“Anyone who has ever struggled with poverty knows how extremely expensive it is to be poor.”
— James Baldwin
Imagine your reaction if your bank charged you a 9% fee to write a check to your sister in Cleveland. You send $100, but she only gets $91.
It’s unthinkable. But if you’re a low-wage immigrant sending part of your wages to family in your native country, that’s standard procedure—just one of the ways you pay more for being poor.
But this isn’t an article about how immigrants get ripped off. It’s about vast piles of money.
Vast Piles of Money
Estimates vary, but there are currently well over 200 million people who work in one country and send their earnings somewhere else. Rahier Rahman, Founder and CEO of Pangea, a Chicago-based global payments company, says “Remittances through formal channels in 2012 were estimated at $534 billion. Many experts believe that flows through informal channels double that estimate. We’re looking at a trillion dollar market.”
Do I have your attention yet?
Between fees and the spread on exchange rates, the World Bank claims the average cost of an international transfer is 9.3%. Nine percent of a trillion dollars is a vast pile of money. Hell, any percent of a trillion dollars is a vast pile of money.
“And some markets are more competitive than others,” adds Rahman. “In corridors like Japan-to-China, fees can be as high as 20%.”
Now then. On the one hand we have millions of hard-working, poorly paid people getting the shaft from the corporate banking establishment. On the other hand, we have vast piles of money. It’s a textbook opportunity for a social enterprise solution.
That’s where Pangea comes in.
A textbook social enterprise solution.
To review: a social enterprise generates its sustainable revenue and profit from a business model that achieves a social benefit. Startups from Chicago-based incubator Impact Engine are proving that profit-driven innovation can create solutions to some of the world’s direst problems.
Pangea is one of eight startups from Impact Engine’s first cohort. They’ve developed a new approach to money transfer that skips the entrenched, agent-based system. With a beta launch scheduled for later this year, Rahman doesn’t share many details, but says Pangea will work through existing retailers, online or mobile, will make funds available instantly, and will “help consumers save between 50% and 80% of what they’re paying now.”
Some perspective: Workers in the US remitted $22.4 billion to Mexico in 2012—more than all foreign direct investment in Mexico—and incurred just over $2 billion in fees. Cutting those charges by half would put an extra billion dollars into the hands of 1.4 million Mexican working class families.
Money like that has what Rahman calls “a reverberating impact,” since earnings are so much lower in developing economies. What we Americans might consider spare change can create meaningful lifestyle changes for poor families in places like India or Latin America.
Bottom line—if Pangea succeeds, millions of people will lead better lives.
Investors Won’t Do Badly, Either.
Of the five Impact Engine startups to receive funding since December’s Investor Day , Pangea has closed the most to date—a $1 million angel round. “Our partners recognize and respect our mission,” Rahman says.
I imagine they also recognize and respect the profit potential of a company that seizes even a fraction of a percent of a trillion dollar market.
That’s not cynicism. That’s capitalism.
Pangea has identified an underserved market, determined a pain point, and built a solution. Like any other startup, their success will make a few wealthy people even wealthier.
Unlike any other startup, their success will also make large numbers of poor people a little less poor.