Revolut makes remittances a priority as it enters the U.S.

Revolut's 2020 launch in the U.S. was by its own admission quiet, but it has ramped up quickly by targeting pandemic recovery opportunities such as cross-border payments and travel.

The London-based Revolut in the past two months has launched products designed to tap the U.S.-Mexico remittance corridor, support for crypto withdrawals, and payments for flights and hotels. There's a focus on cross-border payments, where Revolut contends it can find new users by offering lower fees and digital rails, despite a highly competitive U.S. market focused on the same services.

Revolut earlier this month launched U.S.-Mexico remittances, which reached an all-time high earlier this year, totaling $4.5 billion in May alone, according to BBVA Research, adding that was a 31% jump from the same month in 2020.

"There are still a high amount of Mexicans that are unemployed that desperately need financial support. Consumers globally are leaning on each other now more than ever," said Ron Oliveira, CEO of Revolut USA.

Revolut says it charges the "real exchange" rate for the transfers, which can be considerably less than bank-supported international remittances. Revolut's fees vary based on the user's package and country, but the company generally does not charge fees for transfers within an exchange allowance, with fees of less than 1% of the transfer value for transactions that are beyond the allowance. The average transaction fee for remittances marketwide is about 6.5%, according to the World Bank, adding bank fees for transfers can be as high as 11%. Revolut is starting with remittances to Mexico, and plans to add other Latin American markets in the near future.

"U.S. and Mexico is the largest remittance corridor in the world," said Juan Jose Li Ng, a senior economist for BBVA Research, estimating there are more than 100 fintechs and apps that are targeting that corridor. "And improvements in speed for these remittances and a drop in cost are correlated directly with financial developments over the last two decades."

Beyond established transfer firms Western Union, MoneyGram, and PayPal, Revolut faces competition from fintechs such as Wise (formerly Transferwise), which has used discount remittances to compete with banks and drive international expansion.

The lower costs come in part due to the digital rail, which removes overhead compared with an agent network; and the overall growth in international peer-to-peer payments that has accompanied the pandemic and the corresponding financial crisis. Western Union, for example, reported progress in its digital strategy as consumers moved to online remittances as the pandemic took hold, adding remittances are becoming a "stickier" product as a result of the crisis.

There are older generations stuck with the old remittance model of going to see an agent, says Talie Baker, a senior analyst with Aite-Novarica. "Those people certainly were forced to try digital platforms during the pandemic and I would assume that the convenience and ease of these applications has kept a lot of them using digital channels even though things have opened up again."

There could still be challenges in reaching unbanked consumers who still rely on cash pickup options, Baker said.

Revolut did not answer a question about its strategy to support a cash option. The continued pandemic has caused lingering unemployment and other economic challenges in Mexico, creating an opportunity for expats working in the U.S., Oliveira said.

"COVID-19 supercharged the digitalization of banking and altered consumer behavior everywhere. 2020 accelerated the trend towards digital financial management," Oliveira said, adding that Revolut saw a large uptick in money transfers to India in April, when the country was experiencing a record number of COVID cases as the delta variant took hold. Revolut suspended all fees for money transfers to India from May to July, a similar move to other payment companies, such as Skrill, that have cut cross-border payment fees during coronavirus surges.

Revolut's U.S.-Mexico remittance move followed its launch of travel booking in June. Called Stays, the feature allows consumers to reserve hotel flights, rides and other more general travel experiences. Stays debuted in the U.K. and will be added to the U.S. shortly. The service relies on a recovery in travel, which is still uncertain due to the virus's unpredictability and changing travel restrictions.

Other payment companies, including American Express, have updated their travel payment services in anticipation of renewed demand. Bakkt has partnered with Wyndham to offer cryptocurrency incentives to lure travelers, while Booking.com has introduced its own fintech to serve the travel sector.

"With countries reopening borders, we’ve seen a large uptick in foreign exchange and travel spending," Oliveira said, reporting Revolut saw a 387% increase from March 2020 to May 2021 in the number of foreign transactions made by U.S. customers and a 114% increase in spending on hotels, motels, and resorts from May 2020 to May 2021.

Revolut's remittance and travel moves follow its application for a banking charter in California, ahead of a plan to apply to the Federal Reserve for permission to form a holding company. The fintech additionally received a fresh $800 million in funding from Softbank and Tiger Global Management in July, upping its valuation to about $33 billion. That's up dramatically from $5.5 billion in early 2020. Revolut has made other moves this spring to expand its financial super-app strategy, including hiring Equifax to power data analytics, adding Clearbooks to Revolut's embedded finance marketplace and added support for cryptocurrency trading.

"We have many customers and businesses who want access to lower cost cross-border payments and remittances, who are or will be international travelers but also who are looking for easy, efficient and secure ways to manage their financial lives in a single app," Oliveria said, nothing that the mix of products is focused on younger consumers. "Building a global network is a key driver in supporting and growing our customer base."