The last five years have seen a
massive increase in money transference in the form of remittance
payments. Across the globe payment volumes have almost doubled,
from just over $200 billion in 2003 to just under $400 billion in
2008. Looking specifically at developing countries, the percentage
growth is slightly higher, from $140 billion in 2003 to $305
billion in 2008.
A large proportion of this increase can be
attributed to the spread of various payment enabling technologies
seen throughout Latin America, Africa, Asia-Pacific and the Middle
East. Items like mobile phones and payment cards, as well as the
rapid spread of the internet to more remote and poorer regions now
means it is that much easier for people to keep in contact over
large distances, and also to transfer funds.
The United Nations has stated there are around
191 million immigrants worldwide sending money to their relatives
back home. This money can vary between being the sole source of
income for recipients to simply being a supplement to their income.
This is clearly illustrated when you examine how much of a
country’s GDP is made up of remittances, with some developing
countries like Tajikistan making up almost 46 percent of their
total income with remittance payments.
Remittance payments
falling
According to the World Bank,
remittances are set to fall in 2009. Dilip Ratha, lead economist of
the migration and remittances team for the development prospects
group at the World Bank, believes total remittances are set to fall
by 5 to 8 percent this year, with some countries suffering a
significant drop-off in money transference.
“South-South remittances from
Russia, South Africa, Malaysia and India are especially vulnerable
to the rolling economic crisis. Also the outlook remains uncertain
for remittance flows from the Gulf Cooperation Council (GCC)
countries,” Dilip said.
“Both low-income and middle-income
countries are expected to see a similar decline – about 5 percent –
in remittance inflows in 2009,” he added. “Although newspapers are
reporting a large number of migrants returning home, new migration
flows are still positive, implying that the stock of existing
migrants continues to increase. The persistence of the migrant
stock will contribute to the persistence (or resilience) of
remittance flows in the face of the crisis.”
The remittance market is dominated by a few
large money transfer companies such as Western Union and MoneyGram,
while large financial institutions have been much slower and
seemingly more reluctant to get involved. One of the problems with
transferring funds via these agencies is that the recipient usually
has to go to a transfer outlet to collect their money, which could
be a long distance from their home, although there is now the
ability to transfer funds over the internet with some of the
agencies.
This is where recent advances in mobile and
card technologies can help. Funds are not only instantly
transferred to either a mobile phone-based account or prepaid card,
but barriers for entrance to the market are lowered significantly,
as many of the capital costs involved in running a money transfer
company are removed, especially the enormous expense of having to
maintain so many brick and mortar agency locations.
Prepaid card remittances
Prepaid cards are an especially
interesting method of remittance, due to their convenience,
accessibility and liquidity. There are several kinds of
remittance-related card companies at the moment, such as money
transfer companies that are now offering prepaid cards as part of
their existing remittance options, prepaid card companies that are
branching out into remittance and those that have a remittance card
as their only product. These can be further split into the
different card types; card-to-cash, dual card and recipient-only
card.
The problems involved in using prepaid cards
as a transfer method revolve around two issues: regulation and
infrastructure. Firstly, since card regulations vary wildly from
country to country, the process of harmonising with local systems
is difficult enough, but when you take into account most of the
largest recipients of remittance are countries classed as
developing, it becomes even harder when co-ordinating with the
local, perhaps undeveloped payments infrastructure in terms of
accepting the cards. Smaller yet still significant problems such as
no formal postal service or house address system in the recipient
country to deliver the cards to can also make this a very costly
part of the operation.
Despite the issues, from a remittance
recipient’s point of view the prepaid card option can prove
invaluable. As well as the convenience aspect, the prepaid account
can provide a gateway to more sophisticated formal financial
services such as mortgages, business loans, credit cards, chequeing
and savings accounts.
UK prepaid card provider Advanced Payment
Solutions (APS) has gone for a tailored approach when it comes to
their remittance programme by targeting a specific market, in this
case the Philippines. Aimed specifically at Filipinos working in
Europe, the remittance scheme uses APS’s cashplus prepaid Gold
MasterCard card, and enables cardholders to send money back to
their families in the Philippines, via a partnership with
Philippine National Bank.
Philip Harrison, director of business
development at APS, thinks prepaid cards are superior in many ways
to traditional methods, but knowledge of their existence is
curtailing the market.
“For a lot of the individuals using
traditional remittance schemes it is a question of education. They
don’t know that we exist, they don’t know how to get a card, they
don’t know they can get a card. They don’t know anything about
secondary cards or sending secondary cards abroad, giving the
relative the PIN and then teaching them how to use the card in ATMs
abroad or in a store for purchase,” he told BPA.
“We take for granted that we know what plastic
cards are and what they do, but a lot of the recipients of these
cards have never had a card before and it really is a question of
education. When you look at the vast marketing budgets that some of
the major remittance companies have, despite the fact that our
service quite heavily undercuts their fees, it is a process that is
still alien to most remittance money senders.”
Obstacles to prepaid
acceptance
Other issues besides infrastructure
and regulation affect the overall adoption of prepaid cards as
remittance devices. How the cards are reloaded and how the funds
are transferred will affect both the usefulness of the product to
consumers and how much they are charged for the privilege.
For example, on some cards,
reloading and transferring will be charged just one fee as they are
done in one transaction, while other programmes will separate the
two. Similarly, some schemes will give you the second (recipient’s)
card free of charge, while in others the sender bears all the
costs, although in general the recipient will have to pay a fee at
an ATM to withdraw funds whatever the scheme.
Western Union, the US-based money transfer
specialist, has recently introduced a programme with a Visa prepaid
card which as well as being a standard reloadable card also
includes a loyalty function. The scheme is fairly singular in that
it is only being offered to 8 million of Western Union’s current
customers. The loyalty scheme comes into play when the customer
sends money via Western Union and points earned can be redeemed as
transfer discounts or merchandise.
While the majority of remittance payments
originate from Western nations – a 2006 World bank survey reveals
the US sent $42.2 billion, Switzerland sent $13.8 billion, Germany
$12.3 billion and Spain $11 billion – three out of the top ten
remittance sending countries were from the Middle East and Asia,
with Saudi Arabia second only to the US, having transferred $15.6
billion.
In an attempt to take advantage of this
potentially underserved remittance market in developing countries,
prepaid card provider Krores has started issuing cards to migrants
in the Middle East, specifically targeted at workers from India and
the Philippines.
The scheme issues two cards, one for the
sender and one for the recipient, and includes a payroll function,
where the card is issued by the sender’s employer and part of the
their pay can be sent straight to the recipient. Vineet Katial,
chairman of Krores, says it was the ideal situation to set up the
scheme.
“In this day and age, I was surprised to see
the lack of financial tools available to the emerging markets such
as India, the Philippines and the Middle East,” Katial explains.
“We created our two new products to give migrant workers and their
families round the clock access to their money at ATMs or to spend
in stores and online allowing them to be more financially included
than previously possible.”
Mobile payments
Another burgeoning form of money
transfer is mobile payment. According to the United Nations around
half the world’s population – about 3.3 billion people – have
access to mobile phones, while mobile penetration in developing
countries is expected to be above 50 percent by the end of the
year.
Mobile payments enable two people with mobile
phones to send money to each other, usually involving small amounts
and usually via text.
The majority of transfer providers also have
to have their service backed by a bank or banking agent. For
example Kenya’s M-Pesa service enables remittances to be sent
domestically by allowing users to withdraw money from a network of
agents that includes airtime resellers and retail outlets acting as
banking agents.
Carlo Corazza, of the payment systems
development group at the World Bank, thinks the technology is still
in its infancy and has a way to go before it become a real tool for
international remittances.
“Mobile money transfer is a huge market. There
is a lot of discussion around using it as a tool for sending money.
But so far the relevant experiments for sending money through
mobile are just at national levels, what they call domestic
remittances,” he said.
“Cross-border remittances via mobile phone are
still very small as there are not that many operators working on
this specific platform. Mobile phones are just a tool to transfer
money via a debit card or credit card. It is not actually money
stored in accounts held by a mobile company,” he added.
“Examples of mobile companies providing
financial services are few and far between globally, so most mobile
services are bank-based or at least bank-supported. There is one
service based in the Philippines called Gcash, which actually gives
the user a mobile wallet, while mostly the others are all services
that are supported by a bank account.”