This is the fifth and final post in our series on remittances and branchless banking. You can read the first four posts here. So far, we have highlighted the emerging success factors and challenges featured in our 2012 landscaping exercise. Paolo Baltao from Globe’s GCASH shared with us the lessons learned over a period of eight years during which time he led one of the first services to link remittances to a mobile wallet. Subsequently, Stefan Staschen explored the untapped opportunities in leveraging the large flows of remittances between Russia and Tajikistan by linking them to other financial products. This week, we revisit the study conducted by CGAP and Dalberg Global Development Advisors, by focusing on the role of bigger players such as Western Union and BICS Homesend in consolidating existing corridors and accelerating further adoption.
Since we started this series, new remittance data from several countries has been released by the World Bank. This newly available dataset reveals that officially recorded remittance flows to developing countries reached $372 billion in 2011, an increase of 12.1 percent over 2010. This is higher than our earlier estimate of $351 billion. While there is clearly some market potential there, so far we have seen that uptake for mobile enabled remittances services has been anaemic to say the least.
As our understanding of the factors that lead to customer adoption of branchless banking expands, there is a growing consensus that for international remittances services to reach a significant level of scale, they will require an existing mobile money ecosystem that allows for downstream transactions which give users access to a wider array of cost-effective services and products such as payments and access to savings. This will provide not only value-added for consumers but also the much needed transaction revenue for providers. It is evident that these recalibrated strategies will no longer place remittances as the core driver for adoption, but factor them in as one of the many financial services which can be provided to a customer once a branchless banking ecosystem has reached a certain level of maturity and depth.
One thing is certain: although some new innovative models have emerged, traditional remittance providers or MTOs like Western Union still have a huge advantage through the benefits they offer to partners. These include fast access to a broad range of sending countries as well as significant brand recognition and regulatory compliance, though often at the expense of their partner’s pricing power (an expense which could end up being passed on to consumers, ultimately reducing the demand for these types of services). Nevertheless, Western Union has already launched mobile money transfer services in nine countries: Bangladesh, Burkina Faso, Canada, Kenya, Madagascar, Malaysia, the Philippines, Tanzania and the U.S, and in the last couple of months, has announced strategic alliances with MTN Uganda, Roshan in Afghanistan and Tigo in Paraguay. This move will allow senders to remit funds directly into the recipient’s mobile wallets from any of Western Union’s agent locations around the world. It is evident that MNOs remain optimistic about deploying international remittances through mobile money, yet they are increasingly aware that the full benefits will only be realized in the long-term. As mobile money ecosystems become more mature in these markets, these flows could play a pivotal role in consolidating corridors and accelerating adoption.
Alternately, hub providers such as BICS Homesend are now making it possible to integrate mobile wallets or money transfer systems of two different providers. Besides facilitating services that are mobile centric from sender to receiver, HomeSend can provide access to other service providers, such as MTOs and banks which can offer technical solutions to streamline domestic interoperability between systems and competing regulatory frameworks. Given their structure, Homesend is a cheaper alternative to giants such as Western Union and can provide a more flexible partnership without having to cede too much control from the side of the operator or bank. However, they don’t have the same instant global reach and given their lack of direct interface with mobile wallet users, they are completely reliant on their partners to market and push transactions which make the issue of consumer education even more critical.
Nevertheless, operators seem to remain optimistic over the long-term opportunity to deploy international remittances through mobile money, and hope it will eventually contribute to the economic viability of their deployments through the added revenue opportunities for them and their agent networks. It remains to be seen how these remittance flows are actually tied to specific financial products and services. Only then will the real impact of mobile-enabled remittances on the unbanked be uncovered.
- Camilo Tellez -