 | Issue: | Asia-Pacific I 2009 |
| Article no.: | 7 | |
| Topic: | Cross-border cash | |
| Author: | Stephen Gibb | |
| Title: | Chief Information Officer | |
| Organisation: | Upaid | |
| PDF size: | 275KB |
About author
Stephen Gibb is the Chief Information Officer for Upaid. Mr Gibb joined Upaid as the Senior Vice President of Customer Operations. Mr Gibb currently leads international technological operations, focusing on maximizing the implementation of global projects through the Upaid Brazilian technology hub. Prior to joining Upaid, Mr Gibb served as Director of Strategy and Operations at ExchangePath (New York), a CMGI company providing online payment systems. While based in New York, Mr Gibb was also a Program Management Consultant with Allied Irish Bank where he was instrumental in launching new e-business initiatives.
Article abstract
Workers from developing countries often travel abroad to work and send money back to their families. In some developing economies these cash flows can amount to more than one fifth of their GDP. In parts of Asia Pacific, about 60 per cent of the average family income comes from cross-border payments. Mobile money transfers prepaid mobile phone credits between phones; it lets those without bank accounts – the vast majority in developing regions – transfer money to others even between countries.
Full Article
Labour-rich economies export large numbers of their national workers all over the world. As a result, they receive a substantial flow of revenue from international remittances. These economies, typically emerging markets, provide an excellent example of the important cross-border payments. These payments, where the sender and recipient are in different countries, are very important to the economies of these countries. The economies of the Philippines and Samoa, for example, are heavily reliant upon remittances, which account for as much as ten per cent and 22 per cent of their GDP respectively. Remittance also plays a significant role in other markets in Asia and the Pacific, where approximately 60 per cent of the average household income – for several countries in the region – is derived from cross-border payments. The levels that different countries in the region rely upon international money transfer differ widely, but the proportion of the total household income that comes from this source remains high, even in economies that are less dependent upon remittances, such as Indonesia. These statistics outline some of the differences that define cross-border payment markets in these regions. However, the most significant difference is how affordable and accessible money transfer is to migrant workers. Costs differ from country to country, but services in Asia are generally available from under US$5, whereas in Pacific countries the average cost per transfer is far higher, at around US$20. In addition, the appropriate regulatory structure needed to encourage cross-border money transfer is notably absent from many countries who rely on it most. For example, Indonesia, Fiji and Samoa have adopted a decidedly laid-back approach toward international money transfer, whereas Sri Lanka and the Philippines have well-developed programs designed to support migrant families. Europe provides an excellent example of proactive policies that encourage cross-border payments. The recent announcement from EU regulators to limit fees for direct debit payments across European borders could see an escalation of the amount of money sent across the continent using this method. In a joint statement, the European Commission and the European Central Bank said they would be prepared to support the idea of a so-called ‘multilateral interchange fee’ for cross-border direct debits on condition that these fees were ‘objectively justified’ and applied for a limited period only. Cross-border payment is a multi-million dollar industry; according to the World Bank, over 175 million migrants currently use transfer services, sending money to over 800 million recipients at an estimated average transaction value of £100. As nations’ economies become increasingly interdependent through trade and investment and as funds and people become more mobile globally, the need intensifies to move money across borders efficiently, securely, inexpensively and in a timely manner. Some businesses make regular cross-border payments and have very defined procedures in place for this. However, most of us will only make cross-border payments occasionally. Government research from the UK, which is a significant migrant destination for several nations in Asia and the Pacific, suggests that 35 per cent of ethnic minority households in the UK send money abroad. A significant proportion of the money transferred goes to parents, spouses and children. Looking at the money transfer industry from a global perspective, remittances from all countries make a large contribution to the economies of the countries receiving the funds. In fact, according to Juniper Research the portion of migrants’ earnings returned to their country of origin, may represent up to £100 billion a year in international flows. Alongside the traditional remittance industry, the mobile money transfer sector represents a significant prospective market for mobile operators, financial services organisations, governments, retailers, and end users. Juniper Research forecasts that service provider revenues derived from mobile money transfer services and remittances, will exceed US$5 billion globally by 2013. Mobile money transfer can enable migrant workers to send money home at far lower transaction rates than traditional services. In addition, for those who have no access to a bank account, mobile money transfer gives instant access to the funds through an almost ubiquitous device – the mobile phone, which according to the International Telecommunications Union (ITU) is now carried by 3.3 billion people worldwide. At the very core of mobile money transfer is the ability to top-up the phone of a friend or family member from another country. Pre-paid mobile phones are the dominant form of mobile communication in most developing and emerging markets. Looking further afield, Brazil’s mobile market, for example, is the fifth largest in the world in terms of subscribers and, according to the Wireless Federation, has 133.15 million mobile subscribers. Brazil’s mobile penetration currently stands at 69.52 per cent, over 80 per cent of which is prepaid. In Brazil and other emerging markets where pre-pay mobiles remain first choice for consumers, the easiest way for mobile users to top-up their phone is to enter a shop and purchase a paper voucher or receipt. This is not only time consuming and costly for the retailer, this method of top-up is also extremely inconvenient for the user, who often has to travel miles to find the nearest shop and foot the bill associated with the journey. Traditionally, given that cash must be sent by money transfer for top-ups; simpler services are needed that require only an Internet connection for top-ups. While the point-of-sale network will still be required for funding and retrieving transfers for the un-banked community, cooperation between mobile operators, banks and merchants will see it vastly broadened. Innovative forms of e-transfers will pave the way for greatly expanding the ease, applicability and use of mobile money transfers. The money transfer market is set to change radically over the next few years. In emerging markets, particularly in rural areas, the banking infrastructure is less developed, leaving the door open for other types of transactions. For people who do not have bank accounts, it is often difficult and expensive to transfer money through traditional banking and money transfer services. Many people who move abroad, away from their home country, do so to earn money to send back home to family members. Consumers in these markets must have access to alternative money transfer options that enable them not only to transfer money, but also to remotely top-up the phones of friends and family. Here, it is essential that a consortium of mobile operators work together with the banks to ensure easy money transfer options are readily available. When we look at what the future may hold for the players in this market – handset manufacturers, network operators and, crucially, banks – it is collaboration that will ensure success. Without collaboration, the challenges for the consumer will continue and the process will remain one that is not easy or straightforward, and unlikely to take off in the mass market. In addition, lack of cooperation between the banks and mobile operators will cause delays – and ‘time is money’. The rapid growth in access to mobile telecommunications in emerging markets has created new opportunities to provide secure, low-cost financial services using mobile networks. I believe the ability to transfer funds safely and securely using mobile phones could revolutionise the way people around the world save, spend and transfer their money. If the mobile industry can work successfully alongside the financial services sector and the regulators, the remittance business could dramatically change. Mobile money transfer has the potential to compete seriously with existing money transfer agencies. Mobile money transfer systems also cost much less to deliver than a traditional banking infrastructure and less even than installing more ATMS.
