Why would anyone really trust online ratings and reviews anymore? We’ve all learned that often anonymous blog, forum, and social media comments can be fraught with misinformation, or even outright lies, and in some cases have recently contributed
to
fraudulent or money losing relationships in the banking world.
I’m going to leave that question open for now. Let’s consider it again at the end of this ‘short’ story: it’s about a global payments provider,
Remitly, and the investment firm that claims the US-based immigrant remittance specialist’s stock price is overvalued. But as research shows, the answers to how well Remitly executes to meet its mission and business
objectives - and deliver value to its clients and shareholders – are much more nuanced and complex than many might realise or be willing to admit.
Short seller claims company’s lack of transparency, compensation, products lower its true value
Spruce Point Capital announced mid-March that it is ‘shorting’ Remitly’s
stock, citing what it calls the company’s “lack of transparency” regarding its greater forward-looking risk than its competitors in the marketplace. It alleges “dubious customer testimonials and doctored Trustpilot
reviews” in its publicity
campaign against Seattle-based Remitly. Spruce Point also raises accusations relative to Remitly’s equity compensation structure, and claims poor institutional governance allowed one senior executive to pledge his stock as collateral against a personal
loan.
Irrespective of its growth, its focus on expanding its operations, and the mostly positive reviews it has received in the marketplace, Remitly’s CEO and fellow execs have not yet commented on the short-selling investment firm’s assertions. Meanwhile, what’s
the real story here?
Spruce Point details more accusations of Remitly offering a substandard product vs. the competition, estimating a “40% - 55% potential long-term downside and market underperformance risk” for the company’s stock – first issued in 2021 (even before the recent
major market correction.) Yet, one of its
competitors’ own reviews and comparison summaries is largely complimentary, and Remitly’s own statistics seem to demonstrate that it has been quite successful by many measures (building its customer base, expanding its service, working toward profitability)
since its founding in 2011. It has engendered substantial respect and trust through its narrow business focus helping overseas employees send funds back home to their families, often in their native countries, at reasonable cost and under quick timelines.
Narrow niche helps many employees share their wealth to faraway family members
Remitly’s target niche helps it stand out from the growing and varied list of bank and non-bank players in the global payments marketplace. Many major financial institutions don’t even offer similar services, and if they did, they are often prohibitively
expensive, not to mention often requiring remitters to be clients, i.e., to hold accounts in their institutions to facilitate such payments.
Researching one of the main claims in Spruce Point’s press release confirmed a problem I have seen growing and festering for years. That’s the fact that the world of commerce is moving much too fast for many consumers (and businesses) to understand critically
relevant knowledge – and, specifically, in the case of Remitly and others – to comprehend and then keep up with all the rules and constant regulatory changes in the global payments world. That confusion might extend to many investors, too, including short
sellers, no matter their intentions or their professed industry knowledge.
The truth of negative reviews is in their words – many clients lack basic understanding of the business
This is the same shortcoming my research has found with other industry providers like Remitly, including
Wise,
Revolut, or scores of other remittance companies that have emerged in the US and elsewhere. So many of their customers think they understand - but many of them really don’t - what international payments really involve, and what’s required to make them ‘work’
the way they expect them to.
Among the many positive endorsements of the services provided by Remitly and their competitors, and for that matter, much larger financial institutions as well, are a countervailing litany of complaints. My cursory review found many of these are repetitive,
some literally cut & pasted from one conversation chain to another, and often repeating incorrect or uninformed assumptions or speculation.
The complaints I observed at
TrustPilot, in the pages of
Reddit, and at other review sites that came up when I searched for references and data would be alarming for someone doing initial research on any company. Except that given the nature of cross-border payments, most issues raised by unhappy Remitly customers didn’t
surprise me at all – as a veteran of a quarter century in the industry, working with both consumer and small-to-large corporate payments.
Cross-border payments are complex, no matter what their size or destination
I don’t know anyone at Remitly, but I do know and have discussed best practices in this field with experts, colleagues, and clients for years and years. I’m aware of innovations that have been introduced, and the challenges that remain decades after I first
joined the international corporate payments industry. Most importantly, I and other payments practitioners know where things still can and do go wrong.
There are lots of ways to delay or complicate an overseas remittance, especially when an exchange of currencies is involved. If you don’t understand the regulations, conform to governmental requirements, and satisfy basic information instructions right from
the start, you might very possibly have a problem getting the money from point A to point B quickly, if at all.
The key point here is, anyone complaining or complimenting a product, service, or company on its performance must first understand the basic operational and regulatory rules that govern it. If there is a failure to execute within that context, then there
is basis for a complaint. Conversely, when, for example, a very low value (say, $300 in USD equivalent) payment sails its way from one country to another, from the US to Thailand in only a few days, at an affordable fee, with a fair ‘retail’ exchange rate
applied, and it arrives at the receiver’s chosen disbursement point, then that’s something we might have called almost miraculous a couple decades ago.
It has never been easier to initiate and route payments of all sizes from a remitter in one country to a beneficiary in another – there are so many channels and providers to choose, it’s almost like cable or streaming TV. But the key point here is anti-money
laundering and anti-terrorist financing and currency control regulations, like demand and supply, always apply to cross-border transactions - no matter how large or small in value or frequency they are. This is not a US problem, a foreign country problem,
or a provider problem. It’s a global, systemic reality. And non-compliance with the rules, for whatever reason, will often cause delays or failures or customer concerns.
International remittance providers owe customers more education to set realistic expectations
For all these reasons, it is clear that attacking Remitly - because there are complaints about any of these unfortunate realities surrounding international remittance payments - is misguided at best. It illustrates a bigger problem, though one that is waiting
to be solved by the company and their competitors in the global payments game:
customer education must be improved.
I don’t think Remitly’s mostly positive customer reviews (or even the negative ones) should be the focus of short sellers like Spruce Point, irrespective of the other concerns they raise, and no matter what the latter’s true objectives might be in highlighting
their targeted company’s faults.
But, I do think Remitly and their fellow non-bank cross-border payments providers – which serve such a valuable niche and a clientele now under greater pressure as expat employees in the US than ever before - must do a much better job of informing their
customers up-front on the do’s, don’ts, and gotta-haves that apply to sending money overseas. Especially given some of the more uncommon, less well-travelled payment routes involved, increasing government restrictions on peer-to-peer (P2P) cross border payments,
and even more importantly, to set realistic expectations when so many of their customers are clearly under misapprehensions that the process should “always” be easier than it really is.
Performance picture for Remitly’s more positive than short sellers paint, so what’s their real motive?
The truth with global payments is, if it’s easy and affordable to securely and legitimately send a $200 or $300 or even $1,000 payment to someone on another continent without using a bank account, that's a good thing for everyone. If it gets easier over
time to send repeat payments the same way, that’s probably due to smart and effective execution by the remitter and their provider, and because they’ve both gained experience on how to do so correctly.
Remitly seems to be trying extremely hard to meet the specific needs of its niche customers - who often are not as wealthy, familiar with US banking customs, or as experienced with global payments and FX. They may not initially understand why transferring
part of their earnings between themselves and family members back home, or paying small suppliers overseas, is so much harder than sending a money order across the US or even using PayPal or Zelle for a domestic payment. But it
is harder, though that doesn’t mean there aren’t, right now, many innovative, growing companies striving to make the cross-border payments system work better for all, and not just major corporations.
Remitly’s business is under scrutiny for other reasons, too. The company and money service business (MSB) competitors like
Western Union and the entire small-value international remittance industry are being targeted by the US Treasury and its Financial Crimes Enforcement Network
FinCEN for possible links to money laundering attempts by drug cartels and other nefarious global players. While many
major banks have been fined by US and other authorities for lax compliance on cross-border transfers in the past, now the Trump administration has smaller remittance firms in the crosshairs of its
enforcement efforts. Another report from investigative journal
Hunterbrook Media (whose affiliate company
Hunterbrook Capital is also an activist investment firm) addresses this topic amid growing concerns about the overseas remittance industry and potential ties to illicit operators based primarily in Mexico. Finextra will be exploring this issue further in
future articles.
Whether or not the short-sellers’ assertions are in fact proven to be true, or the international remittance industry is or is not doing enough to prevent money laundering activities as part of its operations - Remitly and its competitors are proven problem-solvers
for the majority of their legitimate (and often geographically, politically, and financially isolated) customers. Whatever the reviews say, or however the ground rules and restrictions for cross-border payments are eventually tightened around all banks and
specialised providers like Remitly, they’re clearly doing lots of things right, while fine-tuning and growing their business, to serve their unique client niche.
For Remitly, and companies like them who make 'payments to those back home’ easier for many, that’s not a ‘short’ story, at all.
Remitly did not respond to request for comment on this story.