A few weeks ago at GSMA 2013 NFC and Mobile Money Summit, MMU invited Marius Dano from Bics, Gregg Marshall from Western Union, Eric Barbier from TransferTo, Jerry Ejikeme from Sochitel and Daniel Aranda from Ripple Labs to discuss innovations and new business models in the area of international remittances. The session was moderated by Andria Thomas from Dalberg Global Development Advisors.
If you didn’t get a chance to attend MMU Seminar, this blog post highlights some of the key points that were discussed on stage, and you can watch the video of the session by clicking on the link below.
Opportunities and challenges for international remittances over mobile money
Andria Thomas has been working on the annual study on international remittances through branchless banking conducted by Dalberg in collaboration with CGAP, and she opened the session by painting the landscape for international remittances over mobile money.
Developing countries received over $400 billion in remittances in 2012 according to a World Bank report. In these markets, using mobile money for international transfers represents a tremendous opportunity that would benefit both customers by making transfers quicker and more convenient, and mobile money providers by creating a new source of funds for mobile wallets. However, while the number of deployments has increased from 8 to 32 over the past 3 years, transaction volumes remain low and Andria explained that a number of challenges have slowed down progress in this area.
Western Union and Bics’s HomeSend are the two major hubs, connecting 70% of the mobile money deployments that support international remittances. When Gregg Marshall and Marius Dano were asked to share their thoughts on what would be required for international remittances over mobile money to take off, they mentioned four critical factors:
- The need for a critical mass of active mobile money users in receiving countries;
- Greater customer acceptance on the sending side;
- The importance of interoperability to allow transfers between different types of accounts (bank accounts, mobile money accounts, etc);
- The need for more enabling regulatory frameworks.
In receiving countries, a larger critical mass of active mobile money users is needed
One of the lessons that Gregg Marshall has learned working for Western Union Digital is that international remittances over mobile money won’t take off until there is a critical mass of active mobile money users in receiving markets.
Indeed, active mobile money users very quickly realize the benefit of using their mobile wallet to receive money from abroad. However, international remittance does not seem to be an attractive enough proposition for non-mobile money users to open a mobile wallet. In this context, a larger number of mobile money users is needed in receiving countries for international remittances to be successful over mobile money.
Developing customer acceptance in sending countries is critical
We hear a lot about how difficult it is to raise awareness and to educate customers on using mobile for money transfers in developing countries. However, it is just as challenging to develop customer acceptance in sending countries, and we know that it is the sender rather than the recipient of a remittance who decides which channel to use.
To address this challenge, it is important to focus on the senders – typically economic immigrants -, trying to understand who they are and using distribution and marketing models they are comfortable with is critical. Partnering with MVNOs in sending countries is another way of solving the acceptance problem. In Europe for example, MVNOs’ customer bases are composed mostly of migrants who regularly send money home. MVNOs also have large distribution networks in sending countries and are particularly strong in the areas where migrants live. Some partnerships are already in place, for example between Bics, MTN and Lycamobile on the UK-Ghana remittance corridor.
However, international remittance to a mobile money wallet was not the only model discussed. Both Sochitel and TransferTo found that by replicating a user experience that senders are usually familiar with, sending airtime, the need for customer education was reduced. International airtime top-ups appear to be a complement rather than a substitute to international money transfers, and it is gaining ground faster due to less constraint for growth. According to Eric Barbier, the use cases have interesting differences: while a customer of TransferTo makes transfers worth below USD 20 on average 3 times a month, people who remit money home usually do so once a month and send larger values.
Can interoperability be a game changer for international remittances?
Finally, the lack of interoperability between different types of accounts (bank accounts and mobile money accounts for examples) and between different mobile money schemes domestically, seems to be a hurdle for the development of international remittances over mobile money.
Daniel Aranda shared with us how Ripple Labs is trying to address this problem. Ripple Labs created Ripple, an open source protocol for payments, similar to SMTP for email. This is done using a large distributed and decentralized network and allows for autonomous settlement for any kind of asset. In theory, this system allows people to send money to anyone, anywhere, and in any currency. Perhaps the greatest promise of Ripple is that these transactions can be executed with a much lower cost than what we see today, almost for free. As costs still are high for international transfers and remittances, this is an area where innovation can make a big difference for customer uptake.
With the growing willingness of the different entities within the financial ecosystem to interconnect, and innovations like Ripple being developed in parallel, we seem to at the beginning of a long path towards healthy global interconnected systems.
GSMA has a support package in place to help operators start or grow the international remittance business. For more information, email us at email@example.com.