Fintech startup Instarem raises $5m from investors led by Vertex Ventures

For some economies in the world, remittances make up huge portions of national income. That’s US$72 billion for India, US$64 billion for China, and US$30 billion for the Philippines – the top three recipients in 2015 based on World Bank estimates. However, the amounts could have been bigger if not for hefty remittance fees being charged by banks or money transfer firms.

Instarem, a startup that’s tackling this problem, has just raised a US$5 million series A round led by Vertex Ventures, with participation from Fullerton Financial Holdings and Global Founders Capital.

The company says it will use the investment to acquire licenses to handle money transfers in more markets. Instarem is currently licensed in Australia, Hong Kong, and Canada. It’s in the process of applying for a license in Singapore, Malaysia, Japan, Luxembourg, and some states in the US.

It a charges a transaction fee of less than 1 percent.

Instarem is upending traditional remittance firms by charging a transaction fee of less than 1 percent, instead of the usual fee plus FX spread – which together bring charges to up to 5 percent of the wired amount in some markets. In simple terms, the FX spread is the difference between the inter-bank currency conversion rate and the rate quoted by the bank or money transfer company. For example, if the inter-bank rate for Singapore dollar to Indian rupee is 1:50 and the provider offers a rate of 1:49.50, that means the provider is charging an FX spread of 1 percent.

Instarem co-founder Prajit Nanu says the firm is able to charge less by tying up with banks, and that its fee is enough to absorb the cost of the FX spread.

The average transfer on Instarem is US$1,800 and transactions are processed in a few hours compared to the 24 to 48 hours for other money transfer firms.

“Our aim is to be the fastest money transfer operator to process US$1 billion,” says Prajit. “We should hit the number by end of the second quarter of 2017.”

Because of its attractive offer, Instarem now manages about 2 percent of all remittances from Australia to India and is growing “exponentially” in other corridors. The company also handles remittances to Sri Lanka, Singapore, Indonesia and will handle those to Bangladesh, Pakistan, Vietnam, Nepal, the Philippines, and Malaysia by July.

Instarem’s quick rise and sound business model particularly appeal to Vertex. Chua Joo Hock, Vertex’s managing director, says: “Trying to do a startup in the fintech space is not easy, as you may need more finance background than technology to maneuver through the complicated industry. Instarem not only develops a unique deep integration model with banks but also shows a very strong capability to execute, which are two important qualities that really excite us.”

Instarem caters mainly to individuals, and small- and medium-sized businesses. Prajit refused to disclose how much revenue the company has booked so far, but noted that it is “recovering about 70 percent of our current costs.”

See: Banks swallow $5 billion out of remittances to India. Fintech startups are out to disrupt this