As wireless companies and banks seek to move into mobile banking and payments, many are eyeing the global remittance market as a potential source of new revenue. However, some may find that space a bit crowded by remittance giant Western Union Holdings Inc.
The company says it in “in discussions with a number of the top global cellular companies” and is running several trials of outbound international transactions in the U.S., plus trials of services abroad. According to Matt Dill, Western Union’s VP of strategic business development for global mobility, the firm will be able to leverage its experience in dealing with cross-border monetary regulations and its transaction processing hub, its familiar brand and its more than 300,000 agent locations.
The company said it handled 147 million consumer-to-consumer transfers in 2006, up 24% from the previous year; and 249 million consumer-to-business transactions, up 16% year-over-year. About 85% of the consumer-to-consumer transactions involved at least one non-U.S. location, according to Western Union. The two largest “send” markets for remittances are the U.S. and the European Union.
Interest, infrastructure growing
Two factors have converged in the past few years to make mobile payments and remittances a real possibility, Dill said: the near-saturation of the mobile market in developed countries (considered ‘sending’ countries), and the explosion of mobile use in developing (receiving) countries.
Dill said that Western Union looks at potential mobile services in three forms: using mobile for alerts for existing services, such as notification that money has been transferred or is ready to pick up; administration, or allowing people to manage an account and perform certain types of transactions from their phones; and the transfer of value from an phone account to another phone account, cross-border. Trials in each area are ongoing, he said.
Dill said the company focuses on several major regions: the EU, the Americas, Asia Pacific and Asia/the Middle East/Africa.
While companies have focused on delivering advanced technology to developed countries, Dill said, the surprise has been that developing countries have quickly sought to adopt the advanced services. Some examples of mobile payment/remittance services around the world include Philippine company Globe Telecom’s GCash, which is a text-message-based service that allows customers not only to transfer value but receive cash and shop at certain sites online; and Vodafone Group plc’s M-Pesa program in Kenya, which allows customers to send or deposit money electronically, which can then be withdrawn as cash at wireless dealers and some other retail locations.
“A lot of people glossed over the developing countries,” Dill said, but “because they don’t have the installed base of infrastructure, things that are based on the phone are taking off much more quickly and becoming much more popular among the population.” Mobile payment and remittance services via the mobile phone “really become for the developing world an electronic bank interface. It’s not necessary a bank, but it gives folks in those countries the same type of capabilities that we have in the U.S. or in the EU”-instead of having to be present physically to pay for or receive funds.
The U.S. is the largest generator of remittances, Dill noted, but also “always seems to be two to three steps behind on some of the [wireless] value-added services, based on the pricing model that the U.S. market tends to deploy.”
Role of carriers
Dill said that a partnership model for international remittances is the most likely model to evolve in the market.
“People begin by saying, this is a $330 billion industry and they begin to get excited about ‘What can we do in this space that would generate revenue, or provide value-added services for our customers?’ ” Dill said. He predicted that as services come to market, financial services companies and carriers will work together, but have roles segmented between the transactional service and the customer-facing service.
“We believe mobile operators have a significant role in maintaining the customer and in developing some of the services,” Dill said. “We look at the partners that we need to make some of these things happen.”
Regulatory, other challenges
He also noted that there are differences between a simple transfer of value between phones and the ability to translate the value into real-world cash, along with regulatory compliance.
“The major challenge that a lot of the different businesses that want to participate in this model are going to encounter is, how do you get cash into that digital world and how do you get cash out of it?” Dill said. “Until people have the ability to pay universally using a cell phone as a payment instrument, there is a real need at some point to transfer that digital value into or out of the cash format that people use on a daily basis in the developing world.”
Recent mobile banking developments, such as the announcements by AT&T Inc. and Firethorn, are an important evolutionary step in mobile payments, Dill said.
“As wallets or bank platforms begin to emerge, they become a source of funds for companies such as Western Union to connect to and transfer value in or out of on a regular basis,” Dill commented.
