One of the great joys of the Internet is how much it has simultaneously both shrunk and expanded our world. We now have access to virtually explore many different parts of the world and are also able to remain connected with with friends and relatives no matter far away they are from us. New technologies allow us to share everything with anyone at the click of a button. The traditional hierarchies that once governed communication have been flattened, and technology has left the general populace with more options to connect than ever before.
And it's not only personal communication that has been affected, the Internet has also made for big changes in business. In a Forbes article on digital technology and communication, author Nicco Mele writes,
“Radical connectivity – our breathtaking ability to send vast amounts of data instantly, constantly, and globally – has all but transformed business and culture, bringing about the upheaval of traditional, ‘big’ institutions and the empowerment of upstarts and renegades.”
This week, let's take a look at one industry in which these upstarts and renegades are quickly taking over: the digital money exchange marketplace.
Connectivity Creates Change
In recent years, companies such as Paypal, Square, and Venmo have exploded onto the scene, allowing individuals to circumvent traditional physical cash or check exchanges and transfer funds digitally. Sites like Kiva have fused technology and peer-to-peer sharing principles to successfully raise millions for entrepreneurs in third world countries. Even social media sites like Facebook have announced upcoming features that allow for exchanging money online. And while radical connectivity and the digital age have facilitated the rise of money transfer companies, the digital money transfer marketplace has become crowded with many viable upstarts.
However, one successful company has navigated the pitfalls of this crowded marketplace, found its own niche, and watched its business soar.
XOOMing Onto the Scene
Kevin Hartz embraced the digital capacity for radical connectivity early on. In 2001, Hartz, like many great innovators, identified a single pain point which he believed he could build upon. At the time, Western Union was firmly supplanted atop the money transferring market and showed no signs of relinquishing its crown. However, Hartz saw one major flaw: to transfer money, customers were forced to enter a Western Union franchise and physically hand money to a teller to be transferred from one office to another.
Hartz saw a great opportunity to improve this process for others, and in 2001, Hartz launched Xoom. Designed as an exclusively online money transferring agent, Xoom's mobile and online platforms allow its customers to transfer money instantly to people in over 30 countries across the globe. Just like Netflix or iTunes, Hartz used the Internet and existing technology to make one small innovation that would rapidly improve accessibility to an existing industry.
Transcending Physical Limitations
Transferring money electronically, especially abroad, has typically been difficult for both customers and agencies alike. Xoom's investor prospectus makes the problems that plague their industry clear:
Traditionally, the global money transfer market has been served by a few large players, many small regional players, traditional banks and informal person-to-person money transfer service providers that evade regulation. The large industry players primarily service senders who fund with cash, which requires an extensive network of originating agents in the United States and significant infrastructure in receiving locations. This antiquated model of predominantly cash-to-cash money transfer has not evolved meaningfully in more than 100 years and has been plagued by one or more of the following problems: slow transaction processing; non-transparent fees; opaque exchange rates; and an inconvenient offline money transfer experience, including limited store hours, long wait times, complicated manual forms and sometimes unsafe locations.
Xoom eliminated all the physical limitations that constrained its market competitors. Unlike Western Union, all the transfers that Xoom processes originate from its digital platform. Not only did Hartz save his clients the hassle of driving to a physical location, he also saved the company from many of the costs and fees associated with physical agencies. In doing so, Xoom made transferring money a simpler, more accessible process.
Nailing Down a Niche
Though Xoom was innovative and unique, it wasn't the first platform to offer digital money transfers, and it certainly will not be the last. In order to compete, Hartz knew he had to carve out and capture a niche. Hartz knew their was a large population of working immigrants in the United States that sent money back home to friends and family and focused Xoom's business on capturing this population.
Xoom, which went public in 2013, was recently acquired by PayPal for roughly $900 million dollars due to its international reach and global customer base. Discussing the acquisition of Xoom, Dan Schulman, CEO of Paypal, is quoted in Quartz,
“Xoom’s 1.3 million active customers in the US sent $7 billion to family and friends in 37 countries during the 12 months ended March 31, and that the acquisition 'will allow PayPal to quickly expand into the large and growing global transfer market.'”
Hartz's platform and focus on capturing a target niche served Xoom well. Not only did his innovation lead to great business success, but it also benefits a huge amount of hard working people who are striving to improve the lives of their families in other countries. I especially love these kinds of disruptive innovations: they create greater accessibility and affordability for the people who most need it.
Though many might claim that the advancement of technology is beginning to alienate us from one another, Xoom's story is an excellent reminder of the Internet's ability to enable person-to-person connections that achieve positive results. I look forward to watching other innovations of this nature develop in the future and hope they are able to promote the same kinds of social good.
What are some of your favorite digital innovations that have allowed for greater connection between people across the world? Let us know by tweeting @EidsonPartners!