Putting $18 billion back in the pockets of Asia’s migrants

Money is the next most important liquidity of the world which needs clean & smooth flow to keep the world moving after Water.  Stagnant money can cause major economy hazards like stagnant water can cause major environmental hazards.

With increasing globalization, millions of emigrants work in foreign countries to earn their living while supporting their families & communities back home by sending money periodically. Around 4% of world population live & work in other nations for better employment opportunities and other settlement reasons.

Considering World Bank global average remittance cost of 9%, a whopping $50+ billion are being charged for remittance services in moving money across nations. Next two paragraphs provide a quick overview of Remittance economy.

A remittance is a transfer of money by a foreign worker to an individual in his or her home country. Workers' remittances are a significant part of international capital flows, especially with regard to labour-exporting countries.  

In 2014, $436 billion went to developing countries, setting a new record. Overall global remittances also totalled $583 billion. India with the world’s largest emigrant workforce of 14 million people was in top slot, attracting about $71 billion in remittances. Other large recipients are China ($64 billion), the Philippines ($28 billion), Mexico ($24 billion), Nigeria ($21 billion), Egypt ($18 billion), Pakistan ($17 billion), Bangladesh ($15 billion), Vietnam ($11 billion) and Ukraine ($9 billion). World remittance is expected to grow around 5% rate.

Remittances remain an especially important and stable source of private inflows to developing countries, as they bring in large amounts of foreign currency that help sustain the balance of payments. Still many countries have not done enough to accelerate money remittance infrastructure and individual continue to bear high costs of remittance especially for smaller volume transactions. 

Asia emigrants alone are losing $18+ billion annually on account of remittance charges.

How person to person money transfer is being done currently

While banks handle 70 percent of money receiving volume globally, Money Transfer Organizations have the largest share of sending volume.  One of the major problems with international person to person remittances has been at the receiving end (location coverage, communication connectivity, person identification authentication etc). Almost two billion adults globally don’t have bank accounts, they are mainly dependent on MTO services for receiving money.

Western Union with its 500,000 agent locations & Money Gram with its 334,000 agent locations provides money transfer services across 200 countries at a significant remittance costs.

New players in remittance space

Considering high friction costs and growing remittance transaction volume, many new players have emerged to offer low costs remittance solutions mostly for bank account recipients:

·    WorldRemit
·         Remitly
·         TransferWise
·         Azimo
·         Xoom
·       TransferFAST
·         iRemit

·        eTranzact 

·       ·     HomeSend

Some of them operate on transfer fee plus fix forex spread or only on forex spread however their coverage is quite limited for unbanked persons who mainly use MTO services. Emergence of these players and their steady growth has attracted new interest in providing more efficient solutions for remittance market. Visa, MasterCard & Paypal are also offering consumer to consumer remittance services. 

A significant portion of remitted money is used to offset various utility bills in recipient country.  Cross-border payments processor service such as iSend where a customer can pay an overseas bill from US can help reduce remittance volume thus reducing transfer costs.

Now Digital currency aim to address high remittance costs, speed & coverage

Person to Person Cryptocurrency is also being used to provide faster and cheaper remittance solutions. Bitcoin firms such as BitPesa, PayFast, BitPagos, Coins.ph and BitSpark have built money remittance solutions using different business models in line with local regulations and compliance and offering an alternate remittance channel in few markets.

Some of them allow persons to convert their money in bitcoins at best forex rates possible and get money transferred to their bank account after converting back to local currency from a bitcoin exchange in recipient country. Some of them keep bitcoin under the hood while money agents handle money transfers (using cash-in & cash-out settlement methods) offering lowest transfer charges.

As per BitPeso, remittance transactions are “twice as fast and 75% cheaper” than competitors, because it uses bitcoin to transfer funds. They aspire to bring the transfer price (of sending remittances) as close to zero as possible.

By using such remittance platforms, MTO like Western Union & Money Gram can also reduce their operational costs significantly thus lowering remittance charges.

Many global organizations like Word Bank, FATF, OECD , IFAD, GFRD & AFI are implementing programs to coordinate various initiatives to bring security, efficiency and speed to remittance industry however developing nations must take a lead in driving these efforts as it helps to improve their economy.

As Asia cannot be described as a single market due to significant differences among sub-regions and even between urban and rural markets in the same country, Remittance to Asia often moves at slow pace with high remittance costs.

To put $18b back in the pockets of Asia’s migrants, Government policy making & regulation bodies need to work with global organizations and industry leaders (finance & technology) to remove hurdles in bringing down remittance costs.   

Making Instant Cash Transfers Possible to Unbanked People

Emulating  Startrek Teleporting Technology for Instant Cash Transfers to unbanked people

As per World Bank estimates nearly 50% or 2.5bn adults are currently ‘unbanked’, most of them living in developing countries in South Asia, Africa and the Middle East and North Africa (MENA) region. World Bank Global Findex shows 3/4 of the world’s poor do not have a bank account, not only because of poverty, but also due to costs, travel distance and paper work involved. There are five main barriers to financial inclusion – ‘natural’ barriers such as the distance to a bank; lack of financial infrastructure; restrictive regulations; governance failures; and lack of suitable products.

75% population in Asia (3.3 billion) lives in China, India, Indonesia, Philippines, Pakistan & Bangladesh and on average 50% people in Asia lives in rural areas and mostly are unbanked with very limited access to means to receive or transfer money. India has the largest rural population with 857 million (about 70 percent of India’s population lives in some 600,000 rural villages), followed by China with 635 million.

India has 11 bank branches, 9 ATMs and 58 Point of Sale terminal for every 100,000 people while it has got 155,000 post offices and 900 millions mobile phones including 377 millions mobile phones in rural areas.

World desperately needs an effective & efficient way to distribute International aid, philanthropy funds & global remittances directly to their recipients mostly living in rural areas.

Mobile Money has transformed money exchange in Kenya (A country of 46 million people & 75%  rural population) and getting good acceptance for payments at retail & daily conveniences stores. M-PESA IMT allows anybody living in the United Kingdom to transfer money through selected agents to persons in Kenya using a mobile phone.

While an estimated 240 million people across India hold bank accounts, more than 90% of country’s population uses cash to pay for its daily needs. In India, M-Pesa is now available through 60,000 agent outlets across India and serves over 1.2 million customers while Airtel Money serves 1.4 millions customers. MoneyOnMobile has over 82.5 million unique phone number customers-to-date and over 186,000 retail partners offering the service in India. MoneyOnMobile, Vodaphone, Airtel and other players in Money-on-Mobile market are expanding their reach to million of rural people to use mobile money and even cash out whenever needed.

Still there is long way to go to cover 800+ million Indian people living in rural areas.

There is a greater need of convergence of existing branches, Post Office, ATMs, Digital Banking & Mobile money to provide means to all unbanked rural people to receive cash as that is what works in their world.

Existing money transfer/ dispensing channels needs to be leveraging while connecting new digital channels to enable money transfers to unbanked people.

Some ideas to enable cash teleportation to unbanked people from anywhere.

• Dispense Cash via ATMs to recipients with no bank accounts
• People withdraw cash from nearest ATMs up to certain threshold using Access Code sent to their Mobile Phones.
•  Higher amounts require use of Voice Biometrics Enabled ATMs & Telecom Servers (ATMs operating on Wifi Network can be provided to avoid high leased lines setup costs)
• Post Offices can dispense cash upto a certain threshold once transfer is available on Mobile with ID proof.
• Local Retail Stores can also be engaged to dispense cash against Mobile money & ID proofs.
• Mobile Money Agents providing cash out & deposit service with instant updates to Mobile Money Balance.

As water is essential to keep people alive, similarly cash accessibility is important to people to manage their lives and lead their own & country growth.

Would love to hear your thoughts/ideas to enable direct cash transfers to millions of unbanked people in Asia from anywhere.