Mobile money transfer gains momentum

As mobile money transfer services like Pingit and Paym gain traction, how will mobile remittances help drive mobile commerce?

With all the focus on mobile payments and wallets, and the success of mobile-based money transfer services like Barclays Pingit and Paym in the UK, the spotlight is being shone on the potential of these account-to-account transfer services to bring about greater financial inclusion and reduce cash usage.

Since its launch in 2012, Pingit has had over three million downloads and over £600 million has been sent through the service. Meanwhile, the UK Payments Council proposition Paym now has over one million customer registrations and total transaction value of over £6.5 million in the 100 days since its launch, illustrating how services such as these are filling a large gap in the marketplace.

Of course, these services aren’t new – the M-Pesa scheme in Africa is undoubtedly the most prolific success story in this area, with transaction volumes comprising roughly 30% of Kenyan GDP each year. But heightened interest in this area of the payment industry is accelerating as mobile commerce takes off worldwide, both in developed and developing markets.

Mobile money transfer or peer-to-peer (P2P) services are a cost-effective bridge between underbanked consumers who comprise a disproportionate number of mobile phone users. Out of a world population of 7 billion, over 5 billion or 70% have mobile phones whereas only 2 billion or 30% have a bank account. This represents a massive opportunity for payments players to capitalise on the burgeoning mobile remittance market by using mobile technology to increase financial inclusion and reduce cash usage.

Traditional money transfer companies such as Western Union and MoneyGram currently dominate the market, but a host of alternative payments players – and even a few banks – are now getting in on the act. 

The potential of mobile money

A September 2014 report from the World Bank states that mobile money and electronic transfers could bring financial services to 2.5 billion marginalised people around the world.

Building on the proliferation of mobile banking services around the globe, the report argues that governments in the G20 should target digital payments as a way to help people access basic banking facilities, which it says will encourage saving while reducing theft and corruption.

Digital payment services such as Kenya’s M-Pesa mobile money, prepaid debit cards for Syrian refugees in Turkey, and electronic bank transfers are helping people save money securely in formal banks, said Ruth Goodwin-Groen, managing director of the Better Than Cash Alliance.

“When we’re looking at the large emerging economies in the G20 – the Indonesias, the Brazils, the Mexicos – there are huge opportunities in those economies to transition their cash payments to electronic payments,” she said. “But what works in each context is what is appropriate – it depends on the country you’re looking at.”

Many people in emerging markets rely heavily on remittance transfers. “Governments, consumers and financial providers in sub-Saharan Africa are still bearing the high cost of cash payments – costs associated with manual acceptance, record keeping, counting, storage, security and transportation,” the report says.

Citing research in countries including Brazil, India, Kenya, Niger, the Philippines and South Africa, the study says digital payment services can reduce the cost of sending money both domestically and across borders, as well as transfer funds more quickly.

According to figures from the World Bank, international migrants from developing countries are expected to send $436 billion in remittances to their home countries this year, a rise of 7.8% over the 2013 volume of $404 billion – and this figure is expected to rise to $516 billion by 2016. Global remittances, including those to high-income countries, are estimated at $581 billion this year, from $542 billion in 2013, rising to $681 billion in 2016.

The importance of remittances

For many developing countries, remittances are an important driver of national economies. For example, in Nepal, remittances are nearly double the country’s revenues from exports of goods and services, while in Sri Lanka and the Philippines, they are over 50% and 38% respectively. In India, remittances during 2013 were $70 billion, more than the $65 billion earned from the country’s flagship software services exports. In Uganda, remittances are double the country’s income from its main export of coffee.

During 2013, remittance flows were generally robust in all regions except Latin America and the Caribbean, and the Middle East and North Africa (MENA), where the two largest remittance-recipient countries, Mexico and Egypt, saw declines in remittance inflows, due in part to removals and deportations from the US and Saudi Arabia, respectively. However, both countries retained their rankings in the top 10 remittance-receiving countries globally.

Remittances to the East Asia and the Pacific (EAP) region are estimated to have risen by 4.8% in 2013 to reach $112 billion, with Thailand, Vietnam, and the Philippines seeing robust growth. With free mobility of high-skilled workers within ASEAN countries expected to be introduced in 2015, remittance flows are forecast to exceed $148 billion by 2016.

In Europe and Central Asia, remittances rebounded from the slowdown in 2012, expanding by 10% in 2013 to reach $43 billion. Meanwhile, remittance flows to countries in the Latin America and the Caribbean region grew slightly by 1.9% in 2013 to reach $61 billion. Following a 13-month decline, remittance flows to the region began recovering in the second half of 2013. However, remittances to Mexico, the largest remittance-recipient country in the region, contracted in 2013. 

In the Middle East and North Africa (MENA)region, remittances are estimated to have fallen by 2% in 2013, as a drop in remittances to Egypt more than offset modest growth in the rest of the region. 

However, growth in remittances to the South Asia region has slowed, rising by a modest 2.3% to $111 billion in 2013, compared with an average annual increase of more than 13% during the previous three years. The slowdown was driven by a marginal increase in India of 1.7% in 2013, and a decline in Bangladesh of 2.4%. Still, some rebound is projected in the coming years, with remittances across the region forecast to grow to $136 billion in 2016. 

After remaining broadly unchanged in 2012, remittances to Sub-Saharan Africa grew by 3.5% in 2013 to reach $32 billion. Flows are forecast to rise to $41 billion in 2016. According to available official data, Nigeria remains the largest recipient by far, with migrants sending about $21 billion in 2013. Remittances to countries in East Africa continued to grow robustly last year, by 10% to Kenya and 15% to Uganda. In contrast, West African countries, such as Cote d’Ivoire and Senegal, saw only modest increases in 2013, after a slowdown in 2012. Sub-Saharan Africa is one of the few regions in the world where official development assistance is larger than remittances, and both are much more stable than either foreign direct investment or private financing flows. 

“In addition to the large annual flows of remittances, migrants living in high income countries are estimated to hold savings in excess of $500 billion annually. These savings represent a huge pool of funds that developing countries can do much more to tap into,” said Dilip Ratha, manager of the migration and remittances team at the World Bank’s Development Prospects Group.

However, the cost of remittances is cited as a barrier to further growth. The World Bank notes that during the first quarter of this year, the global average cost for sending money fell to 8.4% of the transaction value, compared with 9.1% a year earlier. However, the average cost of remittances to Sub-Saharan Africa has remained stubbornly high at around 12%. Also, South-South remittances, which are on the rise, are in many cases either not permitted or very costly due to outward exchange controls in many developing countries, such as Gambia, Ghana and Venezuela.

Mobile money momentum

A slew of recent announcements from payment players shows just how much focus is now being placed on this burgeoning sector. Online and mobile remittance firm WorldRemit has secured several partnerships in recent months thanks to an investment of $40 million earlier this year from private equity firm Accel Partners. Customers can use WorldRemit on their computer, smartphone or tablet and for those receiving money, options include bank deposit, cash collection, mobile  money, and mobile airtime top-up. The service is available in 50 countries and sends to more than 100 destinations.

Most recently WorldRemit has forged a partnership with Zantel EzyPesa in Tanzania for mobile transfers. Although only 11% of the population in Tanzania has access to a bank account, almost half (41%) are active mobile money users, highlighting the need for these services to drive financial inclusion.

WordRemit’s founder and CEO Ismail Ahmed said: “We expect the online money transfer sector to account for approximately 30% of the remittance market in the next few years and that WorldRemit will be at the forefront of this change.

“With so few bank accounts in Tanzania, mobile money is not just the preferred method of receiving international remittances, for many people it is the only option. There is little doubt that mobile money is going to be the main driver of widening financial inclusion, both in Tanzania and for the 2.5 billion unbanked people across the globe. To WorldRemit, that means vast new markets to serve, in addition to the business we are drawing away from old-fashioned offline remittance companies.”  

Other WorldRemit partnerships cover Thailand, the Philippines and Zimbabwe. Currently, 40% of WorldRemit’s transactions to Zimbabwe are going to mobile phones. By way of comparison, 52% of WorldRemit’s transactions to Ghana and 92% of transactions to Kenya are going to mobile phones.

Elsewhere, P2P mobile payment app Payfriendz was officially launched in July this year in Europe, enabling real-time mobile funds transfers. The service, which is available on iOS and Android mobile platforms, aims to go beyond just transactions by embedding an instant messaging network.

Volker Breuer, co-founder and CEO of Payfriendz, said: “I believe associating payments purely with banks is a misconception and that they are not particularly interested in providing fast and cost-effective payments. They are more driven by commercial interests like loans.”

Money transfer giant MoneyGram is also raising its game, with its September announcement of two acquisitions in order to expand its global reach. The acquisition of Nexxo Financial, a provider of alternative financial services technology, allows banks to expand their offerings to include cheque cashing, prepaid cards, money transfers and bill payments.

MoneyGram has also snapped up UK company MTI Money Transfer, extending MoneyGram’s reach into the US, Ireland, Denmark, Norway, Sweden, Finland and the Czech Republic through MTI’s existing network. MTI offers a range of financial services including MoneyGram International Money Transfers through 500 limited companies, traders, retailers, store owners and large corporate companies across Europe.

In Indonesia, HomeSend, a joint venture between MasterCard, eServGlobal, and BICS, have announced an agreement with Indosat to make remittance services available to the company’s 60 million subscribers in Indonesia. Through Indosat’s Dompetku Mobile Money platform, users can send and receive funds across Indonesia’s largest mobile money network. HomeSend will also be the first international remittance provider to give users access to Dompetku’s 24,000 locations.

The HomeSend service enables consumers to send money to and from mobile money accounts, payment cards, bank accounts or cash outlets regardless of their location or that of the recipient. 

Enhancing mobile money services

The success of the Barclays Pingit mobile payment app has led to it being extended to India. The app lets people in the UK send payments to contacts in India using the recipients’ mobile phone numbers. Neither senders nor recipients need to be Barclays customers but there is a minimum transaction level of £25 and a maximum of £1,500, with payments taking up to 48 hours to go through. Barclays hopes that its new service will help it capture a significant slice of a UK-India remittance market worth over £2.5 billion

Ashok Vaswani, CEO, personal and corporate banking, Barclays, said: “Our goal is that no-one is left behind in the current digital revolution, and this launch demonstrates continued innovation by Barclays to meet the needs of UK consumers. It also marks an important step for future Pingit development and opportunities internationally.”

Pingit has already been extended to Africa, with a link enabling people in the UK to send money to Kenya set up in 2012 and other countries added to the network soon after. Barclays has also been experimenting with Pingit and commerce,  outlining plans to team up with Blackhawk Network to provide a range of merchant gifting options to users of the app.

In September 2013, Barclays enhanced Pingit with a mobile check-out feature for purchases from a mobile web or app check-out page, and a ‘buy-it’ function which bridges the gap between advertising and sales by enabling consumers to purchase advertised goods and services immediately.

Meanwhile, earlier this year, social network Facebook was reportedly in talks to obtain an e-money licence in Ireland which would allow users to hold and exchange money on the site, and had also discussed potential partnerships with money transfer services. Eden Zoller, m-payments experts at advisory firm Ovum, states that Facebook will have to work hard to gain consumer trust and overcome its poor track record with mobile commerce in the past. 

“Ovum’s 2013 Consumer Insights found that only 1% of respondents trusted social networks like Facebook to deliver m-payments. The Facebook Credits virtual currency got nowhere and was wound down last year, while the main m-commerce offering in place today, Facebook Gifts, has so far received a muted response from consumers.”

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