GK BETS ON DIGITAL AS REMITTANCE MARGINS TIGHTEN
GraceKennedy Limited (GK) is accelerating the change in its money services business model which continues to see compressed earnings from the digitisation of the global remittance business and the shifting economic environment.
GK has been a market leader in the remittance business in Jamaica for decades with previous Bank of Jamaica (BOJ) reports indicating that GK has more than half of the market share in Jamaica. This has been through its exclusive partnership with Western Union which is one of the largest remittance companies in the world.
The strength of the remittance business supported the growth of the overall GK money services segment which brought in the most profit before tax (PBT) up to 2020 before food trading exceeded its earnings in 2021. GraceKennedy Money Services Caribbean SRL, the money services holding company which GK holds a 75 per cent stake in, generated a record $9.67 billion in revenue and $3.98 billion in PBT during 2021 when the COVID-19 pandemic saw persons shift to formal channels to move money and do business.
Since that peak, the money services segment has seen its earnings level off with GraceKennedy SRL seeing a three per cent decline in revenue to $8.62 billion in 2024 with PBT declining nine per cent to $2.73 billion. The first quarter even saw GK’s money services segment record a six per cent dip in revenue to $1.97 billion with PBT decreasing 31 per cent to $489.45 million as remittance flows and transaction volumes declined in Guyana and Trinidad & Tobago.
“So, we’re continuing to take market share, but globally, the cost or price for sending remittances is actually coming down and that is causing a squeeze in margins in the short term, but that’s not a bad thing. It is actually designed to allow people to send money globally at a lower cost. That means our customers will find it easier and cheaper to send money, but in the short term, it does have this impact on our margins,” stated recently minted GK Group Chief Executive Officer Frank James last Wednesday at the company’s annual general meeting held at its headquarters.
Remittances involve a sender in an originating market sending money via a money services company like Western Union or MoneyGram to a receiver in the home/destination market. Up to the end of 2019, most people collected this money via a money services agent at a physical location. This process tended to mean that the money services company in the home market could earn more based on the rates offered to receivers to cover their operational costs.
Since 2019, more remittance companies are allowing people to send money directly to bank accounts and even send remittances digitally without the sender needing to visit a physical location to deposit the money. This has brought down the costs for the customer who tend to be charged less fees as no physical cash is involved, but means that the money services company handling the receipt of funds in the destination market earning less in fees.
With a reference to former GK Group CEO Carlton Alexander, James pointed to anything that’s great for Jamaica is great for GK. James stated, “So, it’s good for GraceKennedy because more people will be able to send remittances. What it requires of us though is that we change our business model and we are very far advanced and very proactive in doing that. A key to that is going to be the change to digital and that’s an area that we are actually doing very well in.”
James added, “Digital remittances is the way of the future; it is happening all over the world. We’re seeing it at over 50 per cent around the world whereas in Jamaica, it’s just at over 20 per cent. That spells opportunity as there is a long runway for the growth of digital remittances.”
In this push to improve the business operations, GK added its first digital sub-agent in May 2024 when TFOB (2021) Limited, operators of the Lynk mobile application, were onboarded. GK also expanded the physical Western Union footprint through 20 Courts stores with Unicomer Jamaica. This was meant to improve the convenience of remittance access in Jamaica along with the creation of another digital channel for persons to receive remittances.
The GK One mobile app is to be piloted in Cayman, Guyana and Trinidad & Tobago in short order with an aim to enable greater direct to wallet access for users in those markets. James also noted during his presentation that artificial intelligence (AI) would be used to improve customer needs along with an AI-enabled contact centre being in the approval phase as a means to further support customers.
There have also been senior leadership announcements with Steven Whittingham set to take over as CEO of the GraceKennedy Financial Group Limited on August 14 as Grace Burnett retires. GK also promoted Margaret Campbell to the CEO role of the GK Money Services Group on April 1 with Lee-Anne Bruce becoming the new chief operating officer.
With the new administration in the United States of America considering a remittance tax, GK and other global remittance players are currently monitoring the developments carefully. However, the GK Group CEO is confident that Jamaica would be able to weather any storm as families seek to take care of their loved ones back home.
“Because if you want to send a digital transaction, we can do that at maybe 30-40 per cent of what it would cost you to send a regular remittance transaction through retail. So, that means even with a three or five per cent tax, we’ll be finding ways to bring down the cost of sending remittances. Also, we have found that Jamaica’s remittance has always been resilient because people are sending money for their families and loved ones,” James closed.