Rewire – Getting to Growth

The Case for Unit Economics and the Business End of the Business





Fast facts:

Goal is to be a one-stop-shop for all financial activity conducted by migrants. This stretches from becoming an online banking solution for migrants to creating seamless ways for migrant to pay bills in home countries
Currently has 130 employees
Headquarters are in Tel Aviv, Israel and Amsterdam, Netherlands
Due to COVID-19, Rewire has seen a dramatic shift from cash to digital payments. Before COVID-19, roughly 80% of remittances were conducted in cash worldwide. Post- COVID-19, more than 50% of remittances are actualized online
Table of content

How Rewire Began

Or Benoz left to New York for a role at Gerson Lehrman Group (GLG), a company founded by a longtime friend of the Zell Program, Mark Gerson. Or had a business idea involving remittances, or transactions by migrants who were sending money back to their home countries, and shared this idea with Guy Kashtan, a Zell graduate himself from the same Zell class as Or. Guy, who at the time was a Program Manager at Microsoft, brought strategic project management and leadership skills to the table, and reached out to Saar Yahalom, a teammate at Microsoft who brought technological edge, vision, and a proven track record of delivering innovative products. At a later stage, Adi Ben Dayan, a technologist who was an experienced manager and team builder, who could scale up any project, was contacted as well. They became co-founders of what morphed into Rewire, a business focused on digital banking solutions for migrant workers from developing countries.

The team felt that migrants were being taken advantage of and that there was a more transparent, efficient, and fair way to handle these transactions, and still turn a profit. The founders delved into the world of remittances, seeking to validate the initial idea and disrupt the remittance industry. Their findings were significant:

- As far as the size of the market, there were 200 million migrants worldwide processing an estimated $65 billion dollars per year in remittances - The average cost to move money between countries was up to a 10% fee per transaction in many countries.

- The most ubiquitous solution for moving money from one country to another was through physical exchange shops. No simple digital solution existed for migrants.Israel had a market of $5 billion dollars being moved per year, and no significant technological players aside from local banks and exchange shops

- In summary, the industry had several major gaps, but had BIG potential. So the founders began.

- They chose to start in Israel because acquiring licenses and fulfilling regulatory requirements would be difficult and costly, and doing it outside of their backyard with only Seed money seemed expensive and unnecessary. The market was sizable enough, and they maintained the value of building a lean company with scale in mind.

They met their first major milestone when they received Seed funding of $300,000 dollars in early 2015.84 After this point, the founders moved quickly, dividing and conquering the tasks required to release an MVP. Guy at the time was responsible for all of the product and operational aspects. In parallel, the team spent six months building the product in order to begin truly testing their concept. Before the end of 2015, both the product and the regulatory requirements were met, and Rewire launched into the market.

Launching, Hiring, and All That Came After

Rewire launched their MVP as a web application aimed to reach all customers on any type of device, whether a phone, tablet, or computer. For the sake of entering the market faster and further validating assumptions, they chose to launch the product without a database. Instead, all transaction requests that occurred on the app were funneled into a Google Doc.

“Getting to market as fast as possible, proving initial traction, and iterating with the product based on real user needs and behavior were critical components of our early success,” said Guy. 

In parallel, the founders made their first hire, a community manager originally from the Philippines. As it turned out, this role was crucial for the growth of Rewire’s user base. “One of the biggest challenges in the financial industry, specifically in areas like remittance, is customer trust,” said Guy. Through their market research, they knew that migrants from the same country living in Israel often formed tight-knit communities. In fact, many of them worked together, lived together, and acted almost like a family living abroad. In order to tap into such communities and gain customer trust, they hired from within. Their first hire was a community manager originally from the Philippines who had been living in Israel for several years. They believed that if she focused on converting members of her own community into users of Rewire, in turn, those users would invite other members, ultimately creating a network effect. And so it did.

From this point, the natural next step was to create a referral program that incentivized customers from migrant communities to invite others to use the Rewire platform. They also dabbled in Facebook advertising and other forms of traditional marketing. Through all these efforts, by the end of their first year in operation, Rewire acquired almost 3,000 monthly active users. 

While increasing their user base was imperative, Rewire’s top goal was to grow the volume of money being moved by its user base while making a significant impact on their day-to-day lives through reduced costs and accessibility. For every transfer of money by a single user, Rewire took a one percent transaction fee and the user covered the exchange rate fee. This is notable considering that the average fees from competitors were more than double that at the time. It was a win-win for all parties involved.

But how did Rewire manage to take such a low fee when its biggest competitors were charging much more? For starters, Rewire was completely digital – they didn’t have their own shops, or any operational expenses associated with managing physical exchange locations for their customers. They also had fewer mediators between themselves and the banks in countries to which their customers were sending money, making the process faster and leaner. It was a very different approach to how Western Union, the largest remittance name in the industry with affiliates scattered all over the world, was targeting migrant communities85. In summary, Rewire had built a lean business model with scale in mind. “We never wanted to become profitable based on one customer, and were focused on global scaling with future profitability in mind,” Guy said, referring to their competitors.

Let's Get Into the Logistics

As the Rewire team got to know their target market segment intimately, they learned that migrants tended to manage a lot of cash and didn’t necessarily have bank accounts in the countries they inhabited. The term for this in professional jargon is ‘unbanked’. But how did Rewire make it possible for migrants to load cash onto their platform? They needed to solve the issue of trust first and foremost, but then there was the logistical matter of getting the actual fiat currency deposited. They started by having customers send them transfers through Israeli post office branches,86 which Rewire would then load onto the customer’s Rewire account so that they could send the funds via the platform to their home countries. Not wanting to be reliant on one source of deposit offering, and wanting to streamline the offering to make it as frictionless as possible, Rewire strategically focused on alternative partnerships. Between 2016 and 2019, Rewire grew to three different deposit point partnerships in Israel:

1. Israel Post Bank, where customers can deposit money directly to Rewire’s Israel Post bank account

2. GMT Financial Services, the largest exchange network in Israel87

3. Super-Pharm, a large pharmacy chain in Israel. The partnership is currently available in almost 200 different branches. The idea is that the physical locations are accessible all over the country and can handle the volume. The pharmacy chain partnership was carefully planned and presented to the Israeli regulators.

Through these partnerships, Rewire has totaled over 1,000 deposit points to date, more than any single network. This in many ways has compensated for Rewire’s lack of a physical presence, as it is primarily an online solution. Having to operate the deposit points themselves helped Rewire scale at a lower cost, ultimately preserving the one percent fee they had initially charged their customers. Rewire’s strategy for customer acquisition is mostly managed online using Google and Facebook ads for example, as well as paid promotions to customers participating in their referral program. “When you’re asking customers in Israel how they got to Rewire, 80% would respond that they were referred by family or friends," said Guy. As of today, it costs Rewire $20 to $25 dollars for each new user, however the lifetime value of a retained user is over $750 dollars.

Defining Markets and the Strategy for Expansion

Rewire’s target audience and receiving markets to date include:

Philippines | India | Thailand | China | Sri Lanka | Nepal | Nigeria | South Africa | Uganda | Kenya 

Market size, accessibility, and language were the three main criteria that determined the countries in which Rewire launched its remittance service. They started with the Philippines because it represented one of the largest migrant populations living in Israel in 2016.88 Phillippinos in Israel mostly lived in Israel’s larger cities, making deposit points quite accessible, and most of them spoke English. From there, they added India, which met similar criteria to that of the Philippines, and thus required minimal product adjustments. In any case, every time Rewire opens a new receiving country, two main adjustments are required: (A) establishing a new banking partner in a given country and (B) hiring a community manager from that country to provide customer support and revert back important learnings in order to improve the platform and services to and from that country.

All in all, it was relatively painless to open both the Philippines and India, and the targeted user groups from both markets grew rapidly. Between 2017 and 2018, Rewire opened the markets of Thailand, China, Sri Lanka, and Nepal. Relative to market size, these countries were smaller but important for growing in scale. 

In 2018, their next step was to decide how to expand outside of Israel. The three biggest markets that send remittances are Europe, Asia, and the United States, where 61 percent of migrant workers live.89 Latin America, or LATAM, follows behind, with a relatively large market for receiving remittances, however, such an expansion would require a new language addition and a new team on the ground. Keeping true to their lean business values, Rewire ultimately chose to expand to Europe due to the competitive landscape and the fact that it shared a similar time zone to Israel. This allowed them to use mostly the same operational resources from their Tel Aviv office in order to provide service to the same user groups they were already servicing in Israel.

While this was logically the right approach to expansion, it wasn’t without its challenges. It took Rewire over a year to launch in Europe, mostly due to regulatory adjustments. They needed to acquire local banking licenses in Europe, which proved to be more expensive and time-consuming than planned.

Initially, they launched through partnerships with regulated entities. This allowed them to start operating in the market while waiting on a license, which meant that all of the aspects of regulatory risk would fall on the company with the active license. Although time to market was critical, having its own license was important for Rewire to own its own risks and decision-making throughout the customer journey.

By January 2019, Rewire had raised $12 million dollars in a Series A round based on its success in Israel and its initial efforts in Europe.90 At this point, the company had generated over $3 million dollars in annualized revenue and had over 20,000 active users sending money through the platform. With more capital in their pocket, Rewire focused its efforts on an alternative, more seamless expansion plan into Europe.

Cut Your Losses and Start Again

It was time for a fresh start. Rewire decided to rebuild its platform in Europe through new agreements and partnerships to cover all of its regulatory and operational needs. This included agreements with

a financial supplier, a new licensed partner, card acquirers, and other financial institutions in order to relaunch their activity in Europe. Instead of dedicating the majority of their resources to remittance services, like in Israel, the team refocused its efforts in Europe on providing online banking services, such as payment accounts, debit card services, and local transfers, while still focusing on migrant workers.

Bearing this in mind, they also took a step back and created a strategy to define which countries in Europe to expand to first. Their decisions were based on a different set of criteria than was used in Israel. “We asked ourselves where we would be the most successful, taking into consideration that there would be more competition and more regulatory challenges,” said Guy. Considering that they already had community managers and processes set up in these receiving countries, they predicted that adoption would be both easier and faster with users in Europe. “We had the luxury of servicing the same customers in many aspects. They are not entirely the same because they may have different professions and come from different places than the receiving countries, but it is much more similar than servicing users from new receiving countries,” said Guy. Within one year of relaunching in Europe, Rewire’s strategy proved to be a smooth expansion route. Now they have begun expansion into new receiving countries, including Ghana, Kenya, and Bangladesh.

Looking Forward

Rewire aims to expand further in Europe, targeting to open 10 more receiving countries. Until now, they accomplished opening one sending country every 18 months, and in the next 18 months, they intend to double the rate to two. 

The company raised a Series B round of $20 million dollars. This round was based on surpassing $10 million dollars in annual revenue and acquiring more than 100,000 customers in Europe, making up 40% of Rewire’s activity at the time of writing.91 

COVID–19 accelerated digital transformation. Rewire’s customers had to educate themselves about the usage of digital tools for money management, which the company addressed through extended support, online guides, tutorials, and live sessions with experts.

- During 2020, their customer base tripled, with 40% attributed to organic growth

- Rewire will soon reach the 0.5M registered users mark

- Rewire, as a company, grew and doubled in size. Their largest internal expansion was in their customer support team, which grew by 50%92

- The entire company started working remotely

Discussion Questions

  1. What was so attractive about the remittance market?
  2. What were some major obstacles they knew they would face in this market? 
  3. How much was Rewire’s customer acquisition cost and what was it mainly comprised of? What was the company’s LTV:CAC ratio? Is this a strong metric and result?
  4. How did Rewire initially get around regulatory requirements and licenses during expansion?What were the benefits and risks of this strategy? 
  5. What were the pros and cons of expanding to Europe vs. the U.S. Do you think it was the right choice to choose Europe? What impact might this decision have had beyond purely business operations? 5. How did COVID-19 impact the business?
  6. What do you think about the milestones Rewire set for its Series B? How do you think these were established?