money transfers after a relatively muted volume of transactions in 2020. McKinsey’s report estimates a 7% p.a. growth in global payments until 2025, when the region expected to grow the most, as much as 40%, is APAC. The fast recovery in transaction volumes, increased adoption of tech/online means of payment, and a wild investing environment both by retailer investors and institutional investors, all while COVID runs rampant and transforming into new variants, have turned 2021 into an unusual year for international money transfer companies and startups across the globe.

Largest international money transfer service goes public

In 2021, perhaps the most prominent international money transfer service in the world has IPO’ed in London. Wise PLC floated at a valuation over more than £11bn and added close to 50% to its market cap in as little as two months, reporting excellent news with increased transaction volumes, increased revenues, and an ever-growing margin, doubling YoY EBITDA for the second year in a row.  Wise, previously known as TransferWise, is the largest money transfer provider of its kind based on this international money transfer comparison – with a loyal customer base growing since 2013. It’s one of few international money transfer companies in the world which is completely transparent about its fees and exchange rate markups and serves a diverse clientele, from immigrants transferring small amounts on a regular basis, to large international bank transfers by investors buying property abroad or repatriating funds back to their home country, as well as businesses (more than 300,000 active business customers as per Wise). In addition to that, Wise offers virtual bank accounts (Wise Account) enabling private and business customers to receive funds in the same currency or foreign currency, as well as a multi-currency debit card connected to these virtual accounts, very much like Revolut.

Starting from September 24 of 2021, Wise PLC’s share has been declining at a rapid pace has lost close to 50% of its market cap and is currently almost 30% less than its IPO’s share price. This sudden and abrupt vote of no confidence in Wise’s shares had nothing to do with the company itself, its international money transfer transaction volume, its fees, or profitability. There are no new fearsome competitors in the global bank to bank money transfers space, and even if there was one, it would take any competitor years to even begin match up up with Wise’s popularity. 

The only conclusion that can be drawn is that Wise’s share behaves in a similar fashion to the broad tech markets across the globe which have taken a step back ever since the Fed has vowed to battle roaring inflations through rate hikes. Similarly, its strong share demand upon IPO was also driven by an unusually strong retail buying trend. Moreover, Wise’s initial valuation at £11bn with profits of £47m EBITDA was very much driven by the sustained growth in startup valuations across the board during the pandemic period -  starting with a moderate increase in 2020 and ending full blowout valuation rally over 2021.

Major investments in Fintech money transfers 

2021’s insane valuations have led to many interesting funding rounds of Fintech companies from across the globe. Many international transfer companies and startups have benefited from the trend. 

The most significant round in this space was arguably the $800m round lead by SoftBank and Tiger Global to Revolut, putting the startup - which is yet to be profitable – at a valuation of $33bn. It’s true that Revolut boasts more than 16m customers and that its offering isn’t “international money transfers” per se (it offers a variety of online banking services including cryptocurrency buying), but its prime offering from the start was as a multi-currency wallet and fee-free multi-currency debit card which means it’s a direct competitor of Wise, valued at three times as much.

AirWallex is an HK-Australia headquartered company with a very similar offering to Wise and Revolut but it is accessible only to businesses and offers some more advanced functions, such as comprehensive payment API. AirWallex is substantially newer and less known than its peers, but it has raised $100m at a valuation of $5.5bn. 

Another worthy of mentioning funding round was Zepz’s (previously WorldRemit) Series E where the company raised $292m at a valuation of $5bn. For a company making almost as much revenue annually as Wise and Revolut it may appear like a low valuation, it should be clear that the reason for that is that Zepz is a global remittances company. WorldRemit, their main brand, facilitates international money transfers online, similarly to Wise, but its target currency corridors are transfers to India, South America, and Africa – or in other words, are less monetisable customers, on average, than Wise’s clients. A $5bn is a very large valuation for a company that is yet to be profitable and has much smaller upsides than companies like Wise, AirWallex, or Revolut. 

Future predictions on the accelerating of international money transfer services

Before we delve into speculations, one fact needs to be stated. If valuations fall down and funding is become increasingly difficult, then a race starts commencing. Some companies commence to profitability through raising their international money transfer fees, while others cut down on R&D costs. A lot of companies fall off their feet with the lack of funding they need to scale from a startup stage towards a full-fledge mature company, or, alas, corporation. 

Whether the macroeconomic conditions and/or market exhaustion lead to a drop of in valuations is yet to be known. The financial markets had a worse start to the year than 2009 but it’s too early to know whether it’s an odd jitter before shares take off to new highs and money becomes (even) more accessible, or the beginning of a slowdown in global growth that would surely have impact on international money transfer companies, services, and startups.