Transforming transfers
Yet sending money home is not always easy or cheap. A report by London-based think tank Overseas Development Institute (ODI) in April 2014, Lost in intermediation, drew attention to an effective $1.8bn remittance supertax that the African diaspora pays in above-average costs when sending money home.
That money could fund the education of some 14 million primary school age children in sub-Saharan Africa – half the out-of-school total – or provide clean water for 21 million people.
Entrepreneur and London Business School MBA Ismail Ahmed is determined to change this situation. Through his company, WorldRemit, he offers people around the world an efficient, cost-effective way of sending money home via the internet.
If anyone was destined to shake up the world of remittance payments, it is Ismail Ahmed. With a PhD in economics, Ahmed has years of experience working in the money transfer sector. He has worked for the United Nations remittance programme, was involved in remittance-related research financed by the Department for International Development (DFID) at the Institute of Development Studies, University of Sussex, and did compliance work at the UN, where he advised traditional money transfer companies.
Ahmed’s experiences of remittance are not just theoretical, either. Originally from Somaliland, he has also experienced the frustrations of sending remittances home while working abroad.
Initially Ahmed had hoped to make a difference to the world of remittances through his role at the UN. However, it eventually became apparent that his work there wouldn’t enable him to make the impact he wanted. For a start, he believed that the dominant cash-based model was flawed. Trying to improve the existing system was potentially a waste of e ort. Ahmed figured it would be better to deploy his resources disrupting the existing system by adopting a radical and innovative approach to remittances.
Online remittances
“While I was at the UN I saw the opportunity for doing remittances online,” says Ahmed. “The online model addresses two major problems in the remittance industry. One is compliance. The traditional money transfer companies are structured as cashbased networks that rely on agents to do core compliance functions – a fundamentally flawed model that isn’t appropriate for the 21st century, or meets the new stringent anti-money laundering regulations. The other is the high costs of money transfer. I have been sending money for more than 20 years and I remember how much it used to cost me to send money back home, especially when I was a student.”
In 2005 Ahmed attended the 4th Africa Day Conference organised by the Africa Club at London Business School focusing on the African diaspora and remittances. He was particularly inspired by a keynote address from Mo Ibrahim, the mobile communications entrepreneur. Impressed, Ahmed decided to join London Business School’s Dubai EMBA programme in 2008 and take every opportunity on the programme to develop his business idea and the skills that would help him make his idea a success.
“I had a PhD from the University of London,” he says. “I wasn’t looking for another qualification. My aim was really to learn about entrepreneurship. When I began, it was to take all the entrepreneurship-related elective programmes.”
At the London Business School’s Entrepreneurship Summer School Ahmed had his first opportunity to put together his ideas and test them with the class and external mentors. “Before this, I wasn’t really able to explore my business idea in depth or talk to other people about it,” he says. “Summer School was critical because at that stage my initial thinking was more along a business-to-business concept. It was only really after the feedback that I got there that I realised we could do this directly for the consumer.”
Working capital
Ahmed produced a detailed business plan as part of the new venture development elective and, in December 2009, he incorporated the company.
To begin with, he bootstrapped development out of his own pocket, continuing to work on elements of his business as projects throughout the MBA programme. In February 2010 he obtained FCA approval. He also won the London Business School business plan competition in 2010. Soon, though, he knew he would need to raise more financing.
John Mullins, Associate Professor of Management Practice in Marketing and Entrepreneurship, taught a number of entrepreneurship-related electives on the EMBA and knew about Ahmed’s business idea. Mullins was also involved in an Executive Education programme that the School runs every year for the Young Presidents’ Organisation (YPO), a global network of young chief executives.
On one evening during the programme MBA students are invited to present an idea they are working on to the YPO audience.
Mullins asked Ahmed to pitch his concept. Within two weeks he had raised £350,000 in seed -financing. “It is always difficult to get seed money,” says Mullins. “Ahmed came across well, his idea resonated with the YPOers and several said that, together, they would back him.”
Ahmed used the funds to build a website and start transactions launching UK services in November 2010. It took time to build the system and establish relationships as the firm needed to partner with banks and money transfer organisations in the recipient countries. Canada followed shortly afterwards, followed by the rest of Europe, Australia, New Zealand and the USA. From early on it was always Ahmed’s intent to build a global business.
As he grew the business, he returned to his YPO backers for additional financing in 2012 and 2013. One significant investor in these early rounds of capital was private equity pioneer Jeremy Coller (Coller established the Coller Institute of Private Equity at London Business School in 2008).
“That was to expand the business globally, and particularly to finance working capital, because our business was really cash hungry at the time,” says Ahmed. “We didn’t get the customer money quickly because we accept cards. Banks consider ecommerce sites fairly risky so we had a deferred settlement arrangement. Although we paid out money transfers instantly, we usually got the money we processed two weeks later.”
It was at about that time that some of the investors requested an independent voice on the board, so Mullins joined as a Non-Executive Director, serving until November 2013. He remembers a couple of areas at the time on which he was keen to focus attention. “I wanted to make sure that we managed the cash well; that we didn’t run out of cash,” he says.
“Entrepreneurs tend to assume that if they raised money once they will be able to do so again, but you never know. And I made sure that we measured our progress in ways where we really knew what was driving the business, as opposed to measures like topline sales, which are nice to have but don’t really tell you the story of what’s happening.”
To this point, the business had raised £4.4m, all via the members of the YPO. During this time the business had continued to grow and reach breakeven. The banks had allowed new terms, agreeing to sameday settlement. Remittance fee revenues were accelerating, growing from £86,000 in 2011 to £1.2m in 2012 and then £5.5m in 2013, with some £21m predicted for 2014. Now Ahmed needed to raise a significant sum of money to fulfil his long-term ambitions for the firm.
Global reach
He set his sights high. “The dominant player in this industry is Western Union,” he says. “It is present in more than 200 countries. But it’s a traditional bricks-and-mortar business, which relies on over 500,000 agent locations globally.” As Ahmed notes, go to the tiniest village in Africa or Asia and you will and the Western Union logo. But as he notes, their proliferation of physical locations is no longer a major asset for them and threatens to become a liability in the long-term. They rely on independent agents for due diligence, customer relations, compliance and so on.
“Our aim was to come up with an online model which, in the long-term, could challenge their offline business; to offer our customers a digital channel to replace the traditional offline route,” he says. “We want to go to every market where Western Union is present. We want to offer an alternative. That needed a lot more capital than we’d raised at that point.”
Ahmed was looking for $40m. Midway through 2013 he decided to start the fundraising process and hire an investment bank to help. Reaching out through the London Business School network, he retained US-based investment bank William Blair.
The plan was to start fundraising seriously in January 2014, but before they had a chance to get started they were approached by venture capital firm Accel Partners. “We didn’t have venture capital and nobody knew us outside of the UK,” says Ahmed. “William Blair was involved in organising a conference in Silicon Valley.
We attended the conference and through networking there, more people, including people at Accel, became aware of what we were doing. Accel said it was interested in our business. It liked the success, the international footprint, the growth and ambition. We received an offer which we accepted and signed the term sheet on the 5th December 2013.”
The $40m investment is one of the largest Series A venture capital funding rounds completed in Europe. While some of the money will go towards working capital, the majority will be used to grow the business in places such as the US, where migrants send home the most money and WorldRemit is just beginning to capture market share.
“On the receive side, we typically partner with the likes of telecoms or banks. On the send side, we obtain a licence, set up an office, then build the brand,” says Ahmed.
“We’re just launching in Hong Kong, for example. There are a lot of remittances from Hong Kong to India, the Philippines and China, back to the UK. Typically, we will do online marketing and TV advertising, build the brand with a view to capturing significant market share. We have plans for Singapore, for Malaysia and within a year the US should potentially be one of our biggest send markets.”
It has been an interesting journey so far, but the most exciting times lie ahead. It won’t all be straightforward, though, as Mullins notes. “Sometimes I worry that when people read that a company has just raised a big chunk of venture capital money from a prominent firm, it means success,” he says. “But that’s wrong. It’s a new beginning. Now you have a whole new phase, trying to build the business. There are huge challenges in trying to grow at a much faster rate.”
Ahmed relishes the challenge. “I know this is going to work,” he says. “It’s very early stages, but we are aiming to become the largest dedicated online business.” In the process of building a world-beating business, he looks set to indirectly improve the lives of millions of people along the way.
