1. What is a Money Transfer Business?
Essentially, a money transfer operation involves offering the service to collect money from the sender in one country and deliver it to the receiver in another country. This is also known as a remittance business.
The sender is also known as the remitter and the receiver is also known as the beneficiary. The business managing the entire process is called the Money Transfer Operator, or MTO.
In most cases, the remitter will go to a physical location (shop, kiosk, etc.) and hand cash to the MTO teller which is to be sent to the receiving country. The exchange rate between the sending currency and delivery currency will be agreed and so will any extra charges, such as commissions, head office fee, etc. The remitter will be given a receipt showing all the details including who the money should be picked up by and how much delivery currency will be given.
The MTO then deposits the cash into their bank account, and when they have collected a large amount, they make one bulk transfer to the delivery agent in the receiving country. This can be done monthly, weekly, etc. as per the agreement between the MTO and the delivery agent.
The delivery agent delivers the money to the beneficiary at the agent's physical location (shop, agent outlet etc.) once they receive instructions from the MTO.
Depending on the agreement between the MTO and delivery agent, the delivery agent may deliver the money on credit, or request for a deposit to be kept up-front from the MTO. The delivery agent will usually take a commission for their service.
Each send-receive cycle is referred to as a transaction.
The MTO usually makes a profit in two ways:
- By offering a lower exchange rate to the remitter than what the MTO must pay to the delivery agent.
- By charging a fee or commission for the service. This fee usually varies depending on the amount being sent.
Some newer developments in the remittance industry are:
- Allowing the remitter to create and pay for a transaction using the
Internet (online). In this scenario, the remitter does not have to
physically go to a shop or agent outlet.
- Allowing the remitter to create and pay for a transaction using SMS text
messages on their mobile phone. Again, in this case, the remitter does
not have to physically go to a shop or agent outlet.
- Remitter and beneficiary receipts can be sent automatically by email or SMS text messages.