Investors wire $12.5M to Remitly to help Asians send money home from the US

Remitly, a US-based startup helping Asian immigrants to wire money home, has raised US$12.5 million in a series B round, taking its total funding to US$23 million. The round was led by venture capital firm DFJ, which has Baidu, Twitter, and Tesla in its investment portfolio. Existing investors, including Bezos Expeditions, the investment firm of Amazon founder Jeff Bezos, also participated.

For Asians in the US, sending money home can be costly. The usual channels like banks and Western Union take hefty cuts in money transfer across borders. A World Bank report (PDF link) says the global average cost of transferring money is over 8 percent of the remittance amount. Asians are the worst affected by this, as the largest share of the world’s remittances comes to India (US$71 billion), followed by China (US$64 billion), and the Philippines (US$28 billion).

A Remitly spokesperson tells Tech in Asia that “it averages a 2 percent fee, while the rest of the industry averages a 7.9 percent fee.” It also tries to make money transfer more convenient with a mobile-first approach, offering apps for both iOS and Android.

The biggest problem with international remittances is the hidden cost – namely, the FX spread. The FX spread is the difference between the wholesale inter-bank FX rate and the rate quoted to you by the bank or international money transfer company. What you get is an inter-bank rate minus an FX spread. Some banks or agencies may claim to offer low transaction fees, or a good rate, but what matters in the end is how much you lose in the transfer.

Remitly claims to offer “among the industry’s most competitive foreign exchange rates.” But in response to a query from Tech in Asia on how much FX spread it deducts on average from the inter-bank rate to arrive at forex rates for its customers, the Remitly spokesperson said: “We are not disclosing the spread at this point of time.”

Remitly currently supports only transfers to India and the Philippines. The fresh investment will enable it to broaden the service to other countries, said the spokesperson, without disclosing which market it will enter next.

Remitly CEO and co-founder Matt Oppenheimer, who is from Idaho, USA, spotted the need for a better remittance channel while working for Barclays bank in Nairobi, Kenya. “While living in Africa, I saw first hand the many barriers people faced when sending money to friends, family, and businesses. It was incredibly expensive and the process was arduous and slow. We started Remitly because we knew we could change that,” says Oppenheimer. Remitly now has offices in Seattle and Manila.

Peer-to-peer money wiring, mostly from individuals and small businesses, is a US$580 billion annual market globally. A number of startups are out to disrupt this business with lower costs and transparency, even though they face regulatory hurdles and entry barriers from big players.

For example, Mumbai-based Instarem recently started money transfer from Australia to India. It offers customers the inter-bank foreign exchange rate, without deducting the FX spread, and charges a flat fee of 1 percent for amounts between AUD 200 and AUD 10,000. “This is our first month and I believed that initially customers will send AUD 200-500 to test the system. First transaction we received was for AUD 5,000,” says Prajit Nanu, CEO and co-founder of Instarem.

See: Banks are bleeding you dry on your money transfers. A new startup wants to disrupt that