Pomelo exits stealth mode with $20 million seed to rethink international money transfer – TechCrunch

Eric Velazquez Frenkiel had a seemingly simple thought while visiting his family in the Philippines, impressed by the cashless economy that had formed. Instead of sending his family money once a year – an expensive and cumbersome affair – why can’t he just leave his credit card there?

As with many things in fintech, it wasn’t that simple. But the seed of the idea prompted the company’s former chief executive to turn his career into a bet on one of fintech’s most elusive problems.

Pomelo, Frenkiel’s new startup, launching discreetly today, wants to make it easier to send remittances and conduct international money transfers, with a touch of credit.

To realize this vision, Pomelo raised a $20 million funding round led by Keith Rabois at Founders Fund and Kevin Hartz at A*Capital, with participation from Afore Capital, Xfund, Josh Buckley and the Chainsmokers. The round also included a $50 million warehouse, which will allow Pomelo to give cash to people who want to make transfers.

Venture capitalists aren’t the only cohort taking an interest; more than 120,000 people joined Pomelo’s waiting list in six months, according to Frenkiel. (It’s important not to confuse this Pomelo with another Pomelo, a fintech-as-a-service platform for Latin America that raised $9 million in funding). Oh fintech.

Here’s how the startup works: If someone wants to send money abroad, they create a Pomelo account, which includes up to four credit cards. The account creator – let’s just assume they’re the one sending the money – can set limits, suspend cards, and see spending patterns.

Pomelo’s key adjustment concerns credit. Senders can give money, in the form of credit, to family members – which the startup says will facilitate instant access to funds, protection against fraud and chargebacks and, for potential immigrants who could use it to send money home, a way to boost their credit score with more transaction history.

Challenges still await any fintech, whether traditional or offbeat, that bets its business on supporting potentially at-risk individuals. For example, Pomelo doesn’t want to rely on credit score to decide whether or not to trust a sender, because the metric historically excludes those without access to financial literacy or spending.

Picture credits: Pomelo

“If you have a credit score and you have enough credit history, you’ll get up to $1,000 a month,” Frenkiel said. “But if you don’t have credit or want to improve your credit, we give you a credit builder.” Customers are asked to provide a secure deposit, so there’s a way to prove creditworthiness down the road, and Pomelo is able “to really balance the need to extend credit but also ensure that we’re in business for the long term.”

International money transfer continues to be a costly affair for senders. Unsurprisingly, this pain point has led to a plethora of startups. Startups offer a sliding scale proposition, meaning it costs more to send more money, or a flat rate value proposition, with a $5 fee for all transfers, regardless of size . According to the World Bank, approximately 6% of a total check is removed via fees and exchange rate markups.

Rethinking remittances therefore looks like common discourse. Frenkiel says Pomelo’s closest competitors are Xoom and Remitly, though he thinks they differ in two main ways: a focus on credit and a “fundamentally new revenue model.”

Pomelo does not make money from senders via transfer fees, but instead relies on interchange fees paid by merchants. “You shouldn’t have to pay to send money,” adds Frenkiel.

While interchange fees have their own set of problems as a business model, let’s end with some assurance: Both Visa and Mastercard were interested in partnering with the startup, but the latter won the deal.

“MasterCard allows us to work in over 100 countries,” Frenkiel said. “Obviously we start with a few, but the idea is that there are far more end points to taking MasterCard or Visa than having a bank as a pre-requisite to send money…we hope that we will eventually be able to deliver a product anywhere MasterCard is accepted in the world.”

The startup serves the Philippines, but soon plans to expand into Mexico and India as well as other geographies.

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