CGAP and Dalberg Global Development Advisors recently conducted a landscaping study of international remittances through mobile money. Download the report to read details of the industry landscape in 2012, emerging success factors, challenges and innovations as well as seven case studies. This blog post is the first in a five part series examining international remittances and branchless banking. Andria Thomas is Project Manager at Dalberg.
Since remittances to developing countries were estimated at about $351 billion for 2011, capturing even a small share of this market could be a transformational opportunity for mobile money providers – right?
Perhaps, but it’s not as easy as one might think. Building on our landscaping study of international remittances through branchless banking conducted at the end of 2010, we set out to analyze the growing industry of international remittances through mobile money as it continues to evolve today. We paid particular attention to offerings that allow a customer to receive funds from abroad directly into a mobile wallet which can be converted to cash at a large agent network. We wanted to understand whether international remittances are helping build the mobile money business. Can international remittances be a tool to improve the value proposition for agents? Are they a hook for attracting new customers or driving more transactions? And, fundamentally, do they provide a more efficient path to build the mobile money ecosystem?
In the past 18 months, the total number of deployments with a cash-out option via a mobile wallet increased from 8 to 17. Some innovative approaches are emerging, such as KlickEx’s leveraging of foreign exchange trading to lower transaction costs and BICS HomeSend’s interoperability across players within a corridor.
Still, we found a number of reasons to be skeptical of the short-term value of international remittances to mobile money deployments. Some key lessons which emerged from the study include:
- It’s not a chicken-and-egg problem; a functioning mobile money ecosystem needs to precede success in international remittances. First movers in international remittances anticipated that this product would drive mobile money usage. However, establishing a functioning agent network and providing complementary “downstream” transactions such as bill payments and domestic transfers are now seen as necessary precursors to success in international remittances.
- Even success stories such as M-PESA have not made significant traction with international remittances. Safaricom and Vodacom recently rolled out M-PESA-tied international remittances in Kenya and Tanzania respectively, but early usage has been “miniscule.” Attracting users – even those who are already comfortable with a mobile wallet – still requires a heavy marketing and education push on both the sending and receiving ends. In the list of business priorities, the investment in this area is not seen as the best resource allocation.
- Setting up an international remittance offering means overcoming operational, regulatory, and marketing hurdles. For a new product that requires cross-border financial flows, there is a long list of operational, regulatory, and marketing requirements that must be in place. Based on experience with operational deployments – and the 11 of 17 planned deployments that did not go live since our study in 2010, as well as the 3 which faltered after going live – operators should not expect to see significant revenue or an increase in the number of m-wallet transactions in the first 1-2 years of operation.
- The landscape may quickly evolve as big players are beginning to offer an opportunity to consolidate corridors and accelerate further adoption. Two companies in particular are making significant inroads: Western Union, which has been rapidly establishing partnerships with mobile network operators in developing countries, and BICS (a unit of Belgacom), whose HomeSend hub facilitates interoperability between operators on the sending and receiving sides. Of these, Western Union clearly offers the fastest route to expansion through its network of more than 400,000 agents across ~200 countries, but with accompanying flexibility and price tradeoffs to consider.
We’ll be highlighting some of these players in more depth in the next blogs in this series. For now, more details on the emerging landscape for international remittance deployments through mobile money are available in the full study.
I am curious what you think about Bitcoin for international remittances.
It seems like it gets around some of the barriers listed above. Bitcoin is less exposed to regulatory hurdles because there is no individual centralized entity which controls it. Operationally, it is a breeze compared to starting an international money transfer business: anyone with an internet connection can start using the protocol to transfer value from anywhere to anywhere in the world in minutes for free.
If you’d like to learn more about Bitcoin, drop us a line to info [at] coinlab.com . We have no official connection to the protocol, we are just building services off of it. Thanks for the interesting article.