Friday 23 February 2018

Refugee turned fintech chief out to cash in on money-transfer market

After fleeing war-torn Somalia, UN whistle-blower Ismail Ahmed used a $200,000 payout to set up a digital challenger to Western Union

WorldRemit founder Ismail Ahmed. Photo: Chris Ratcliffe/Bloomberg
WorldRemit founder Ismail Ahmed. Photo: Chris Ratcliffe/Bloomberg

Edward Robinson

Refugee, economist, whistle-blower, entrepreneur - Ismail Ahmed 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 $200,000 settlement from the United Nations to start online money-transfer company WorldRemit Ltd. It has since raised more than $145m (€133m) and sends cash to 142 countries.

This week, WorldRemit plans to connect its service to Android Pay, the digital wallet owned by Alphabet's Google. That will make it easier for its 2.4 million customers to send money with just a couple of taps and take Ahmed a step closer to becoming a force in modernizing the way $444bn (€408bn) on a year in remittances are sent to developing economies.

"What we're seeing is a convergence of payments, messaging apps, telephony and remittances," says Ahmed, 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, Ahmed carries himself with the steeliness of a man who's fought hard to reach this moment. He and 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 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 fivefold 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 3pc 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.

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 de-risking by dumping clients who might expose them to compliance-related dangers.

"That is a big singular risk," says Harry Nelis, of Accel Partners, a venture capital firm that invested $40m 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 and have ploughed more than $1.8bn into online money-transfer firms since 2013.

Ant Financial, a financial-services company controlled by Chinese billionaire Jack Ma, is also duelling with a Kansas company called Euronet Worldwide for control of Dallas-based MoneyGram International

Growing up in Somaliland, in northern Somalia, Ahmed 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, Ahmed's hometown.

After the goods were sold, agents apportioned proceeds to his family. It took three months, but it worked.

Ahmed and his family fled to neighbouring Djibouti in 1991 when civil war convulsed Somalia. He made his way to the UK, where he studied economics at the University of London.

Ahmed worked in 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 where he sent money to his family. "My family had lost everything," he says. "So now I became the one who sent money back."

After earning a PhD, Ahmed researched the remittance business in Somaliland. In 2005, he landed his dream job with the UN in Nairobi, helping money-transfer firms comply with counterterrorism-finance rules enacted after September 11.

He became a whistle-blower when he discovered a senior official was awarding contracts to a firm where he was a partner. The UN ethics committee ordered that he be paid a settlement.

Ahmed 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.

Ahmed wasn't alone. Other players such as Remitly in Seattle and Azimo 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 and paying commissions. Western Union isn't sitting still and is building its own online service which produced revenue of $340m in 2016, far more than WorldRemit's $51m - but executives still believe the future of the industry will still be cash.

Keeping its system free of illicit transfers is WorldRemit's biggest worry. The price of failure can be severe. In January, Western Union paid $586m in penalties after admitting it failed to prevent fraudsters and human traffickers using its services from 2004 to 2012.

WorldRemit says it employs a computer program to scan transactions and flag suspicious activities. But software can't track transfers after they reach their destinations, says Peter Norris, of UK-based Obiter Consult.

Criminals use counterfeit phones that duplicate identification codes, making it tough to determine who's receiving the payment. As mobile-money transfers soar, Norris says, it will be harder to stop unlawful transactions.

"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.

Ahmed 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 licenses in 47 US states. Ahmed is counting on a surge of remittances from there and Western Europe even as anti-immigration populism is rising.

"Migration is a fact of life," he says. "And we don't think that will change, Brexit or no Brexit, Trump or no Trump." (Bloomberg)

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