- In 2016, migrant workers sent $575 billion in remittances, mostly to developing countries, paying an average fee of 7%
- SendFriend is a remittance service that aims to deliver solutions that are 65% cheaper than the industry average
- The startup has raised $1.7 million in capital from MIT Media Lab, MasterCard Foundation, Barclays, and Ripple
There is a four-letter problem with the current remittance market: fees.
The World Bank estimates that in 2016 migrant workers sent $575 billion in remittances, $429 billion of which went to developing countries. On average, these workers paid 7% in remittance fees. Those over $40 billion in fees went straight into the pockets of remittance service providers such as Western Union and MoneyGram. In some parts of the world, like South Africa, remittance fees can be as high as 15.76%.
SendFriend is looking to lower the cost of high remittance fees.
Started by David Lighton, a former World Bank employee, SendFriend is a remittance service that aims to deliver solutions that are 65% cheaper than the industry average. The startup announced Monday it raised $1.7 million in capital from MIT Media Lab, MasterCard Foundation, Barclays and Ripple.
SendFriend is getting started in the Philippines, enabling Filipino users to quickly send and receive remittance transfers. The startup is set to go live in four to six weeks, as it waits for a money transfer license from the state of New Jersey. Lighton said the firm is kicking things off in the Philippines because it offers a friendly regulatory environment, a large remittance market, and most importantly the payment settlement companies SendFriend’s technology stack provider, Ripple, has established partnerships with.
Ripple, is a payment infrastructure and blockchain technology solutions provider. The company’s flagship product is RippleNet, a global payment rail connecting banks, payment businesses, and exchanges to a single cross-border payments network. When SendFriend goes live, it will become the first U.S.-based consumer partner of RippleNet. In addition to using RippleNet, SendFriend will also use xRapid, a liquidity solution from Ripple, which will use XRP, the second largest cryptocurrency, as a bridge currency for settling payments.
To be sure, there are many companies, like TransferWise, that have been providing fast and cheap cross-border payment services without the need for blockchain solutions. Still, Lighton noted two main drawbacks of TransferWise: its payment transfer structure and its lack of support for the unbanked.
According to Lighton, TransferWise is able to provide low-cost service because of its ability to turn an international transaction into a local transaction. When a TransferWise user wants to send payment internationally, instead of performing that single international transaction, TransferWise looks for two local transfers and settles them on its platform. For example, if a resident of the Philippines were to send money to the U.S., TransferWise will match that payment to a U.S. resident looking to send money to the Philippines. However, if the flow of money between countries is unbalanced, TransferWise would have to purchase additional currencies at market price to settle payments, charging higher transfer fees to its users. With SendFriend, a U.S. resident sending money to the Philippines will be able to leverage xRapid to instantly settle payments using XRP as a bridge currency between two payments. To be sure, while leveraging XRP does provide benefits to xRapid, it also comes with trade-offs, namely regulatory risks. That is why Ripple itself has developed an alternative solution called xCurrent which provides similar services that xRapid does, without utilizing XRP.
Lighton’s second argument against TransferWise is the lack of support for the unbanked. According to a survey by the central bank of the Philippines, 77% of Filipino adults do not have bank accounts. Users of TransferWise will need bank accounts. SendFriend, however, doesn’t have that requirement. It has formed partnerships with what it calls “cash partners” in the Philippines to pay out cash to remittance receivers. The process works as follows:
- A U.S. resident signs up for SendFriend and goes through a KYC process.
- The U.S. resident sends $100 to a Filipino recipient along with pin code to verify the payment.
- The Filipino recipient brings this pin code to a SendFriend cash partner, which could be a convenience store or pawn shop, to receive their payment in cash.
- The cash partner pays out cash to the Filipino recipient and settles the payment with SendFriend.
While SendFriend may be using XRP and xRapid for its technology stack, Lighton tells The Block that SendFriend is “not a cryptocurrency company.”
Lighton’s goal is for SendFriend users to never interact with cryptocurrencies when using its services.
This piece has been updated to clarify the relationship between XRP and xRapid