Tag: challenger bank

Why We Invested in NOW Money

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By Amee Parbhoo, Director of Investments for Accion Venture Lab

Despite the fact that they are wealthy and modern, cities like Dubai in the Gulf Cooperation Council (GCC) actually face a big financial inclusion challenge. There are 8 million foreign-born migrant workers in the United Arab Emirates (UAE) alone, making up some 88% of that country’s total population. These workers come primarily from India, Pakistan, Bangladesh, and the Philippines, and are mostly in low-paying jobs such as construction or domestic labor. Across the Gulf region, migrants have faced tough working conditions and have been historically ignored by financial institutions. They lack access to basic financial services, including bank accounts and fast, convenient remittance channels for sending money to their families back home.

This is where NOW Money, Accion Venture Lab’s newest portfolio company, comes in. NOW Money was founded in 2015 by Katharine Budd and Ian Dillon, who were inspired by the digital-only “challenger banks” that had begun to emerge across the US and Europe. While the UAE has over 50 banks in operation, none of them are able to reach the country’s massive and underserved low-income migrant population effectively. NOW Money provides a suite of products to its customers: current accounts for depositing and withdrawing wages; debit cards for use at ATMs and for merchant transactions; and a marketplace of online remittance platforms for cheaper and more convenient money transfer services. By reducing the cost of customer acquisition and reaching a relatively untapped market, NOW is able to offer these services (and eventually others) and cost-effectively serve customers that would otherwise be considered unprofitable by traditional banks.

NOW partners and integrates with large employers to pay workers’ salaries directly into NOW Money accounts. The value proposition is strong for both end customers and employers. For customers, NOW offers a suite of products otherwise unavailable in the market. In particular, during our due diligence we saw customers incredibly excited about the digital interface for access to remittances. In the UAE today, some 95% of remittances are cash-based transactions. The workers we spoke with remit 60% or more of their wages to family members in their home countries, and typically have to take time off work, wait in long lines at remittance houses, and pay high fees in order to make these regular transactions.

Accion Venture Lab and NOW Money staffers talk to migrant worker customers about their experiences using the service.

For employers, NOW provides a less expensive solution for payroll. In addition, the employers we spoke with were motivated to give their employees the benefits NOW offers for both moral and economic reasons. Some employers see a spike in absenteeism the day after pay is disbursed, as employees go to remittance houses. Lastly, many employers, especially in more skilled and technical professions, value NOW as a way to increase employee retention.

Venture Lab is excited to be supporting the NOW Money team as they grow and scale. We invested in the company — our first in the GCC and one of the first early-stage VC deals in the region — for a number of reasons:

  • Clear social impact: The migrant population in the GCC is historically underserved by basic financial services. The wages these workers earn are low ($200–300 per month, depending on occupation). Due to banking standards in the UAE, it is very difficult and costly for a customer to open an account if they earn less than $1,300 per month, thereby excluding a vast majority of the migrant worker population.
  • Large market with unmet need: The UAE is the third largest market in the world for remittances, trailing only the US and Saudi Arabia. Across the GCC (UAE, Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman), the total addressable market is some 25 million low-income migrant workers believed to be remitting about $50 billion annually. The remittance corridors used are some of the most active in the world, and NOW fills a crucial gap by providing customers ease of access and lower costs.
  • Innovative “neobank” model: Accion Venture Lab looks to support fintech companies that have innovative approaches to increasing access to and quality of financial services for underserved markets. We have been actively watching the digital-only neobank/challenger bank models around the world and are excited about NOW Money, our very first neobank investment. We’re thrilled to be part of NOW as it expands and aims to become the financial service platform of choice for migrant workers. As NOW truly owns the customer relationship, it will be able to provide incremental value to customers’ financial lives with each further partnership, beyond simply account access and low-cost remittance tools.
  • Opportunity to learn from new customers, market, and product: NOW Money would be a first for Venture Lab in a number of ways. Venture Lab has never invested in the Gulf region, and NOW Money could serve as a way to learn about this fast-growing region and its market dynamics. In addition, Venture Lab has investments reaching many kinds of underserved customers, but we have limited experience serving migrant workers, which is a huge market with demonstrated, specific, and relevant financial needs. NOW Money would help us better understand this vast and growing population of underserved customers.

As is the case for all of our seed investments, NOW Money is early in its journey, but as investors in the company and proponents of financial inclusion for underserved populations, we are excited about their progress so far and the company’s plans going forward.

Rob Stevens contributed to this article. 

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Disrupt yourself or someone else will

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By Simona Stankovska, freelance journalist previously of the Financial Times

We know that change can be good for us, such as losing weight, getting a promotion at work, or finding our perfect relationship, however, we all still fear it. After all, as the saying goes, if it isn’t broken, then why fix it? But, if I told you that in 10 years’ time your life would be exactly the same, can you honestly say you’d be happy?

Now, transfer that thought to your bank. Most of us have been banking with the same bank for many years. No matter how many overdraft fees we pay, or the hours that we spend on the phone waiting to speak to a customer services representative, we remain loyal. But, was is it that’s keeping us so attached; could it be fear of change that’s stopping us from getting the service that we need, want and deserve?

But, as former President of the United State of America, Barrack Obama, put it nicely in his speech in Chicago in 2008: “Change will not come if we wait for some other person or some other time.”

So, what are we waiting for?

It seems that the Financial Technology (Fintech) industry has listened. Technology, and thus banking is evolving. According to nordicstartupbits.com, in 2016 there were more than 1,362 Fintech companies in 54 countries around the world with the USA, India, UK & Ireland, Israel, and Germany having the most Fintech start-ups, with more than $25.8 billion invested in these “challengers”.

And, it looks like this phenomenal growth is sustainable. The Fintech industry is expected to grow exponentially in the next decade; changing the world of financial services entirely.

Experts have even gone as far to predict that Fintech will slowly edge out traditional financial institutions, such as banks and building societies, as a result of their wide range of attractive, easily accessible and revolutionary products. Fintech is also leading the way for financial inclusion, news that will be welcomed by the world’s large unbanked population, who do not, or cannot have access to a bank account.

According to a survey in 2016 from The British Bankers’ Association (BBA) and Ernst and Young, the use of bank branches fell by 6 per cent in 2015, as more customers turned to phone and internet banking services.

This is where, veteran banker, Chairman and CEO of Customers Bancorp and Customers Bank, Jay Sidhu says, banks need to disrupt themselves or someone else will. He adds: “Your biggest problem is your biggest solution.”

This points to a new wave of digital technology that traditional banks need to adopt in order to keep up. HSBC have recently introduced voice activated security, where your voice is your password when phoning through to speak to a customer services agent. Santander are looking to go one step further with the “voice banking”, where customers will be able to make payments and transfer money using their voice.

Mr Sidhu, who created mobile offering Bank Mobile – a US challenger bank, says that the days of 20 years of banking experience are gone, it’s now about the 20-somethings. He believes all companies need to listen to young entrepreneurs and adopt a mobile-first strategy, he told RFi Group’s Global Digital Banking Conference attendees.

Never-the-less, speakers at The Economist’s annual Finance Disrupted conference, in London, are still sceptical about this new trend, and believe that there is still a purpose for traditional banking.

Stephane Dubois, Founder and CEO, Xignite, said that if each of the large challenger banks in the UK were to meet their targets, they would be bigger than the three largest banks in the UK, which he just doesn’t think is going to happen. He said that no matter how much consumers moan about their bank, they are still unlikely to change banks. Plus, traditional banks, in spite of their problems, still embody safety and security.

Mr Dubois, and the rest of the panel, which was made up of Claire Calmejane, director of innovation at Lloyds Banking Group; Rich Wagner, CEO at Advanced Payment Solutions; and Mark Cliffe, chief economist at ING Group, agreed that there’s room for compromise, and that banks can learn from the challengers, and challengers can learn from the banks.

Ms Calmejane said that her team at Lloyds are looking at possible opportunities for collaboration.

Could this mean that we see the larger banks buying smaller, independent, digital-only banks in order to adopt their technology?

Who knows. It does seem, however, that millennials are opting for digital solutions. So, maybe change is good? Go on, give it a try; what’s the worst that can happen?