How the Poor Can Benefit from Choice in the Remittance Market

Senders of remittances exercise a great deal of control over significant decisions that shape the remittance market. For example, senders select a money transfer operator as well as choose whether received funds will be cashed out or placed in a mobile wallet . Given the important role “senders” of remittances play, CGAP recently conducted research on this segment of the market. What we found was an industry in flux, with an increasing number of internet based remittance platforms entering the market and catering to senders of remittances. These specific trends have great potential to benefit the poor."

Traditionally, immigrants wanting to send money home went to money transfer agents situated in brick-and-mortar stores, such as neighborhood retailers affiliated with Western Union. As a result, a handful of big players have dominated the money transfer market, as the large upfront investment required to create an extensive agent network was an imposing barrier to market entry. However, with more people gaining access to the Internet, online money transfers are becoming more popular. The viability of online transfers has significantly leveled the playing field in the money transfer market, and a number of online money transfer companies, like the ones discussed below, have launched to compete with traditional players.

Traditional players appear to be shifting business strategies in response to these new competitors; Western Union, for example, experienced a 41% increase in online money transfer transactions in 2012. Online money transfer companies that are able to transfer money to mobile wallets can be grouped into three different models:

  1. The websites of major traditional money transfer organizations, such as;
  2. Recent digital-only MTOs, such as Xoom, Remitly, and WorldRemit;
  3. Companies that provide online sending platforms for mobile network operators on a white label basis, such as MFS Africa.

These models are shifting the market by both (i) increasing affordability and (ii) increasing awareness around various channel options.

Increased affordability

Digital platforms cost less to operate than brick-and-mortar stores, and online operators are offering lower prices for customers. The flat fees or commission rates charged by these market entrants are very low relative to the traditional norms of the market. For example, MFS Africa charges a flat fee of €5 for all transfers to Cote d’Ivoire and Rwanda, while Remitly charges between $0 and $5, depending on the channel used. WorldRemit claimed that its prices for remittances to M-Pesa mWallets in Kenya are less than 1/4th that of traditional MTOs. Such pricing often causes traditional players to lower their fees; for example, one online money transfer company CGAP interviewed claimed that Western Union was forced to reduce prices for online money transfers to Madagascar after it entered the market.

Increased transparency

Online platforms educate senders about the variety of channel options for recipients, such as mobile wallets and even non-cash options, like direct mobile top-ups. Websites organize and simplify the information senders need to make an informed choice, including the costs and time lag for each delivery channel. One consequence of this additional choice is the blurring of lines between remittances and mobile phone airtime top-ups. Senders can receive lower rates if they transfer money as an airtime top-up rather than as a remittance; meanwhile recipients can informally exchange their airtime minutes for cash on the other end.

Financial inclusion?

Online remittance platforms are growing, reducing fees and enhancing transparency and convenience – a definite positive for senders. Yet, how they will affect financial inclusion for recipients is not as clear. The pricing and process transparency incentivizes senders to choose mobile walelts, as these transfers tend to be cheaper than cash pick-ups . In theory, mobile wallet use could increase financial inclusion due to the variety of financial products offered in the mobile money ecosystem. In practice, the local mobile money ecosystem that determines whether recipients keep remittance funds in mobile wallets or cash funds out immediately is not well-developed in many countries. But as online remittance options proliferate alongside the flurry of activity in the industry, and mobile money ecosystems mature, the tipping point that will enable remittances to catalyze financial inclusion seems just around the corner.


01 November 2013 Submitted by cornelis heesbeen (not verified)

Remittances should be used to develop financial inclusion, but it does not go without any support. We have now experience in different countries, in general our solution is the same and the response to it Asia, Europe and Africa is also the same.
Having new technology available does not mean it is used in the way it is designed. In Burundi we have 12,5% who have a bank account, we have to train 1.500.000 persons to get included, more solutions in the field does not automatically change things, the senders have more options, they are able to operate cheaper, the benefit will stay ion the senders country, unless you organize it and give them options. Look at our solution for Migrant Development Fund, Senders using the UMVA solution can transact free of charge, but to get the benefit into the receiving country need a lot of work.

04 November 2013 Submitted by Bauer Susanne (PhD) (not verified)

CGAP and all microfinance colleagues do great work to narrow the gap of financial inclusion that is still too large. As for myself, working with non- financial business development services, I hear directors who oppose twitter as a tool of accelerating progress of exchange. Such behaviour impedes financial operators to let information flow.

19 February 2015 Submitted by Yakov Kofner (not verified)

Thank you for such insightful article. In USA, there is indeed a significant difference in fees for sending payment with cash versus from a bank account or debit card. The savings could be around $10 across major destinations like India and Mexico. Our website,, is hoping to educate consumers about such lower-cost alternatives and empower them to try it.

However, what we noticed so far with our low-income users is that there doesn't seem to be much eagerness to change their existing remittance habit, even when presented with a savings data. In that aspect, we find the attachment to a preferred provider and method of payment is consistent across income levels. With smartphones being inexpensive and ubiquitous across all incomes, many of our users are checking our website on their phones but continue spending more by using an agent network.

Why? A typical response from a well-off restaurant manager or a low-income busboy is usually the same, "because it is easy, I know the agent well, and I don't mind spending a bit extra with her". For many of our users, sending money home is also an emotional act, a tradition, a bit of a sacrifice.

The shift to online is definitely under way, and it is especially beneficial for a low-income population, but we are discovering that it would be less rapid than we expected even with the help of our website.

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