INTERVIEW: Making Remittances Easier for Asia's Migrant Workers

In December, Hong Kong-based fintech startup EMQ announced it had successfully raised US$6.5 million in Series A funding from Silicon Valley entrepreneurs and international venture capital (VC) firms.

EMQ co-founder and CEO Max Liu said the financing would help the company progress its work in securing regulatory and compliance approvals around Asia, as it continues to build the infrastructure that enable cheaper, quicker and more secure remittances across the region.

The company provides the settlement networks, or what Liu calls “pipes,” that allow mobile wallet services such as Tencent’s WeChat and the popular Hong Kong e-wallet TnG to offer smartphone users seamless overseas transfers that eliminate the need to queue at banks or remittance services.

For the more than 335,000 migrant workers in Hong Kong that such services target, most of whom come from the Philippines and Indonesia, the added convenience and lower costs are a godsend.

But why did it take so long for these services to emerge? After all, cashless payments have long been the norm in China, where users in major cities rely on WeChat Pay and Alipay for everything from groceries to bill payments and online shopping.

The answer is fairly simple: Connecting national payment eco-systems with cross-border partners is a regulatory nightmare. Witness the U.S. government’s rejection of Alipay parent Ant Financial’s attempt to buy MoneyGram International in January as a case in point – in one stroke the move poleaxed the company’s plans to bring its services to 200 countries.

Credit: EMQ

In Hong Kong, EMQ partners with Tencent Holdings to provide the latter’s We Remit service, which launched in October 2017, offering Hong Kong’s 170,000 or so Filipinos the chance to send money home free of charge – at least for an initial period. The service now also extends to Indonesia.

The News Lens sat down in Taipei to talk with Liu about EMQ’s story, why it took so long for digital payment services to challenge traditional remittance providers, and his plans for future growth.

The News Lens: Where did the motivation to found your own company come from?

ML: It was a spark. I was seeing a lot of fintech companies emerging four to five years ago. You’d see the occasional article about a fintech doing cross-border remittances, the founders would all say the same thing: “We want to make things fast, cheap, transparent, and we want to disrupt the banks.”

When I first heard that, I thought, “God, why would anyone want to make an enemy of the banks straight off the bat?” I’ve always thought something can be built to work with these institutions.

TNL: How did you go about meeting the banks back then?

ML: You’d go in with a room of [up to] 20 people, a few from every department at the bank listening. We wanted to build a network, working within the regulatory and compliance framework and in partnership with banks. We pitched every bank [but] I don’t think they understood our pitch. You have to convince every aspect – legal, risk, compliance. It took two years to get the first “yes”.

TNL: And which bank was that?

ML: We were pitching banks in Hong Kong, in Taiwan [but] it was Shanghai Commercial Bank HK.

TNL: Presumably you need a bank at both ends to do remittances?

ML: You need both ends, one bank per country to build a network.

TNL: Does it have to be a bank or could it be a utility?

ML: You need a bank account. We are a money service operator (MSO). The minute banks hear those three letters that they have an allergic reaction because they don’t think any fintech understands compliance, regulations or knows what AML (anti-money laundering) means or how to do Know Your Customer (KYC), so how can they open an account for you?

TNL: It’s not that they fear competition?

ML: I don’t think the banks fear competition. We pitch ourselves as additive to the banks and we are very transparent. They are more fearful whether we are compliant. When we enter we look for a partner bank and in parallel we go through the regulatory process. So we either go to the regulator or direct to the central bank and explain our business model. The regulatory process can be nine months to infinity.

TNL: That means you have to survive for three years with no cashflow were you self-funded?

ML: Yes, but we’ve been lucky to have investors who understood what we were trying to build even when we raised seed money. We were laying infrastructure. Pipes. We are a hub and spoke business. We hub into a country, find a partner bank, then we integrate.

Beyond the hub, we spoke into last-mile partnerships. In North Asia, everyone has a bank account. In South Asia, there’s 650 million people and 73 percent are unbanked so you are not sending money to bank accounts. A lot of the spokes outside of accounts are digital wallets, telecoms companies for mobile wallets and cash pickup points.

TNL: In which countries are you creating these networks?

ML: The Philippines, Indonesia, Singapore, India, Vietnam, Malaysia, Cambodia, Myanmar. It’s hard work. It’s all regulatory. All legal. There was a time when my cost of legal outpaced my cost of engineering. I have nine law firms that represent us - one for each country we are in.

TNL: Some people advise against switching markets in fintech precisely because you have to do cultural research and compliance all over again, what convinced you?

ML: The first law firm we engaged we asked to advise on Hong Kong, Taiwan and Singapore. Two months later they came back with three reports, costing a pretty penny for a startup. A partner of the firm told me, “Look Max, save your money. Don’t do this business.” I asked why, and he said “Because if you make a mistake it’s not a slap on the wrist, it’s criminal because it’s cross-border.”

At the top of the three reports it was highlighted: “We don’t recommend you do this business.” But I talked to my team and we said, we still want to try this.

TNL: How does EMQ improve the lives of migrants workers in Hong Kong?

ML: Our client is Tencent. They launched a product called We Remit. The first thing they did was move everything to a mobile environment, signed a joint venture with 7-11 – there are 900 [outlets] in Hong Kong. You just pay your cash at the counter, gun your QR code, and it’s in the wallet. In under 10 minutes your money gets delivered.

The settlement channel is EMQ. In the Philippines we partner with Union Bank of the Philippines and one of the largest remittance companies – Cebuana – and we’re also partnered with Globe Telecom, they have a mobile wallet called G-Cash.

TNL: Did you do any promo work once the approvals had all been granted?

ML: We spent a lot time building communities in Hong Kong with the Filipino workers, understanding whether they like using mobile, EMQ sent teams to church on Sundays, hosting lunches, dinners, and it became a thing. We didn’t want to let that go as we wanted to see what the reaction was. When we were first demoing the Tencent app, the foreign workers would wait on the phone with their husband back home and wait to see if they had received it. It’s trust at the end of the day.

Credit: EMQ

TNL: How much cheaper is it than the traditional methods?

ML: I can’t comment on Tencent’s pricing as they are running promotions today and it’s probably not indicative of where pricing will be in the future but it’s easily 10 times cheaper. You’re shaving four hours off foreign workers’ time. You can do this for dollars, not hundreds of dollars, in 10 minutes.

TNL: How quick was the take-up?

ML: To answer if we hockey-sticked and scaled? We didn’t. It was sideways, it wasn’t even steady. I cant talk about the volume because its proprietary.

You are trying to convert user behavior and habits [and] that's really hard. Even if you make the product free, it takes time. [Once] they knew they could trust us and so could recommend it to a friend, I wouldn’t say it steamrolled but it started to build pretty quickly.

TNL: Where are you with the regulatory process in Taiwan?

ML: We are going to be working with a partner bank in Taiwan. We have to wait for regulatory approval. It’s a key market. You have to be here.

TNL: If the approval process fails, would you go the route offered by the new fintech extermination law and apply for entry to Taiwan’s sandbox?

ML: If there is a sandbox that we can experiment in, why wouldn’t we? We are probably going to run a parallel path. We might bring it up with the partner bank.

TNL: You will soon enter China. Is that made easier through the partnership with Tencent?

ML: Our partnerships doesn’t extend to China, it extends to Hong Kong to the Philippines and then HK to Indonesia. China has been on the back grill for a very long time. [Now] we have a partner bank in China, it’s the Bank of Shanghai, and we are signing up with a large payments company. We should announce soon as we are at the integration and testing phase. It will be a product that goes inbound where we can go into almost every bank account in China.

TNL: How do you plan to keep scaling the business?

ML: All these things in Southeast and North Asia, they are receive and disburse corridors. The scalability comes from when we go to the pay-in money corridors: the Middle East, U.S. Europe, Canada, and look for licensed remittance companies and say, “Do you want to use EMQ?” If our pricing is acceptable they integrate. We want to work with companies that have an existing ecosystem of users.

The reception has been quite good. I was just in Dubai and the team has been in the U.S. and Europe. We are pitching a lot of pay-in API partners.

TNL: That’s the plan for how to deploy the Series A funding?

ML: Remittances is one application. If you look at how remittances work, it travels on a legacy network – bank to SWIFT to corresponding banks to landing bank, disburse. We have basically taken out SWIFT and corresponding banks. We’ve turned four stops into two – international money transfers into two local payments.

TNL: So your business is really about anyone wanting to transfer money

ML: We signed a partnership with QFPay in China. They have millions of merchants. The little POS machines that you slide cards through – they think that’s gone and mobile is the new means of payments – WeChat Pay, Alipay, whatever it may be. The customer is mobile and he or she travels. What they want the to be able to open an app at a 7-11 in Thailand, scan their QR code and buy a packet of chips.

QFPay is expanding in South Asia, acquiring merchants. Last year, 10 million Chinese spent US$200 per day in Thailand, that’s the market. [QFPay] approached us to use our API to do merchant settlement, so we signed a partnership in Indonesia – our first jump out of remittance and into payments. How many times do you really need to remit money? Two or three times a month. If you get into payments and buying goods and services, the frequency increases by a factor, it’s every day.

Editor: Morley J Weston