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What Travelex and TransferWise teach us

We’re beginning to see numbers filtering through on the impact of Covid-19 on the sector. As some digital players report record numbers, what is driving this?

We also take a look at how Travelex grew in the last recession as part of our growth series and reveal lessons from TransferWise as it gets harder and harder for the fintech to get over the high bars it has set itself.

Growing through a downturn: Travelex

The Travelex of today has unfortunately been dragged down by well reported troubles of its parent Finablr. Travelex was founded back in 1976 and, in 2008/2009, was the leading independent player in the sector.

Travelex revenue and EBITDA by division in 2008 and 2009

We’ve covered the macro trends several letters ago but as a quick recap, in the 2008/2009 recession, air travel was up 1.9% and global trade down over 20%.

How did Travelex manage to grow its retail and banknote business through the period?

1. Pricing promotions and customer offers

Travel had not been hit as hard as it has this time around but the basic principles of growing share in a downturn through lower pricing remain. (We look at this behaviour below).

In a much more competitive landscape today, how much will promotions alone be sufficient to retain share and is it worth the margin hit?

2. Pushing and pulling customers to digital

Even back in 2008, Travelex gained share by revamping its online presence and pushing people to digital, a higher-margin product.

This past week, Remitly reported customer growth of 100% from February to March this year, alongside a 40% growth in transaction volume. A large part of this is simply being a digital alternative in a stay-at-home world – some push but a lot pull.

3. Expanding into new markets whilst others hold back

Travelex won key retail business in Paris, Abu Dhabi, Beijing and Brussels in 2009 beating out the competition. Just this week, TransferWise, pushed ahead with its opening of business in the UAE, when others may have postponed. The UAE is a highly competitive market but with UAE Exchange’s recent troubles, TransferWise will feel confident of having some quick success.

The three principles above are timeless. But how many players in the sector are actively pursuing all three right now?

Pricing in a crisis

In the Travelex example, we saw how effective pricing promotions were in boosting revenue during the 2008/2009 downturn.

During the current COVID-19 epidemic, it seems to have taken providers a while to find a strategy. Throughout February and March we saw significant fluctuations in pricing. Interestingly, many providers ended March with higher pricing than they had at the start of February. 

Below we look at how two providers changed pricing over the past two months along two popular corridors – USD to INR and GBP to INR – highlighting the range in strategies.

Total Margin to send 200 GBP and 200 USD to INR between February and March 2020

We’re tracking the industry’s behaviour as it navigates the crisis. Who is doing what and how are they moving their pricing levers?

Three lessons from TransferWise 

TransferWise just released its Q1 2020 update. The headline grabbing number of 7 million users is impressive but we dig into their core performance metrics of speed and price.

TransferWise price and speed of a transfer from Q1 2019 to Q1 2020

Some takeaways:

  • Pricing is broadly stable. As much as TransferWise has a “mission” to achieve pricing close to or equal to zero, its actual pricing is relatively stable and around 70 basis points above zero (with a lot of variance across corridors). As more complex countries are added and with investors eager for revenue, don’t expect this to change too much
  • Instant payments is hard. After a few years of quick wins, TransferWise is stuck around the 25% mark. But now many barriers exist, country by country, corridor by corridor, to take the next leap forward. More importantly, how much do users care?
  • The customer service bar keeps rising. TransferWise now deals with 61% of customer issues within 24 hours, up from 31% a year ago. How many of you still send an automated email that says you’ll respond(!) within 24 hours?

Let’s be clear, I’m being a little tough on TransferWise but they remain one of the core benchmarks of performance in the sector and their numbers sit above what many other players still aspire to.

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