As mobile banking and payments come further into focus, one of the potential areas for carriers to explore involves international remittances, or cross-border person-to-person transactions.
Today, that market is dominated by players like Western Union, which claims more than 170,000 agent locations worldwide where money can be wired. As Tom Erskine, VP of product development and marketing for Boston Communications Group Inc., described it, “What everybody looks at is how to take the power of what Western Union has created . and map that power to the cellphones in the U.S. and cellphones around the world, and turn every user into somebody that can both access and remit cash.”
Remittance growing
The international remittance market is staggering. According to World Bank, recorded remittances sent by migrants back to developing countries were estimated at $199 billion in 2006, up from $188 billion in 2005. When remittances to high-income countries were included, the total for 2006 was estimated at $268 billion. However, the World Bank noted in its Remittance Trends 2006 report, those numbers only reflect remittances through official channels, and “unrecorded flows through informal channels may add 50 percent or more to recorded flows.” The U.S. is the largest single source of international remittances from migrants.
But remittances aren’t just for migrants, although they may send the bulk of the money. According to a Visa International Services Association white paper on cross-border remittances, other situations in which remittances come into play include small-business operators and online auction bidders, students receiving money from parents, travelers who need emergency cash and people sending money as a gift.
The next step
The high interest in mobile banking applications is viewed by many as a stepping-stone to get people comfortable with using their phones to access money and eventually move toward using phones for payments and remittances, which hold the potential of new revenues.
BCGI is taking a step in the direction of international remittances by launching a cross-border top-up and roaming recharge platform for an undisclosed tier-one Latin American carrier.
Erskine said that “What allows us to be bullish about it from our perspective is, there’s a really good reason for somebody to send me the money, which is that it keeps my phone on and my phone is my lifeline for communication.
“We really see prepaid recharge and top-up, if not a killer app, then a very useful first reason why somebody in Los Angeles would want to do a transaction to a mobile device in Ecuador.”
But, he added, there is a significant difference between moving minutes cross-border and moving money.
“The moment you really get into a position where you’re moving money, you are running up against some banking issues and banking regulations,” he said-which is one reason BCGI is moving cautiously in the space.
Transaction concerns
Among many related concerns are those related to security, preventing the use of money transfers for illegal activity or terrorism, and the question of financial risk; part of the reason the recorded figures for remittances have grown so quickly in the past five years is due to increased scrutiny of transactions after the 9/11 terrorist attacks, observed the World Bank.
Also, the organization noted, remittances can be affected by politics; remittances from the U.S. to Mexico fell 16 percent between May and August of 2006, probably impacted in part by uncertainty around U.S. immigration laws being debated at the time. The use of international remittance also is affected by seasonality that varies by country, such as Christmas vacation time in the U.S. or the end of Ramadan in Bangladesh.
A separate World Bank study found that the high costs associated with remittances-usually 10 to 20 percent-are a drag on the ecosystem. However, the World Bank noted that mobile technology has the potential to cut these costs.
The study offered up an example of Philippine mobile service provider Smart Communications that uses a text-message-based remittance service allowing users outside the Philippines to send money to an electronic wallet account that can be accessed through financial partners; from ATMs using a related, reloadable prepaid card; or directly for purchases or cash from companies such as McDonald’s, gas stations, pawn shops, and convenience stores. The money to start the transaction gets deposited to a remittance partner and a text message alerts the beneficiary of the transfer. The cost of the service from Hong Kong was about $2 at the time of the study in early 2005, with charges in the Philippines at 1 percent of the transaction plus a few cents to cover the text message.
Getting the message out
Brand awareness on either end of the transaction is another key element to attracting users of mobile for international remittance. John Keane, product manager for mobile commerce for VeriSign Inc., said his company’s mobile payments platform takes advantage of the fact that the company is well-known for secure Internet commerce. VeriSign’s system can learn buying patterns in order to detect fraud in purchases or international payments, he said-and the perception of security on the customer side is as important as the actual system security.
While in the U.S. the use of mobile for monetary transactions is limited, Keane said, “you go into developing countries and they’re actually moving further along down the mobile payment life cycle.”
“What we see happening is the ability to send money from developed countries to developing countries is going to be a huge opportunity,” Keane said.
