on Jul 25 2015
I moved to the US from the Dominican Republic when I was 11, and like other immigrants, we started wiring money back home to grandma and other relatives. But the process was cumbersome and expensive and required my aunt in the Dominican Republic to get on a bus, stand in long lines, fill out forms and walk through dangerous neighborhoods with hundreds in cash. To send money, I had to walk with cash in the Bronx, wait in line, use a calling card and pay high wire transfer fees.
When I graduated from Wharton 20 years later nothing had changed, and I was inspired to start Regalii. The company initially focused on remittances in the New York market, allowing people in the US to pay for families' most basic necessities like utilities, mortgages, credit cards and college tuition instead of just cash. We’ve since focused exclusively on utility bills because it is a bulk of the expenses and it is a much more recurring expense on a monthly basis.
$4 billion is sent to the Dominican Republic every year, $22.5 billion to Mexico, $5 billion to Guatemala, $3 billion to Honduras and $4.5 billion to Honduras. Those top five markets that we’ve targeted first send $39 billion in remittances every year.
$534 billion are remitted to families in developing countries. Typically between 10 and 20 percent of the household expenditures are spent on utilities. The lights, the water, the phone bill—these are the most important expenses back home. Regalii focuses on the basic necessities that need to get paid every month rather than just cash that may be spent on trivial items
Regalii used to handle money transfers for all sorts of expenditures, groceries, utilities, cash, etc. We believed that we could get a lot more customers by offering more services, but the retention rate proved to be highest for utility bill pay. Over 50 percent of all transfers were for utilities and they happened every month. Everyone has two to three utility bills each month that need to be paid, and we were the first to make it super cheap and equally as convenient.
We focused on utilities, partnered with brick and mortar stores for easy transfer and account access, and now Regalii has found it’s niche with a sticky recurring transfer market.
The biggest driving factor behind us partnering with brick and mortar stores is trust. We deal with a consumer segment that's largely new to the United States, with a new culture and language, so they're a little more apprehensive about trusting new financial services. Trust is a big issue.
The brick and mortar shops that these customers use everyday have already built trust. Families know the guy at the corner store, they’re familiar with the grocery store, they trust these people and these brands much more than a website for sending and handling their money.
We are also in the process of partnering with digital money transfer brands. We partner with these brands and piggyback on the trust they’ve already established with their customers. By co-branding we automatically receive trust built over years of business with brick and mortar stores.
When we started customer acquisition was very difficult because our customers are often very poor and naturally very cautious with their money. We started as a B2C business, we’d advertise to potential customers online and have them sign up for Regalii. Customers were able to transfer money in a similar way, but we were only selling the Regalii brand which nobody was familiar with. There was zero trust.
Our customers don’t use the internet everyday. Often they’re in the US illegally and are afraid of having their information online. We realized that no matter how hard we tried we couldn’t build trust for our online brand on our own. But brick and mortar merchants have thousands of people walking through their door every single day.
We pivoted from online acquisition to storefront acquisition. We placed fliers, partnered with brands so cashiers would solicit customers for us. Our conversion rate is 1%-2% in most merchants, which is huge given how many thousands of people walk into these merchants every day. When we started co-branding with brick and mortar stores our CAC fell from $70 to about $10. By contrast, public online remittance company Xoom.com has a CAC of $43.
Our partners include IDT (NYSE: IDT), Ria (Nasdaq: EEFT), La Nacional and others. Our customers can go to any of our partner brands and pay bills in countries all over the world.
We’ve started our pivot with a network of merchants here in the US and the Dominican Republic that give us direct access to thousands of customers. We already have three partner merchants that allow customers to send money to the Dominican Republic and 15 more onboarding right now. But it’s not just the number of partner brands we measure.
What’s more important is the number of point of sale systems that we’ve integrated with Regalii. When all 18 partner brands are fully operational in a few months, 41,700 POS systems will be able to send money to the Dominican Republic. That’s 41,700 checkout lines that customers pass through everyday where they can also pay for relative’s bills back home.
Given our current numbers, these 18 partner brands will account for $15 million in gross sales volume by next year which will yield approximately $7 million in revenue.
The three partners we have fully operational only represent 930 POS systems, and $652,000 in ARR. Once we onboard those 15 other partners we’ll have 41,700 POS systems in the Regalii network with plans for many more.
We’re limited by our resources as a team, every single merchant and ramp up takes a lot of time from our technical team. Our technology is completely proprietary, these partners have never done this before, so it takes a little while to integrate. Our goal is to close this round in July, bring on some more engineers by the end of the summer and really speed up the process. We should be live with all of them Q1 2016.
Our most important numbers are numbers of POS systems, numbers of partners, countries, transactions per month, and net revenue. Shortly we’ll have 41,000 POS systems on board, 18 partner retailers and 30 partner utilities, and 8 countries. Right now, with only three partner brands we handle 13,000 transactions per month which nets $60,000 per month.
The Dominican Republic is our first test market and we’ll have 18 sending partners signed up by early 2016, but we also need utilities partners to receive the bill pay on the other side. In the Dominican Republic alone we’ve partnered with 30 utility companies that serve gas, electricity, water, telephone, and cable.
But we’ve already begun to expand in our other seven countries. We have a direct deal with SKY, the largest cable company in the Americas and with Telmex, the largest telephone company in the Americas. Regalii is the first international payment processor these huge conglomerates have ever had. They’ve never done international payments like this, so we’re able to handle 100% of their international transactions. Once we sign on the biggest national utility brands it’s easy for us to convince the smaller brands to sign on too.
Initially it was difficult because we didn’t have a proven test case for our B2B remittance market. But now that the Dominican Republic has proven our model it’s gotten a lot easier to replicate that model and convince utilities in other countries to sign up. Next we’re concentrated on Mexico because it’s the largest corridor for remittance from the US.
In every country that we operate we aim to have at least 80% coverage of the entire country before we open the market to bill pay, and we've reached that with all five corridors. We’re just waiting on our point of sale partners to finish the onboarding process before opening these new corridors.
Utilities love us for obvious reasons, they’re getting more bills paid on time, all without the mess of cash or check payments.But merchants love us too because we keep business coming back.
Utility bills recur every month, and once our customers establish a brand partner as their means of sending money they’ll come back at least 2-3 times a month. Every bill requires a visit to the store which likely means they’ll also do some shopping. Regalii is just one more reason for customers to keep coming back to their local market. We drive a lot of foot traffic to our partner merchants.
Yes. Actually Western Union, the largest remittance brand in the world has approached us to be their exclusive provider. But we already have 18 partners and contracts that we’d have to drop so we can’t do that. Most of the big players realize how significant our technology is and are trying to find a way to work with us.
Growth is about partnerships for us, the more utility companies we have, coupled with partner brands here in the States means more users, more transactions, and more revenue. Our product is easier and much cheaper than the alternatives which haven’t changed in decades. We just have to scale so that it’s convenient for any immigrant to pay family bills anywhere in Latin America.
Bills recur consistently, 71%of our customers send money with Regalii every month, we have an incredible recurring revenue stream. We anticipate hitting $15 million in gross sales volume next year, $7 million in revenue and that’s with only a small percentage of the potential Latin American market opportunity. Once we do we’ll be set to raise our Series A.
India and Philippines are the next big remittance corridors, they’re definitely on our immediate horizon. The Philippines send $10 billion in remittances from the United States each year. So that's a very strong corridor. India is even higher than that, around $12 to $14 billion. Starting next year we’ll focus heavily on those two markets.
We measure coverage by point of sale systems, essentially places where our customers can send money. With those 18 partners brands we’ve captured 40% of the remittance footprint in the US. The rest of the market consists of micro merchants with just a few locations (ten stores or less).
Over the past two years we’ve built a one-of-a-kind RESTful API which allows real-time bill payments throughout the world. Before Regalii utilities companies had no way to accept foreign currency. Before Regalii families would send cash back home with no way to know how it was being spent. Now families have control, they can dictate exactly how the remittance is spent.
This entire business is built on trust. These immigrants are all in a tenuous situation and trust is paramount. Our technology is the first completely transparent international transfer system. Everyone knows where their money is, how it’s being spent, and how much it’s costing them to send it.
My biggest fear is that we won’t move fast enough. If we can close retail and utility partners faster than our competition we can win, if we can’t and they find a way to copy our technology we’ll be in trouble. The more deals we can close, the better or API, the wider we dig our moat. We’re raising this round to dig faster.
The customer usually pays a $3 transaction fee, plus a small percentage fee which is between 2 and 3%. Which usually amounts to ~$4 in revenue for per transaction which we split 50/50 with the partner merchant. So we wind up with a $2 in gross margin for every transaction that we do.
There are many remittance players, starting with Western Union and MoneyGram. We were the first to set up direct bill pay, and a handful of competitors are trying to build similar technology. Xoom has launched bill pay in some countries. They’ve actually been quite successful, which is a great validation of our business. But we are the first and only to build an API for worldwide bill pay so any partner if they’re interested can send or receive money.
When we started we were very similar to Western Union and MoneyGram, we all did direct-to-consumer remittances (international cash transfers). But we’ve since found our model to work much better. Our customer acquisition strategy is far cheaper, we have much better recurring revenue, and families in the States like our service better because they know exactly how their money is being spent.
We understand our consumers far better than our competition. Our office is located in Harlem so we can constantly interview and get feedback from our users. Our users are refugees from their home countries. Often they’ve come to the US out of necessity, to seek a better opportunity.
Their lives are risky as it is, and they’re all super nervous about their status in the US. Many don’t even have bank accounts here, most don’t use any internet services, they’re all afraid of screwing up the biggest opportunity in their lives. This is why 90% of remittances are still done offline at the Western Unions of the world. These consumers want to stay anonymous, they only trust a few brands, and they’re entrenched in safe practice.
Brick and mortar remittance isn’t going anywhere for a while. We know this, but also realized the market was ready for a massive technology overhaul. Our brick and mortar model keeps that critical trust alive but adopts the old school model to technology which finally makes remittances cheap and transparent.
Many of our merchant partners have actually started paying us up to $15k to partner. We bring these merchants so much recurring business (every customer visits our partners 2-3 times per month to pay bills), that they’re now knocking on our door to sign up. Many of them write a check without handling a single transaction. Then once they’re onboarded we split the transaction revenue 50/50, so retails make approximately $2 per transaction plus the surplus from recurring regular business.
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