App providing a bank for the bank-less
In our series on innovative entrepreneurs, Alice Haine talks to the co-founder of payment service Now Money
There are a couple of unusual statistics about the UAE, according to Ian Dillon, the co-founder of Now Money.
One is that the UAE has a 100 per cent smartphone penetration rate and the second is the fact that only 20 to 30 per cent of the population has access to traditional banking services.
It was these two factors that encouraged Mr Dillon and his co-founder Katharine Budd to set up Now Money in the UAE in September 2015, a payment services provider for low-income migrant workers.
Their mobile banking app is designed for those that don’t meet the requirement of traditional banks. Via the app a user can pay their bills, top up the credit on their smartphone, track their transaction history and have access to direct remittance options. Customers also receive a MasterCard debit card for their day-to-day spending.
“We realised there are lots of banks chasing after a small number of people and no banks chasing after the majority of people,” says Mr Dillon. “The reason for that is that these low-income migrant workers don’t earn much money and the banks can’t earn much money from them.”
Their idea to offer financial services to the low-income segment has certainly gained traction. This time last year Now Money had three employees and today it has eight. Since January it has gone from signing up a handful of users to more than 4,000. Plus it is due to close its second round of funding, which could see it raise about US$2 million in just over a year.
To set up the company, the duo invested $200,000 of their own money to cover legal costs and their own living expenses. In July last year they raised $500,000 of seed funding from a private investor. And this month, they hope to close a bridge round in the region of $1m.
The duo, who attended the same university and both worked in the banking sector before launching their startup – Mr Dillon in investment banking for HSBC in London and New York and Ms Budd in retail banking analytics – were inspired by the success of branchless mobile banking from the challenger banks in the UK.
While they initially wanted to introduce a similar concept here, after researching the local banking scene they realised only the top slither of the population could access such services.
“In a population of 9 million, that is a very small amount,” says Mr Dillon, who estimates that it costs a bank $1,000 to board a new customer, hence the disinterest in the low-income sector.
“The business model we had in mind worked really well for this because without branches or legacy technology – you have stripped out about 95 per cent of the cost which means that you can profitably service people who don’t have much money.”
The UAE’s high smartphone penetration rate made their app-based service even more accessible, says Mr Dillon.
“They use their smartphones to stay in contact with their families in India, Pakistan and the Philippines, plus they have already been managing their money using mobile technology such as Paytm in India, Bcash in Bangladesh or mPay in Kenya so the work had been done for us.”
Low-income workers in the UAE currently access their money via the payroll cards issued through the Wages Protection System (WPS); these were introduced in 2009 by the Government to protect workers’ salaries.
Under the system, employees receive payroll cards, which employers then pay the wages onto. The workers then access their cash via an ATM.
However, Mr Dillon says the concept is actually less convenient than being paid in cash, as employees have to travel to an ATM, queue up and then go to an exchange house to remit the money.
“It’s effectively like a gift card; they can’t buy online with it or in the shops and if you are sending cash to an emerging market the exchange rate is terrible.”
The entrepreneur says the problem of poor access to banking for less wealthy customers is not unique to the UAE, but because people here follow predictable patterns with their income it made setting up Now Money easy.
“There are 4.5 million low-income migrant workers that come here to the UAE and they do exactly the same thing every month,” he says. “They get paid the money and then send it home to their families. With such a set behavior pattern, it was possible to make it profitable. The problem and the solution just slapped us both around the face.”
The company is licensed by the Dubai Economic Department and under the laws of the UAE, it is considered a payment services provider.
“This means we can instruct payments and transactions between regulated and licensed institutions so we have a partner bank that sits behind us and holds the money overnight,” he says, adding that he could not disclose the name of the partner bank.
While Now Money can sign up individuals that download the app onto their smartphone and then supply their identification documents, the main route to market is through corporate employers.
So far, they have tied up with five companies including Trukker, an Uber-style service for lorries, and the delivery app Fetchr – giving them access to 4,000 plus employees
One of the Now Money’s biggest claims is that it can offer users much lower exchange rates on remittances, mainly because with no branches and the ability to use the latest technology, their costs are so low.
“If you go into an exchange house and send back Dh1,000 – the exchange house has to pay for the staff in the branch, the rental for the branch, the cash handling, the transmission costs and then the bank or the financial institution at the other end,” says Mr Dillon.
“What we do is to bulk it – so instead of sending one person’s Dh1,000, we bulk, let’s say 50, to make Dh50,000 and then due to size we can get a better, corporate rate.”
Mr Dillon says making a direct comparison on how much a customer saves is not possible as it depends on where the customer is sending to. But he estimates a customer remitting via the app – which offers several different exchange options – could save 0.5 per cent to Pakistan or up to 30 per cent for Botswana.
“It varies greatly,” he says. “But for somewhere like Botswana the banks have to jump through hoops in terms of compliance and regulation because all remittances go from dirhams to dollars at the intermediary currency and the dollars to the currency you are exchanging to.
“What we do is transfer the money using bitcoin as an intermediary, so we’ve found a way to make it much cheaper.”
Jon Richards, the chief executive of the financial comparison site Yallacompare says Now Money is a good example of the UAE’s recent fintech push.
According to a report released in March called the State of Fintech in Mena by Payfort and Wamda, the fintech ecosystem doubled from 46 companies to 105 in the three years between 2013 and 2015.
“Now Money is demonstrating that you can do good in the world and that you can help people who really need it – while at the same time building a business that’s attractive to investors and that has the potential to cross borders and expand into other markets,” says Mr Richards. “Thanks to their technology, there’s potential here to help millions of people.”
So what motivated Mr Dillon to set up a financial services company to help the low-income segment of society?
“My plan was always to go and work in banking for two or three years before doing my own thing,” he says, “the problem and the opportunity was screaming out at me.”
The company’s revenue is sourced through a share of the remittance fees with the exchange house. It also earns through non-consumer fees, such as when the user tops up their mobile credit or uses their credit card.
In terms of expansion, Mr Dilllon says the start-up is taking it slowly.
The company is still in its pilot phase with only 100 people using the service in a test project but once the latest funding round closes it will roll-out the service.
“We are focusing on getting those first 4,000 right before we go crazy about getting the numbers up because if we get those first ones right and the processes right then it will sell itself,” says Mr Dillon.
There are 4.5 million low-income migrant workers who do exactly the same thing [transfer wages] every month