According to the World Bank’s Migration and Development Briefs, the international money transfer market grew 12% annually to $513 billion in 2011 from $234 billion in 2004. The market is expected to grow annually at 7% over the next three years to $685 billion by 2015. The growth of online and mobile banking channels is also helping to steer market growth.
San Francisco–based online consumer-to-consumer money transfer firm Xoom is a leading player in the market and recently filed for its IPO. Xoom was founded by Eventbrite founder Kevin Hartz in 2001. Xoom’s technology gives customers to use online and mobile devices to transfer funds. It has extensive agreements with multiple banks and retailers that help customers get funds the way they want to receive them. Its tools help customers send money internationally to 30 countries.
Since 2007, Xoom customers have remitted more than $5.8 billion in funds. The funds transferred via Xoom has grown at an annual rate of 90% over the period 2007 to 2011. In 2007, Xoom reported total transfers of $137 million, growing to $1.71 billion in 2011. By September 2012, Xoom reported transfers totaling $2.89 billion. Revenues also grew significantly over the same period.
Xoom earns revenues by charging a transaction fee on the remittances made. It also earns revenues through foreign exchange spreads on international currency transactions. Service fees varies by country, type of funding source, disbursement currency, and the amount sent. For instance, to send money to India, Xoom charges a service fee of $2.99 for transactions made through a U.S. bank account for transfer of up to $500. The fee increases to $7.99 if the funds are transferred using a U.S.-based debit or credit card. The fee also varies based on the amounts transferred. For transfer to India, the company does not charge any service fee for transfers made out of U.S. bank accounts for amounts more than $1,500, but it still charges a fee of $13.99 for transactions out of a U.S.-based debit or credit card.
In addition to most banks, Xoom also competes with other international money transferring services such as Western Union. In most cases, banks offer better conversion and overall transfer rates for funds transfer. Agencies like Western Union also have a tiered pricing model, and commissions vary depending on the amount and method of transfer. For instance, for a transfer of $200 to India, Western Union charges anywhere between $0 and $8 depending on how soon the recipient wants the funds.
Xoom recorded revenues of $7.4 million in 2007 which grew to $50 million in 2011, which represents a 61% annual growth rate. For the nine-month period ending September 2012, revenues grew 68% to $57.9 million, a 68% increase. The company has yet to turn a profit as it continues to invest in service innovation, marketing, and growth markets. It reported a loss of $4.4 million in 2011, which has grown to $4.4 million for the nine months ending September 2012. A year ago, for the nine-month period, it recorded a loss of $3 million.
Xoom has been largely venture funded and to has received funding of more than $78 million from funds that include DAG Ventures, Fidelity Ventures, New Enterprise Associates, Sequoia Capital, Glynn Capital Management, Northgate Capital, and individual investors, including Keith Rabois, Roelof Botha, Dick Kramlich, Anne Mitchell, and Lilian Samartino.
Xoom is now eying the stock market and recently filed documents for an IPO estimated to raise $50 million on the Nasdaq. Because Xoom has less than $1 billion in annual revenues, it is taking the help of the Jobs Act to list. The act enables organizations with less than $1 billion in revenues to list by filing their registration statements in confidentiality.
Xoom’s Growth Plans
Xoom plans to grow its market reach through additional investment in marketing campaigns that will be targeted to acquire new customers. It is also investing in developing new features by adding and enhancing existing mobile capabilities. It has already seen strong traction in the mobile segment since the launch of mobile apps in November 2011. For the quarter ended September 2012, a full 22% of its transactions were sent via mobile devices. As part of the initiatives, it recently launched “Status Trak,” a tracking center that lets consumer choose the way they want to receive updates on money transfer with options ranging from SMS text messages, e-mail updates, 24/7 phone support, or directly through their website.
Xoom realizes the importance of strong agreements with financial and retail institutions to help with the money transfer. Last year, it entered into an agreement with Walmart.com wherein the retailer added Xoom to its funds disbursement channel. During the current year, Xoom plans to continue to tie up with additional partners to add to the network.