Comms Supplement: Mobile Remittances - New horizons open with mobile money

As the world shrinks and the global village becomes a reality, the mobile phone has become an important tool linking people around the world together. It is increasingly being used to send remittances back home by those working abroad or as an alternative to traditional banking and payment systems in developing countries. Vivienne Rosch looks at this growing remittance market and examines if banks are doing enough to grab a slice of it

In developing countries some banks are looking to use the mobile phone as a payment and account holding channel to avoid building out expensive branch networks and to reach the so-called 'unbanked'. Drawing these people into financial services means that money can be shared around the family internally as remittance-type payments, commonly sent from major cities back to rural areas. In the developed world other banking institutions - and some of the same multinationals - are keen to grab a piece of the growing global remittances market where migrant workers send money home, often via a mobile phone, which they also use to keep in touch with loved ones across the sea.

The World Bank estimates that global remittances were worth US$414 billion last year, US$316 billion of which were sent to developing countries. Traditionally much of this market has been served by money transfer services, such as MoneyGram, using networks of agents. The expansion of mobile telephony however, and the introduction of mobile payments, has significantly impacted the market. According to the global system for mobile communication association (GSMA) there are now more than four billion mobile phone subscribers globally, with 80 per cent of new connections in emerging markets and developing countries. This figure is still growing rapidly and increasingly people want to look after their finances on a mobile phone as well, especially in developing countries where existing financial infrastructures aren't perhaps as advanced.

One of the best known new style cross-border and domestic mobile remittance providers is M-Pesa [the M stands for mobile and Pesa is Swahili for money]. Originally launched in Kenya by Safaricom way back in 2003 as a microfinance initiative with the support of the UK Department for International Development, the firm refocused in 2007 when Sagentia added the mobile money and remittances concept. It transitioned to be operationally run by IBM Global Services on behalf of Vodafone last year, and is now spreading out from its original core markets of Kenya, Tanzania and Afghanistan to enter South Africa. There are ambitious growth plans to add further countries, and M-Pesa UK is aggressively targeting the international money transfer market. More than 8.5 million users are currently signed up to the company.

What can the banks do to ensure that they are part of this growing remittances and mobile money market in the future? Recognising the opportunity is a good first start and working hard to ensure that they are not disintermediated by mobile phone companies is another key step. The Society for Worldwide Interbank Financial Telecommunication (SWIFT) trade body is also trying to help by providing standards and a service in this space. Getting your proposition straight first is always a good starting point, advises Michael Whyte, the product manager for workers' remittances solutions at SWIFT. "Mobile banking, contactless transactions, person-to-person payments - some bankers sometimes look at this area in its entirety, and you actually need to segment out the most important aspects."

Mobile remittances are person-to-person remote mobile transfers. Different technical and regulatory considerations may apply to cross-border and domestic transfers. Proximate 'contactless' mobile payments have started to take off in some developed markets as well, with Barclays to the forefront in the UK, using near field communication at the point of sale. The opportunities, and obstacles, possible synergies between different offerings and future growth prospects all depend on the type of market being aimed at (developed/developing, cross-border or domestic), what type of payment, the business model and the players - for instance, is the offering a bank-only solution with a bolt-on technology solution or a partnership between a bank and a mobile phone company? All of these things need to be considered and addressed before entering the market.

According to Aleksandra Gren, Poland country manager for solutions provider, Fiserv: "Traditionally, the remittance market has not been a very attractive one for banks, especially in the developed world. It has been dominated by money transfer operators, such as Western Union and Moneygram, and more informal channels." She believes banks here, particularly those with international operations in Africa, India or elsewhere, must change this viewpoint soon though and look sharp, or else they will lose out to mobile phone operators or other newcomers in the growing mobile remittances market. Domestic banks in Africa, or subsidiaries of conglomerates such as Standard Chartered, need to move quickly too if they haven't done so already.

Michael Eagleton, Accenture's global lead for mobile money management services, also sees the opportunity. "You have good African examples of domestic remittances, but you also have the mobile phone being used for international remittances; there are numerous sub-markets" he says. "You are seeing links between the Middle East and the Philippines, Europe and Africa, the US and Latin America. There's huge business to be made out there in the global village."

Accenture have a platform in the field that is tailored to serve migrant remittances. "Rather than taking a one-size-fits-all approach we offer what we like to call a 'blog-sized bank', by which we mean the mobile service is targeted at a small set of users, provides rich features, but can still be put into a second country, to allow the community there to receive remittances. It can expand globally as the users grow."

Get in the game
Mobile payments have taken off across Africa and in developing countries precisely because there is no existing financial service infrastructure outside of the main population centres, believes Nick Senechal, head of strategic business development at VocaLink. "Mobile technology enables financial services where there was none before," he says. Hence the battle for market share between mobile network operators, who have successfully rolled out remittances to retail customers, and banks who wish to capture them as banking customers.

"In Europe there are much higher service standards expected for any payment instrument that is launched," continues Senechal. In developed countries, it's more about bringing the traditional financial services community into play, he believes, outlining VocaLink's bid for a Payment Council project that he hopes will soon be revived: "The project was devised a while back to enable mobile payments using an existing underlying payment type, which is something we have to do in Europe if we are to be successful. The competitive space is how the payment is presented to the customer, the collaborative space covers how the additional features enabling payment over the mobile are managed centrally, and it is this that we bid for." The unnamed project is currently on hold, says Senechal, but he hopes it will be revived soon as a candidate for cheque replacement. Its suitability for a later remittance rollout remains unclear though.

The CEO of Norwegian mobile payments solution provider Luup, Thomas Bostrøm Jørgensen, thinks that financial institutions should not fear mobile network operators, at least not in developed markets. "Banks and telecoms firms actually have to co-operate," he says. "Successful deployments will be partnership models leveraging the banks' skills in terms of security, regulatory aspects and the handling of money, and the telecom firms' expertise as carriers to market of the mobile service. We believe the best way forward is for mobile financial services to be part of the regulated financial industry, and that ultimately all mobile solutions will be."

Not everyone is so sanguine. Serge van Dam, head of marketing for Fiserv's mobile partner M-Com, observes that: "The Philippino banks, for example, have lost the game to the mobile operators. Their number one and number two banks are both now mobile operators. Smart Money, one
of them, has six and a half million customers using mobile on their network, transacting payments and the like over 40 times per month."

"Conversely, South Africa is an example where banks have invested heavily in mobile financial services including domestic person-to-person payments and international remittances, so they haven't been disintermediated. South African banks have also dropped their transactional costs by migrating a significant proportion of their high-cost transactions from branches and contact centres to mobile devices, while also improving customer satisfaction and retention. Thirdly, they've created premium services, such as the international remittances offering, for their integrated mobile channel."

Banks undoubtedly face strong challenges from speciality remittance providers though and smaller tier two banks or the like may not be able to enter the market. "MoneyGram and Western Union have pilot services in place and are gradually rolling out mobile services, for instance, with the e-wallet option featuring strongly," points out VocaLink's Senechal. "M-pesa in Kenya has also now rolled out services to other countries that enable foreign residents to remit to any party with a Kenyan mobile phone number. White labelling services from speciality operators probably make excellent sense [for smaller banks in particular]."

New business models required
The global nature of the remittances market and the tech-heavy nature of delivering mobile money solutions means that new business models may be required. As Fiserv's Gren observes: "The remittances market presents a huge opportunity for banks to look for innovative ideas to help drive profits, but these solutions may need to include low-cost highly automated services to ensure efficiency." Software and services packages can be bolted onto main banking systems, she adds, providing lower cost and time to market and delivering the right services to the right market segments.

Cross-border international remittances require access to a global network, a bank's own or a partner's mobile infrastructure. "To get the payment delivered requires an interbank and bank to beneficiary network too," points out VocaLink's Senechal, "and only a few banks have the geographical spread to offer such a service globally."

One such truly global network provider is Deutsche Bank's Global Transaction Banking section (GTB). Ron van Wezel, global product manager of emerging payment streams at GTB, sees remittances, and mobile payments in general, as an excellent growth opportunity for banks: "Last year we calculated remittances were worth US$420 billion, of which approximately three quarters is going to emerging markets. This market is dominated today by the likes of Western Union and MoneyGram, banks having probably together a share of only around 25 per cent. We want to change this."

GTB's strategy is to build a network in remittances, while also utilising their stake in the Eurogiro network. Interestingly, Deutsche Bank's van Wezel regards meeting all relevant regulatory requirements in each market as a considerably heavier task than implementing the necessary technology: "The technology is not an issue. I would even say that mobile solutions are more secure than other solutions, because of the security mechanisms they can come with [such as text verification]."

Deutsche Bank's GTB strategic mobile partner, Luup, began as a mobile payments provider to consumers in 2000. Now it provides mobile payment solutions to financial institutions, including MoneyGram and the National Bank of Abu Dhabi, so it is very experienced in this field. GTB and Luup now offer corporate and financial institution clients a range of white label services ranging from mobile transfers between people or businesses, through pay-outs to mobile wallets, mobile account management, invoice payments, and mobile payrolls, which has recently been implemented in the UAE.

Global cooperation
Liisa Kanniainen, executive director of the international not-for-profit Mobey Forum, which promotes mobile solutions and has over 50 members, including HSBC, Nordea, RBS, UBS, Nokia, Sybase365 and other vendors, is keen to facilitate a partnership between traditional mobile phone players and the banks. "Our mission is to help banks and financial institutions' that offer mobile financial services," she confirms. "We are currently working on a remote mobile payments white paper, for instance, looking at the key issues of how existing payment networks could be cost-efficiently and conveniently used for mobile remittances."

Other international coordination attempts are also underway. As SWIFT's White asserts: "We're working on a service which can support mobiles. One of the key aspects is interoperability between various types of payment media. Cash to cash is important, but one of the key things we want to do is to be able to mix any type of payment product at any end of the transaction, account to cash, cash to account, account to pre-paid card, and so forth, all coming into the mobile device. We are looking to achieve an open and interoperable architecture, both in terms of who participates, and also across types of media, looking at ISO 20022 XML messages as a standardisation tool."

If these global attempts to support remittances and the rise of mobile money, combined with banks' own offerings, are successful then the world truly will shrink to represent a global village no matter where you are. A new horizon is opening up.

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