Is there an opportunity to make money from the International Remittances Market? Well, according to the World Bank in 2007, the overall global market for international remittances was estimated to be $340bn, so the simple answer is a rapturous “yes”. The tiger economies and the developing world continue to be the most attractive. According to analysts Yankee, the value of remittances made by foreign workers residing in Malaysia alone totalled $4.3bn annually as at 2008. With an estimated 2.3m foreign workers plying their trade in the country, this works out at an average annual remittance value of roughly $1,800 per worker per annum, or $150 per month. If one was to charge just 5% commission per transaction ($7.50) that’s a potential addressable market value of $17.25m per annum for just a single country. If only 10% of those transferring money between individuals in different countries switched to doing this using their mobile phone, then that gives us an addressable market for Mobile International Remittances of $34bn – a small slice of that would be nice.
Data from the World Bank confirms that the biggest challenge (and opportunity) for anyone wishing to offer mobile remittance services is that large chunks of the addressable population do not have bank accounts. In Kenya for example, the World Bank states that only 10% of the population have bank accounts. In Pakistan it’s around 15% and in the Ukraine it’s less than 30%. These individuals are un-banked for various reasons, either their income or social status means they are unable to open an account, their rural locations may meant he nearest bank branch is a day’s commute away or maybe they simply don’t want an account or trust the banking industry (e.g. the illegal workers).
Addressing this huge part of the market is a great challenge because at the beginning and end of the transaction, cash is required and this has to somehow be physically deposited and withdrawn. In some countries, it may be possible for the service provider or network operator to gain a banking license and offer “virtual bank accounts” or eWallets. Here, the service provider provides an escrow account where cash can be electronically stored until the transfer takes place. In order to top-up their eWallet the individual could use the mobile top-up network (assuming this exists in each country) or agents. In certain examples post offices have accepted cash deposits which are credited to the virtual account, or even supermarkets. These virtual accounts are easier to setup and less risky than a standard bank account as there are no credit or other banking facilities associated with it – you aren’t allowed to go overdrawn. Of course legislation differs in each country but in most territories money laundering rules govern the need for proof of identity which still isolates at least one section of the great un-banked community.
So the market opportunity exists and is attractive enough to command our attention but why should the migrant worker switch to using their mobile to make payments? In many of the tiger economies, the percentage of migrant workers that are effectively illegal (or at least un registered) is significantly higher than we’d expect (or hope for) in the Western world. Referring back to Yankee’s look-see at Malaysia, their findings suggest that up to 30% of migrants working in the country are illegally there. It’s fair to assume that thanks to the relatively liberal rules around the acquisition of pay-as-you-go mobile phones, a large number of these workers will possess a phone or at least have access to a mobile phone via a friend or community leader. The telecoms infrastructure in Malaysia is relatively advanced, but in many developing world countries, especially in Africa, there isn’t a land-line infrastructure and mobile networks are the only method of communication. With so many illegal workers having access to ‘untraceable’ mobile phones’ using this device to make discreet payments to the folks back home represents an attractive proposition when obtaining a bank account is an impossibility. Consider also that there are over 3bn mobile phones in use around the world and that there are only 1.6bn bank accounts – back to Malaysia and only 10-20% of remittance transactions are undertaken via banks. The alternative therefore is to use “back-street” money transfer agencies who charge commissions of anything up to 30% of the transaction value.
More on International Remittances later in this blog series, but for now let’s be in agreement that there are some amazing opportunities to make money here but equally there are some mammoth challenges to overcome first.
Data from the World Bank confirms that the biggest challenge (and opportunity) for anyone wishing to offer mobile remittance services is that large chunks of the addressable population do not have bank accounts. In Kenya for example, the World Bank states that only 10% of the population have bank accounts. In Pakistan it’s around 15% and in the Ukraine it’s less than 30%. These individuals are un-banked for various reasons, either their income or social status means they are unable to open an account, their rural locations may meant he nearest bank branch is a day’s commute away or maybe they simply don’t want an account or trust the banking industry (e.g. the illegal workers).
Addressing this huge part of the market is a great challenge because at the beginning and end of the transaction, cash is required and this has to somehow be physically deposited and withdrawn. In some countries, it may be possible for the service provider or network operator to gain a banking license and offer “virtual bank accounts” or eWallets. Here, the service provider provides an escrow account where cash can be electronically stored until the transfer takes place. In order to top-up their eWallet the individual could use the mobile top-up network (assuming this exists in each country) or agents. In certain examples post offices have accepted cash deposits which are credited to the virtual account, or even supermarkets. These virtual accounts are easier to setup and less risky than a standard bank account as there are no credit or other banking facilities associated with it – you aren’t allowed to go overdrawn. Of course legislation differs in each country but in most territories money laundering rules govern the need for proof of identity which still isolates at least one section of the great un-banked community.
So the market opportunity exists and is attractive enough to command our attention but why should the migrant worker switch to using their mobile to make payments? In many of the tiger economies, the percentage of migrant workers that are effectively illegal (or at least un registered) is significantly higher than we’d expect (or hope for) in the Western world. Referring back to Yankee’s look-see at Malaysia, their findings suggest that up to 30% of migrants working in the country are illegally there. It’s fair to assume that thanks to the relatively liberal rules around the acquisition of pay-as-you-go mobile phones, a large number of these workers will possess a phone or at least have access to a mobile phone via a friend or community leader. The telecoms infrastructure in Malaysia is relatively advanced, but in many developing world countries, especially in Africa, there isn’t a land-line infrastructure and mobile networks are the only method of communication. With so many illegal workers having access to ‘untraceable’ mobile phones’ using this device to make discreet payments to the folks back home represents an attractive proposition when obtaining a bank account is an impossibility. Consider also that there are over 3bn mobile phones in use around the world and that there are only 1.6bn bank accounts – back to Malaysia and only 10-20% of remittance transactions are undertaken via banks. The alternative therefore is to use “back-street” money transfer agencies who charge commissions of anything up to 30% of the transaction value.
More on International Remittances later in this blog series, but for now let’s be in agreement that there are some amazing opportunities to make money here but equally there are some mammoth challenges to overcome first.
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