Creating a more accessible financial system: why we are partnering with Gusto and Remitly

Published in

Generation Investment Management

6 min readJul 31, 2019

There is a growing sense across the world that the economy no longer works in the interests of the average person. As the International Monetary Fund has recently noted, the share of GDP going into workers’ pockets is falling.[1] In many countries, income and wealth inequality have reached historic highs.

However, the rapid penetration of mobile devices, as well as the advent of cloud computing and digital marketing, have paved the way for best-in-class business models to leverage technology to improve the lives of people globally. Technology has reduced the cost to deliver to previously under-served individuals and businesses alike.

At Generation, we are keen to back companies that are democratizing access to these products and services by substantially reducing costs for end-users and ultimately improving the amount of total income for working families. We believe that a sustainable economy is at the intersection of people health, planetary health and financial inclusion.

Since we were founded 15 years ago, we have used environmental, social and governance (ESG) factors as tools to evaluate the quality of business and management. We believe this approach leads to important and relevant insights which ultimately result in superior, risk adjusted returns.

The two most recent investments from our Sustainable Solutions Strategy — in Remitly and Gusto — are evidence of this approach and are part of a wider shift towards creating a more equitable and inclusive financial system.

Improving the take-home incomes of families in the US and around the world

The World Bank indicates that in 2018, $689 billion was transferred across borders between individuals — more than 75% of which flowed from developed to developing countries[2]. Remittances play a crucial role in increasing the disposable income of relatives back home: our research indicates that often they are a multiple of Foreign Direct Investments and over 25 countries receive 10% or more of their GDP from remittances. Yet costs to send remittances remain extremely high — on average accounting for 7% of all money sent.[3]

Remitly’s digital-first money transfer platform offers a more affordable, efficient, transparent and secure way to send money across 700 corridors globally. The United Nations estimates that by reducing the average cost of remittances to the 3% level targeted in the Sustainable Development Goals, families could save an additional $20 billion annually.[4] We believe this could have a transformative impact on the lives of immigrants and their families.

Similarly, our investment in Gusto, the people platform focused on payroll, benefits and HR, leverages technology to help small businesses (SMBs) and their employees thrive. The US Bureau of Economic Analysis calculates that “supplements” to wages (including benefits but excluding bonuses) rose from 1.4% of total compensation to 17.5% between 1917 and 2000. This is a fairly neutral statistic until you look at the widening gap arising between the rich and poor: workers in the bottom tenth percentile of wages saw benefits fall by around 2% in real terms between 2009 and 2018, versus a 7% increase for median earners and a 17% increase for the 90th percentile.[5]

One reason that growth in benefits for low earners has remained so slow is because few get employer-provided health insurance — which has accounted for a third of the increasing cost of employers’ benefits since 2000.[6] Gusto has already made health coverage available to many who would otherwise not have had access to it. And as our customer survey of Gusto’s small businesses revealed, over three-quarters of respondents felt that they were able to provide more value to their employees, including better benefits, because of Gusto. Gusto’s dedicated focus on small businesses is particularly important here given that low-income earners are especially concentrated amongst Small and Medium-sized Businesses (SMBs).[7]

Scaling technology to under-served end-markets

Mobile-first money transfer organisations (MTOs), like Remitly, increase ease of access in countries where bank penetration is low and infrastructure is absent. For example, through a curated network of distribution partners, Remitly enables real time settlement across a broad range of locations and ways to receive money (from bank account and mobile money to cash and home delivery): this means that instead of waiting for the typical 3–5 day settlement period, families are able to access money transfers almost instantly, removing the burdens of a wait-period for money to hit one’s account. Furthermore, MTOs reduce the cost of sending money, while at the same time increasing security and customer service, for migrant communities who are often under-served by the traditional financial services systems and whose earnings are often below the national average income.

Gusto is also solely focused on a demographic of users that have not been adequately served to date. As of 2017, fewer than half of US small businesses were using a payroll service provider to manager their payroll.[8] Over 50% of the respondents to our customer survey said that, before Gusto, they were running payroll manually.

Gusto is fervently dedicated to improving the lives for small-business owners, to an extent that has resulted in pretty unique customer love, evidenced by the “Wall of Gusto” on Twitter. We believe that ease of use plays a huge role here: Gusto maintains a “net promoter score” of over 70 (the typical B2B software company achieves only 29)[9]. Gusto’s devotion to SMBs focuses on alleviating the burdens of an increasingly complex labour environment (in 2014, the IRS issued 6.8 million penalties to small-business owners, totalling $4.5 billion[10]), while reducing manual processes and other inefficiencies so that business owners can focus on growth instead of admin.

Backing exceptional, mission-driven teams

Finally, we are excited to partner with both Gusto and Remitly, not just because of what these companies do, but because of how they conduct their businesses. While they operate in very different business segments, Josh and Matt are both mission-driven CEOs and the teams they have built around them are diverse, positive, and focused on accelerating the transition to a fully sustainable economy.

We are honoured to be part of the next stage of growth for these two companies, and look forward to partnering with Josh, Matt, and their respective teams for many years to come.