Mobile and Remittance – An Ideal Combination
March 2014
Table of Contents Mobile and Remittance – An Ideal Combination ........................................................................... 3 Overview ................................................................................................................................................. 3 Basics of Remittance ................................................................................................................................ 3 Remittance – A Huge and Growing Opportunity ...................................................................................... 4 Remittance Cost – By Geography and Channel......................................................................................... 5 Mobile Remittance: Costing and Availability ............................................................................................ 6 Drivers of Mobile Remittance .................................................................................................................. 7 Hurdles to Mobile Remittance ................................................................................................................. 7 Example of Mobile Remittance Adoption ................................................................................................ 8 Outlook .................................................................................................................................................... 8
Mobile and Remittance – An Ideal Combination Overview Globalization along with decline in working-age populations in many developed countries is leading to growing demand for workers from abroad to sustain economic growth. Currently, an estimated 230 Mn people or roughly 3% of the global population live as emigrants. This scale of global migration is unprecedented and is growing. As per the latest estimates from the World Bank, immigrants remitted approximately USD 549 Bn in 2013 through formal channels, a bulk of which went to developing countries. The amount transferred through informal routes may be much higher, 50% greater than the official amount as per the IMF. Much of these remittances are sent across borders in relatively small amounts and at a much higher cost. The average remittance is probably less than USD 1,000, and the World Bank estimates that a person pays almost USD 12 in fees on average to send USD 200 from the US to Mexico, the largest single remittance corridor in the world. With increasing penetration and lowering cost of communication, mobile phones have become the preferred and primary mode of communication between a person staying overseas and his family & friends. Also, with recent advancement in technology, this same mobile phone can be a perfect alternative channel to the traditional mode of remittance transfer. Transferring money through mobile phones is not only convenient but also cost saving for both senders and receivers. Currently, the share of mobile payments in international remittances is negligible. Nineteen products based on mobile services made up less than even 1% of the money transferring products included in the World Bank’s December 2013 Remittance Prices Worldwide (RPW) database. This white paper discusses the current status of mobile remittance and also assesses its near and medium term prospect.
Basics of Remittance "Migrant remittances" generally refer to transfers in cash or in kind from a migrant to household residents in the country of origin. However, the IMF’s much broader definition includes three categories of data:
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Remittance – A Huge and Growing Opportunity According to the World Bank estimates, USD 549 Bn was sent internationally through official remittance channels, with majority of it going to developing countries. Remittances sent home by migrants to developing countries are three times the size of official development assistance. The total remittance flow is projected to reach above USD 700 Bn by 2017, with USD 167 Bn expected to be remitted to developing countries. As shown in the figure 1, developing countries’ share in total remittance is significantly higher and is growing. In 24 countries, remittances were equal to more than 10% of gross domestic product (GDP) in 2011; in nine countries, they were equal to more than 20% of GDP. Figure 1: Remittance Trend (USD Bn) 800
( USD Bn)
600
418 400
200
115
454 120
549
646
594
707 167
506
519
133
130
135
449
491
540
414
2013e
2014f
2015f
2016f
303
334
373
389
2009
2010
2011
2012
155
145
0 Developing Countries
Rest of the World
Global
Source: World Bank; Sutherland Research
Post the global financial crisis of 2008-09, total remittance has grown at a compounded annual rate of above 7%. Remittance sent to developing countries has grown at an even higher rate of 8% during the same period. The World Bank expects the total remittance to grow at 9% during 2013-16.
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The sheer size of the remittance makes the entire ecosystem related to it an attractive proposition. The cost for remittance services varies significantly depending on the region where money is being sent. Globally, remittance transfer cost an average of 9.05% of the amount being sent, which makes the global remittance transfer market just under USD 50 Bn for 2013.
Remittance Cost – By Geography and Channel The cost for remittance services varies significantly depending on the region where money is being sent. Globally, remittance transfers cost an average of 9.05 % of the amount being sent, which means that, on an average, a migrant sending USD 200 would spend USD 18 to make that transfer. This is expensive, especially compared to the often low incomes of migrants and remittance recipients. Figure 2: Average Remittance Sending Cost by Region 14% 12% 10% 8% 6% 4% 2008
1Q 2009
EAP
3Q 2009 ECA
1Q 2010
3Q 2010
1Q 2011
ECA(excel Russia)
3Q 2011
1Q 2012
LAC
3Q 2012 MENA
1Q 2013
2Q 2013
SA
3Q 2013 SSA
4Q 2013 Global
Note: EAP - East Asia and Pacific, ECA-Eastern and Central Asia, LAC-Latin American and the Caribbean, MENA-Middle East and North Africa, SA-South Asia, SSA-Sub Saharan Africa Source: World Bank; Sutherland Research
While Asia is the cheapest region to send money to, the Sub-Saharan Africa, with an average total cost of 12.55%, is the most expensive region in the world to send money to. Average cost of sending remittance is declining gradually and currently stands at 8.58% compared to 9.81% in 2008. Figure 3: Average Remittance Sending Cost by RSP Type 16% 14% 12% 10% 8% 6% 4% 2% 2008
1Q 2009
Bank
3Q 2009
1Q 2010
3Q 2010 MTO
1Q 2011
3Q 2011
1Q 2012
Post Office
3Q 2012
1Q 2013
2Q 2013
3Q 2013
Global Average
4Q 2013
Source: World Bank; Sutherland Research
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Figure 3 above compares the historical cost of sending remittance through three main remittance services product (RSP) types – Bank, MTO and Post Office. The cost of sending remittances using a commercial bank is 12.33%, significantly higher than the global average of 8.58% and much higher than the cost through post offices and MTOs, which cost 4.21% and 7.01%, respectively.
Mobile Remittance: Costing and Availability By product type, cash services dominate the remittance market. Cash services are the most widely available and are also among cheap options. Cash-to-account services are the least expensive, though they are less widely available. Account-to-account services, on the other hand, are among the expensive options available. Although not widely available, door-to-door and mobile services were also cheap product types, with average costs of 5.88% and 5.86%, respectively. With such low cost and growing reliance and adoption of mobile services, there is huge opportunity for the mobile remittance service to increase penetration. Figure 4: Average Remittance Sending Cost by Product Type
Figure 5: Availability of Product Types
Account to account (other bank)
Pre-paid Online card service Mobile service 1% service 15%
Account to account (all) Pre-paid card service Online service
1%
Account to account (same bank)
Account to cash 4%
Door to door 3%
Cash to cash
Credit/deb it card service 2%
Account to cash Credit/debit card service
Account to account (all) 20%
Cash to account 7%
Door to door
Cash to cash 47%
Mobile service Cash to account
0% Source: Sutherland Research
5%
10%
15% Source: Sutherland Research
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Serves MTO Financial Interest: Mobile operators, especially in developing economies, are experiencing declining or stagnant Average Revenue per User (ARPU). To arrest this decline in ARPU and increase customer retention, telecom companies are targeting nontelecom services like mobile remittance. Increased market share from the new customer group would also open up opportunities to cross-sell telecom services, thereby spurring revenue growth.
15
6.13
5.68
US-Nigeria
US -Vietnam
6.62
10.60 US -Philippines
8.38
11.96 US -India
5
13.07
10
US -China
Majority of the global immigrants are from developing economies such as Asia and Africa. Population in these geographies is characterized by high unbanked rate and high mobile penetration. Mobile remittance can be used as an ideal platform to include this financially underserved population into the financial ecosystem
20
15.68
0 Saudi Arabia India India Bangladesh
Serves Financial Inclusion:
Top Remittance Corridor (in USD Bn) 25
UAE-India
Mobile technology can lower the cost of remittances as it removes the need for physical points of presence and ensures a timely and secure method of transaction. With remittance amount credited directly to account, mobile operators may also save billing costs associated with prepaid and postpaid customers by not paying a high margin to retail distributors of mobile top-up vouchers
Figure 6: Major Remittance Corridor
17.02
Lower Costs:
Unconcentrated Remittance Traffic:
Hong Kong China
One major disadvantage with the traditional channel of international remittances is lack of convenience, and more so at the receiver’s end. Using a bank or an MTO typically requires a recipient to travel to a branch location and do tedious paperwork to claim the remitted amount
22.81
Convenience:
Hurdles to Mobile Remittance
US-Mexico
Drivers of Mobile Remittance
Source: World Bank; Sutherland Research
One of the major barriers to increase mobile participation in the global remittance is unconcentrated flow of remittance. Total remittance money flows through a large number of relatively small corridors, with the top 10 corridors adding only USD 118 Bn to the total USD 549 Bn. Multiple corridors increase the effort required to adjust with multiple combinations of banking regulations, mobile operators and demographics. For example, it took Safaricom more than a year to create a mobile remittance service just between the UK and Kenya, primarily because of the need to negotiate foreign exchange issues between the Bank of England and the Central Bank of Kenya.
Security Concerns: Concerns of money laundering and terrorist financing are holding back the development of mobile-based international remittance. The very distinctiveness of mobile payments that makes it popular – including high penetration of mobile phones, the ability to send small sums easily and cheaply with minimal banking oversight, the wide networks of mobile retailers who can act as money agents – sounds death knell to the international counter-terrorism community.
Example of Mobile Remittance Adoption: In November 2010, MTN entered into a partnership with Western Union to introduce international remittance services to 21 countries where MTN has a presence Similarly, Bharti Airtel runs the Airtel money service across 17 African countries where the company has operations In East and Southern Africa, including Tanzania, Mozambique, Lesotho and DRC, Kenya's Safaricom uses the Mpesa mobile money service to remit and receive money across the two African regions
In February 2012, Western Union announced that it has mobile money transfer services agreement with 26 mobile wallet providers in 22 countries
The mHITs Remit service allows funds to be sent instantly from Australia to mobile money counterpart operators in selected overseas markets.
including Bangladesh, Burkina Faso, Canada,
Corridors and mobile money operators connected to the service include M-PESA Kenya, Globe GCash and SMART Money in the Philippines, MTN Money in Ghana, Telesom ZAAD in Somaliland and eSewa in Nepal
Kenya, Madagascar, Malaysia, the Philippines, Tanzania, US, etc. and has strategic alliances with MTN Uganda, Roshan in Afghanistan and Tigo in Paraguay
This move allows senders to remit funds directly into the recipient’s mobile wallets from any of Western Union’s agent locations around the world
In December 2013, MasterCard, eServGlobal and BICS announced the formation of HomeSend, a joint venture (JV), which will enable consumers to send money to and from mobile money accounts, payment cards, bank accounts or cash outlets – regardless of their location or that of the recipient. The HomeSend JV will leverage the current HomeSend platform, a remittance hub based on eServGlobal technology and developed as part of a strategic partnership between eServGlobal and BICS The HomeSend platform was first to market in offering international mobile remittances Today, HomeSend has live deployments in 50 countries and commercial contracts with mobile network operators (MNOs) and money transfer operators (MTOs)
Outlook International remittance traffic is projected to reach unbelievable heights with favourable trend in the global economy and increasing globalisation. Currently, most of these flows are through traditional channels, but soon the balance will tilt in favour of mobile as a remittance channel due to its omnipresence and unmatched reach. According to Juniper Research, remittances via mobile phones, which exceeded USD 10 Bn in 2013, is expected to reach USD 55 Bn by 2016. This indicates that convergence of remittances and mobility is inevitable and it will surely lead to a faster, convenient and secure transaction benefiting both the sender and the receiver.
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