Refugee turned fintech chief aims to upend a US$444bil market

ISMAIL AHMED - FOUNDER & CEO, WORLDREMIT

Refugee, economist, whistle-blower, entrepreneur – Ismail Ahmed (pic) has played many roles in his odyssey from war-torn Somalia to London’s fintech frontier.

But one event stands out: In February 2010, he used a US$200,000 settlement from the United Nations to start online money-transfer company WorldRemit Ltd. It has since raised more than US$145mil and today sends cash to 142 countries.

This week, WorldRemit plans to connect its service to Android Pay, the digital wallet owned by Alphabet Inc’s Google. That will make it easier for its 2.4 million customers to send money with just a couple of taps and take Ismail a step closer to becoming a force in modernising the way US$444bil a year in remittances are sent to developing economies.

“What we’re seeing is a convergence of payments, messaging apps, telephony and remittances,” says Ismail, 57, sitting in a bustling office in the shadow of London’s Westminster Abbey. “The shift from the informal to the formal, from cash to cashless, is where we want to be.”

Quick to smile and brimming with plans, Ismail carries himself with the steeliness of a man who’s fought hard to reach this moment. He and his more than 300 employees are at the forefront of a push to rewire an industry little changed over the decades.

People still line up at Western Union Co offices to send funds to faraway relatives, pay hefty fees to have banks do it, or trust their hard-earned cash to black-market networks. And it still takes hours or even days for the money to arrive.

Since 2011, the number of people using digital cash on smartphones to collect wages and pay bills has jumped five-fold to more than 500 million accounts in almost 100 nations, according to GSMA, a London-based trade group. Sending mobile money internationally costs less than 3% per transaction, about half what traditional transfer firms charge. The cash materialises in recipients’ mobile phone accounts in minutes, and they don’t need banks to use it.

WorldRemit says it handles three out of four intercontinental mobile-money transfers. But it’s facing challenges that technology might not be able to overcome. Western Union, which dominates the business with 500,000 agents in 200 nations, is mounting a digital counter-offensive. Governments are erecting roadblocks, even in the US, where President Donald Trump has talked about taxing remittances sent to Mexico.

Perhaps no threat looms larger than running afoul of anti-money-laundering rules. WorldRemit, licensed by the UK Financial Conduct Authority and similar bodies in other nations, is responsible for ensuring its system isn’t used by criminals and terrorists. It must satisfy more than regulators.

The company still needs banks to handle transfers for customers who don’t use mobile money, and for years those institutions have been derisking by dumping clients who might expose them to compliance-related dangers.

“That is a big singular risk,” says Harry Nelis, a London-based partner at Accel Partners, a venture capital firm that invested US$40mil in WorldRemit in 2014. “One of the ways you could go belly up very quickly is breaking the rules, and the bank yanks your account and puts you out of existence.”

Still, investors are betting the rewards are worth the risks. As transfers have gone digital, companies and venture capitalists have plowed more than US$1.8bil into online money-transfer firms since 2013. Ant Financial, a financial-services company controlled by Chinese billionaire Jack Ma, is dueling with a Kansas company called Euronet Worldwide Inc for control of Dallas-based MoneyGram International Inc.

Fleeing Somalia

Growing up in Somaliland, in northern Somalia, Ismail was steeped in the business of moving money long before the advent of the mobile phone. In the 1980s, his brother and cousins joined thousands of other men who laboured in the petrostates of the Persian Gulf. They gave their wages to money-transfer agents, who bought construction materials for export back to Hargeisa, Ismail’s hometown. After the goods were sold, agents apportioned proceeds to his family. It took three months, but it worked.

Then in 1991, civil war convulsed Somalia. Aircraft bombed Hargeisa, and Ahmed and his family fled to neighboring Djibouti. He made his way to the UK, where he studied economics at the University of London. Ismail worked two or three jobs at once. He would return home from picking strawberries outside London so tired he went to sleep in his clothes. Every couple of weeks he visited money-transfer agents in the city.

“My family had lost everything,” he says. “So now I became the one who sent money back.”

Blowing whistle

After earning a PhD, Ismail researched the remittance business in Somaliland. In 2005, he landed his dream job with the UN in Nairobi, helping money-transfer firms comply with counter-terrorism-finance rules enacted after Sept 11. Soon enough, he says, he discovered that a senior official was awarding consulting contracts to a firm where he was a partner. So, Ismail became a whistle-blower.

While the UN didn’t act on his claims, its ethics committee decided that he was the victim of retaliation and ordered that he be paid a settlement, according to case records. Ismail knew just what to do with the money.

Emboldened by a digital-payment service in Kenya called M-Pesa that enabled millions of people without bank accounts to receive wages and pay bills on their phones, he set out to modernise remittances. By accessing WorldRemit’s site on any device, customers can send money overseas from bank accounts or debit and credit cards. The payment can be directed to a recipient’s bank account or converted into mobile money.

Ismail wasn’t alone. Other players such as Remitly Inc in Seattle and Azimo Ltd in London have rolled out similar services. They all target Western Union. The 166-year-old company possesses a world-famous brand, but it also bears the costs of managing a global network of storefronts, kiosks and ATMs around the world and paying commissions to agents.

Western Union isn’t sitting still. The company is building its own online service, and with transfers to 37 countries the unit produced revenue of US$340mil in 2016, far more than WorldRemit’s US$51mil. Even so, Western Union executives doubt digital cash will ever eclipse the storefront approach.

“The future of the industry will still be cash,” says Odilon Almeida, president of Western Union’s global money-transfer business.

Keeping its system free of illicit transfers is WorldRemit’s biggest worry. The price of failure can be severe. In January, Western Union paid US$586mil in penalties and entered a deferred prosecution agreement with the US Justice Department after admitting it failed to prevent fraudsters and human traffickers from using its services from 2004 to 2012.

WorldRemit, which hasn’t been cited for any infractions, says it employs a computer program to scan transactions in real time and flag suspicious activities such as a surge in the value or frequency of payments.

But software can’t track transfers after they reach their destinations, says Peter Norris, founding director of UK-based Obiter Consult Ltd, who specialises in the security risks of remittances. “The last mile poses considerable risk because criminal organisations or terrorist groups like al-Shabaab in Somalia engage in fraudulent use of mobile numbers,” Norris says.

Ismail is undaunted. He predicts revenue from transactions to Africa, his biggest market, will double by 2020.

WorldRemit is expanding into Pakistan and El Salvador, and it has secured money-transfer licences in 47 US states. – Bloomberg

SOURCE:THE STAR