Video: Cryptocurrency as a Payment Method – The new growth potential for money service businesses

In our latest IPR Webinar, our expert partners from BP Ventures LLC joined RemitONE to explore the use of Cryptocurrency as a payment method in the money transfer industry, and how using the USDC can benefit money service businesses as they shift to a more digital way of transacting.

Webinar moderator:

Aamer Abedi, CMO, RemitONE

Panellists:

Jeffrey Phaneuf, Director, BP Ventures LLC
Anthony Barker, Director, BP Ventures LLC
Arif Saleem, CTO, RemitONE

Time Stamps

00:00 Introductions

14:24 What is the next big thing in the ecosystem for remittances?

17:29 How have you seen payment methods change over the years?

19:37 What is USDC? How does it compare to other USD-denominated stable coins?

23:29 Why use the USDC stable coin as a payment mechanism? 

28:27 What is the fear that MTOs may have using USDC? How do we address this?

31:31 How can we address the bank account issue?

34:45 What are the benefits of using USDC as a payment mechanism for the individual users?

37:54 What’s different from paying with a stable coin instead of traditional methods?

40:19 What is the cost to the MTOs?

43:10 How do we take advantage of the Moneygram USDC opportunity?

44:03 Risk profile of USDC vs. cash or card?

44:56 How can USDC as a payment mechanism decrease Chargeback rates & Fraud?

45:47 Margins are compressing for MSB’s, how does using USDC help increase revenues?

47:14 Are users going to use stable coins & can we settle it?

53:05 Next steps, how can we implement USDC as a payment mechanism leveraging RemitONE?

59:48 What procedures and policies need to be in place to enable USDC?

Please let us define the terms blockchain cryptocurrency stable coin and token.

Anthony: So, Blockchain is a word that you’ve probably heard in the news everywhere. It comes from Bitcoin which has a technological system where that verifies blocks of transactions (the blocks come every 10 minutes) and computers all over the world. Right now, in Bitcoin, there are over 5000 computers, called validators, that validate the transactions.

An example of a cryptocurrency is Bitcoin. Cryptocurrencies typically use blockchains. So, the ones you might have heard of might be Ripple, Stellar, Bitcoin and Ethereum. The difference between a stable coin and a token is that a stable coin is typically tied to the value of a currency. So, the one we’re talking about today is called USDC.

USDC is a stable coin issued by Circle Corporation, which is a US-regulated financial institution. It’s audited by third-party auditors. So, these are stable coins, they’re tied one to one. And in theory, you should be able to cash out $1 of USC for one US dollar.

Why Stellar? What, in your opinion, distinguishes Stellar from other blockchains?

Anthony: Stellar and Ripple would have been built up, really to focus on the international cross-border payments. At that point, Ripple was closed source; it was owned by one corporation and was really focused on promoting its XRP token, which was issued mostly to employees, founders and investors in Ripple. Then I compared it to stellar, all of the software was open-source from the beginning, and that seemed to me to be a better platform to build on where you can add additional value.

The volatility in the cryptocurrency markets, as evidenced by the fluctuating Bitcoin value graphs, can make a money service business, which obviously wants prices to be as stable as possible, extremely nervous. How does cryptocurrency as a payment method solution, that BP Ventures and RemitONE are proposing here, address this concern of volatility?

Anthony: Bitcoin and Ethereum are mostly used on these offshore contract-for-difference trading platforms, which are highly leveraged. So people are individual traders are trading at it at a 10 to one ratio or a 100 to one ratio, so you can have 100 bitcoins controlled with your one Bitcoin. So when the market collapses it has a tendency of going up very quickly and down very quickly now. But stable coins, because they’re tied to the US dollar or Euros, they are much better for remittance companies.

If you look at the bailouts that occurred in 2008, when major companies like Barclays and other major institutions went bankrupt, they had to have government intervention to save the whole ecosystem. If you look at cryptocurrency, to give them some benefit of the doubt, it’s still running. There are still transactions clearing, there’s still settlement, and the USSC dollar is still worth $1. So it is growing, and its funds are based on US Treasuries. So they’re not sitting their money in some risky offshore thing. All of their funds are in short-termed US Treasuries. So USDC is safe. With other Cryptos, there are different levels of risk.

What is the next big thing in the ecosystem for remittances?

Jeffrey: I think given the recent announcement of Moneygram’s cooperation with Stellar to offer USDC the cash in cash out, we believe that digital crypto blockchain powered payments is potentially the next big thing in the ecosystem. We’ve been involved in Stellar blockchain for a number of years. I think the fact that MoneyGram has confirmed their entry into this space, certainly confirms that using USDC as a payment mechanism on Stellar blockchain has some merits.

Arif: One of the big problems in remittances is the friction at different levels when you’re talking about international transfers. And any new technology, that can reduce that friction and reduce the cost associated with that friction, is definitely going to become more important as time goes along, especially if regulatory and other concerns can be addressed and delayed. So in that sense, it does appear as though one-to-one-backed stable coins offer a very friction-free international transfer.

USDC – what is it and how does it compare to other US-denominated stable coins like USDT and even CBDCs that aren’t mentioned?

Anthony: There are two main issuers in the United States as regulated institutions, one’s called Paxful, and the other one is called Circle. Its price equals one dollar. It hasn’t really fluctuated from that, in the past four years. It’s managed by something called the Circle Consortium, which is a group of companies that oversee the financial standards for stable coins and ensure there’s transparency around the one-to-one backing. That means for one USDC created there’s $1 held in reserves typically in a bank, or in US Treasuries. Now, USDC is available on multiple blockchains. And this is where it gets a little bit confusing for remittance companies. So there’s multiple blockchains around that are all competing, they’re vying to get adoption by users.

Why should the MSBs the money service businesses use the USDC stable coin as a payment mechanism?

Jeffrey: We believe that there are several compelling reasons why USDC as a payment mechanism is interesting for MSBs. One is that it’s fast, meaning that funds are received within 3 to 5 seconds, versus a payment that you would receive, let’s say, by a card processor that sends us the funds up to 15 seconds after the transaction was performed on the long side. So that’s one reason why we’re advocating USDC as a payment mechanism.

The second reason is that we think it’s better regarding decreasing both fraud and chargebacks. USDC payments are irreversible. And so again, my experience and depending on the MSB, we had significant chargebacks, we had fraud related to customers that would come back and were requesting a chargeback, which ultimately, and in some cases meant that we were out of the money at the end of the day. So this is where the USDC payment as a payment mechanism avoids this.

What are some of the fears the MTOs have the MSBs have about using USDC? And how do we address these fears?

Jeffrey: I think there are probably two particular items that obviously that come to mind. One is regulatory concerns when using cryptocurrency or stable coins. And that basically would be contingent on what jurisdiction the MSB is in and do they require any specific or additional licensing. The second item I would say is in the banking sphere. And MSBs normally are always susceptible to banking relations just in normal times. So certainly, bank relations are precious and MSBs may fear an impact if they offer USDC as a payment mechanism.

From an MSB perspective, as long as they meet the regulatory criteria, all they have to do is sign up with an entity like Circle to gain access to USDC and have this BP Ventures payment gateway enabled for their end-users?

Jeffrey: That’s right. To be able to assist those that have issues getting a USD Circle account, BP Ventures can assist at that stage. But for larger MSBs, yes, we would certainly recommend that they would just open the USD Circle accounts. And the fact that we’re going to have this integration directly into RemitONE means that there’s no setup fee, they’re off and running. And it should be really a compelling new payment mechanism to be able to offer MSBs customers.

What’s different from paying with a stable coin versus these traditional methods today?

Arif: So essentially, the payment process remains the same for the end-user. So, the same flow would happen, when using the BP Ventures gateway for collecting the USDC, it’s just that instead of providing your card details, you would instead be providing the wallet numbers from which the funds would be paid and the wallet to whom the funds are going to go. So, in that sense, the payment process is very similar, there’s not really a great deal of difference in terms of flexibility. One of the things about USDC tokens is that you don’t have to be in the US to use them. You don’t have to have a USD account to use USDC tokens – you could be in any country as long as it’s legal.

And what does using USDC mean, in terms of increasing revenues for our MSBs?

Jeffrey: With USDC, you get the funds immediately, you reduce your charge chargeback and fraud rates, meaning that you’re not at a loss in those areas. So, your revenues basically should go up due to the fact that the fee proposed is either for free or after 10,000. USDC is lower than cards means that your revenues again should go up, because hopefully the transaction is going to be more profitable.

And finally, are users going to use stable coins?

Anthony: So with BP, we have a certain approach that basically we think that an MSB should roll it out step by step. We’re pushing the acceptance of the USDC as the first step for MSBs. The second one is to actually as an MSB sell the USTC. So, customers can come online and actually buy the USDC and you can mark it up. Now the third step that MSBs may do in the future is actually settled with correspondence using USDC. We think that that’s going to happen in the future. We tried it previously, with tempo in the Philippines, we had it working to the Philippines, Nigeria, and Brazil. That worked. It’s just not quite there at the critical mass yet. So that’s why we’re really recommending it as a risk-based approach.

Jeffrey: We think there are a lot of compelling reasons to try it. And we’re going to try to make it from a technical side, as easy as possible as seamless as possible to incentivize people to use it, and to make the financial reason to use it as well, a compelling reason. So, we’re optimistic that it is a very viable way to make a payment.

For more information or to request a free consultation with one of our money transfer specialists, please email marketing@remitone.com

What next?

Now that you’ve read our article we want to help you get the most out of it and plan for 2022.

Tap into our experts and schedule a free consultation.

Online Event: Innovation in Payments and Remittances 2022 – Europe, Middle East and Africa

Video: Better Together – Building a New Global Standard for the Remittance Ecosystem

Continuing our recent discussions exploring the challenges being faced by the remittance sector in the wake of the COVID-19 pandemic, RemitONE hosted a webinar on the 23rd of June 2021. The 90-minute conversation centred around the concept that in order to “build back better” after the pandemic, the money transfer sector needs to work together to create a new global standard. The panel was made up of experts from both RemitONE and our friends and partners in other global companies. In case you missed the webinar, here is a summary of the key insights.

Webinar moderator:

Oussama Kseibati, RemitONE

Panellists:

Hugo Cuevas-Mohr, CEO at Mohr World Consulting
Sidharth Gautam, Head of Sales at AZA Finance

How significant is the remittance industry and who are the traditional and new players in the remittance ecosystem?”

Hugo Cuevas-Mohr: I’ll begin by defining what remittances actually are. The term remittance implies a family member sending money to other family members, for example. Remittances for the world bank, meanwhile, are only considered “worker remittances”, so the money transferred between family members is around 650 to 700 billion dollars per year of recorded remittances. On the world trading stage, of course, this number would not be extremely significant, but it is important to understand that this is higher than the investment from one country to another. It is also much higher than the aid that developing countries receive, so the significance is relative to different countries. In terms of significance, it varies depending on the development of the country. By comparing the remittance figure to GDP you can see that some countries are at 30% to 35% of their GDP, which is the case in Nepal and Haiti, for example. Interestingly, by contrast, big countries such as China and India will undoubtedly have high volume, however, there is less significance as the GDP is low. Another comparison is the population: if you divide remittances by the population of the country, then you can determine the significance of the remittance ecosystem based on each average individual in that country. Using this logic, Lebanon is number 1 in terms of significance, as it is a small country with a small population and a huge amount of money every year. This same principle can be applied to towns as well.

Sidharth Gautam: I completely agree with Hugo. In fact, in a few south sub-Saharan countries, remittance is essentially their backbone. There is a word developed by the World Bank called LMIC: “Low and Medium Income Countries.” Remittance is incredibly important for LMICs. Their entire country arguably depends on them.

Hugo Cuevas-Mohr: Adding to that point, remember that money goes to the lower fourth or the lower fifth of the economy. Remittances are also an important backbone for poor families in LMICs, therefore they are a really important “backbone” for them. Regardless of how those poor families spend the money, it doesn’t change the fact that they depend on remittances to survive. Indeed, sometimes 60 to 70% of a poor family’s income is primarily derived from remittances.

Who are the traditional and new players within that ecosystem, focusing on the traditional versus new and formal versus informal?

Hugo Cuevas-Mohr: It depends on a few things. In remittances, there’s always a sending market and a paying market. With regards to the pandemic, there was a small decrease in certain countries, particularly if they depended on Europe. However, if they depended on the United States you actually saw an increase, which was completely unexpected. The traditional sending players have always been agent-based, so brick and mortar operations were affected negatively in the early part of the pandemic as people couldn’t visit those agencies. As a result, every new digital player saw an increase. The more digital the payment; the higher the remittances would be, for example in Africa, mobile money companies saw an increase in sales during the pandemic due to the fact that remittances landed in mobile wallets. So we have seen transformation, however, I think it is too early to tell what will change and what will stay the same as traditional companies are evolving.

Oussama Kseibati: In the past, in traditional Asian markets cash has always been king. But over the past 10 years we have seen innovation being brought into the market and a move towards digital that has been hastened by the pandemic. I think as we get to the second and third generations that are more innately familiar with new technology, things are only going to get better.

How do you think we can enhance payments through successful partnerships and working together?

Sidharth Gautam: Partnerships are absolutely critical. No one organisation can facilitate change by itself; it has to be a concerted effort. We all have our core competencies, so the best practice should be to focus on these competencies and then align with partners who have a laser sharp focus in another particular area. AZA Finance is a firm believer in that, and our partnership with RemitONE is proof. It’s a natural combination of one plus one rather than automatic progression. That way you can start to create an ecosystem of consumers, brick and mortar agents, digital companies, aggregators (AZA) and technology, providers like RemitONE. All of these players have come together to give a seamless, end-to-end experience to the consumer. There is no point in reinventing the wheel but we have to drive meaningful and coordinated change at a global level over a sustained period of time to make it happen.

Hugo Cuevas-Mohr: Sidharth is right on the money. It maybe even as recently as a year and a half ago, partnerships in this space weren’t really stories but it’s booming now. You have to understand that traditional companies did everything on their own and always built their own systems, distribution, networks and compliance. But that’s the old way of doing things and for some companies, it can be difficult to break the habit. There are so many legacy remittance systems right now, and sometimes it might be best to just scrub the old system entirely, salt the earth and start with something fresh. Realise what you’re good at – the thing that makes you different, and work with partners to fill in the gaps. Also, remittance is one financial service and there are many other financial services the same customers need, so you have to integrate those services. Unless you want to do all of that yourself, which becomes rather complicated, it’s always better to partner with a company that has the right knowledge and resources. The new breed of digital banks are all being built on that more modular way of thinking.

How does one foster a good working partnership?

Hugo Cuevas-Mohr: In our industry, the important partnerships that we have is with the banking sector and sometimes we forget that. It’s been hard in some markets to build good banking relationships and now you’ve also got cryptocurrency and the new wave of digital banks to deal with too. You need to create that banking partnership to provide that flow of funds in the collecting and disbursement sites and if you are cross-border you’re also dealing with foreign exchange, so you need to be able to be very good at managing currencies. How that partnership is able to exist and survive is all about transparency; sitting down and being honest with each other – what you need, what you’re willing to provide and how that partnership is going to be organised.

Sidharth Gautam: We are the biggest non-bank currency provider in Africa and apart from Southeast Asia, Africa is one of the biggest remittance receiving markets in the world. So we get a lot of requests from small and medium-sized MTOs that want to expand into Africa but lack the knowledge and the data to do so. They don’t have those resources like the big larger MTOs where they can hire a market research team and that is where the partnership comes into play. So, not only do we give them an aggregator and last-mile liquidity but we also help them with Google Analytics, for example. I feel like marketing is where you explore the unexplored and it takes a partnership to the next level. That’s where long-term relationships get forged.

How can you sort a good partnership from a bad one?

Sidharth Gautam: It is very clear to me what my core competencies are and where I can leverage somebody else’s competency. It’s both a mix and a marriage between two equals and it has to be built on a common remittance platform for everybody. There are always going to be challenges. We are a regulated industry so you can’t just partner with anybody. You need to be very clear as to whether or not your partner is certified and that is the basis of any partnership in our business. Remittance is a very fragmented industry – the top three players have major market shares and yet every day you see new players coming up, primarily in the digital space where you can launch in the space of a few months. So there are lots of little guys scrambling for attention that might not be on the same page as you from a regulatory perspective. So do your research. What you also need to see is how potentially scalable that partnership is. For a successful partnership, it is important to understand not only your core competencies but what you want to achieve by having that partner on board and where you want to end up.

Oussama Kseibati: I agree. In fact, I’ve known companies in the past that have chosen certain providers they want to grow their business with but because they’ve used a certain tech provider it’s very hard for them to now uproot their whole business and take clients over to a system that they can scale. Again they’ve gone with someone who’s slightly smaller or built their own system and it causes more headaches further on down the line.

Hugo Cuevas-Mohr: Partnerships sometimes don’t work. And that’s fine. Sometimes I speak with companies and I have to be quite philosophical about it and say that sometimes it works and sometimes it doesn’t and you can’t really put a finger on why. Also, companies change and you have to be flexible to see where the market, takes you. Maybe you need to get rid of a partnership because you’re going in a different direction? So flexibility is something that you must have in this market. The pandemic has arguably made it even harder for everyone to plan for the long term, so you need flexibility about how you set up your structure. Flexibility is part of the game in everything we do these days. Even as people we need to be flexible enough to adjust to new ideas and new possibilities.

What are the developing trends in our ecosystem and what is RaaS?

Hugo Cuevas-Mohr: Remittance as a Service (RaaS) is so interesting because it has been such a long time coming. It is essentially an all-in-one solution that allows companies to launch money transfer software services from any particular geographic location. How does it work? Let’s say you have a good brand in Southeast Asia or in Africa and you want to do business in the UK. Maybe you can put your own brand in a product like an app or a mobile wallet and it is your image but using a third-party service. That’s the deal – I give you my brand and we do a partnership together, all those remittances come to me but to my client in the UK or in Europe, it’s the brand they’re interacting with. You’re behind the scenes. It’s really going to change the market. What all regulators want is better service and lower cost; a more compliant remittance system and this could definitely give them that.

How can remittance fix the gig economy, and how should we participate?

Sidharth Gautam: That is my favourite question so far! We are all are so used to hearing this word, “gig economy,” but what actually is it? Let’s talk stats. As of 2020, 1 in 10 people in the UK is employed by this “gig economy,” the equivalent figure in the US is around 8%. By 2024, one in four people, which is 40% of the workforce, will be in the gig economy and how can remittance solve the problem? Let me give you a real use case: An Uber driver in the UK gets paid directly into their bank account, which is fine, of course. Now, let’s shift this problem to Africa, or Tonga or some other nondescript, sub-Saharan country where almost one-third of the population doesn’t have a bank account. How do these Uber drivers get paid? That is where this whole idea of mobile money and digital wallets comes into play. That’s what the gig economy is doing and up until now either these people are getting left out or the bank charges are not transparent and it takes ages for these guys to get paid. In the US and the UK, you do a transfer today from the UK and it’s in the US account the next day. But for Africa, it can take a week. I mean, it depends on the intermediary bank that might have its own checks charges but also, in certain parts of Africa there is one soft currency for seven countries and the banks of those seven countries don’t talk with each other. That is where organisations like ours play such an important role in the gig economy, helping these people get the money, faster and quicker because that’s the way forward.

For more information or to request a free consultation with one of our money transfer specialists, please email marketing@remitone.com

AML and CFT Guide for Money Transfer Start-Ups

Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT), are terms mainly used in the financial and legal industries to describe the legal controls that require financial institutions and other regulated entities to prevent, detect, and report money laundering and terrorist financing activities.

Every regulated entity should have appropriate AML as well as CFT checks and controls in line with the regulatory framework of the jurisdiction where the entity operates from.

To make it easier for Start-Ups, please find below the diagram of the AML/CFT Ecosystem:

The ecosystem shown above shows the five core responsibilities of Money Transfer Start-Ups:

1. Onboard a Money Laundering Reporting Officer (MLRO)

First and foremost, all start-ups must have a dedicated Money Laundering Reporting Officer (MLRO) who is responsible for managing all compliance activities within the organisation. Depending upon the type and size of the business, there could be one or more members within the compliance team.

Aside from the MLRO, it is important that other stakeholders such as Directors, Senior Managers and even Shareholders familiarise themselves with the Payment Services and AML regulations within the jurisdiction where the business is registered.

2. Customer Due Diligence (CDD)

Each entity is responsible to identify the customers that they deal with. This step is known as the Know Your Customer (KYC). The MLRO has to identify the checks and controls that need to be in place to capture all the information needed from the customers as part of the KYC process.

Apart from KYC, the entity must also maintain the Customer Due Diligence which is mainly to do with checking the customers registering against the watch lists and the transaction patterns of the customers.

3. Suspicious Activity Reporting (SAR)

The entity is required to conduct appropriate investigations whenever an event such as a transaction monitoring alert or a sanctions match occurs. The MLRO has to validate such investigations further and need to report to the local regulatory bodies in the form of Suspicious Activity Reporting (SAR) or Suspicious Transaction Reporting (STR).

4. Record Keeping

The entity is responsible to maintain records of all their customers and transactions for a minimum period of 5 years or as per the guidelines of the local regulatory bodies. The MLRO has to ensure that the data captured from customers for identification and transaction purposes are stored securely and accessible to the authorized individuals of the entity whenever needed. Apart from customers and transactions data, the entity should also maintain the records of all the SARs/STRs.

5. Registering and Reporting to Regulators

The entity is responsible to have the registration done with the relevant regulatory bodies in the jurisdiction where the entity operates from. The entity should also be aware of all the reporting obligations in order to submit reports related to the customers or transactions data to the relevant regulatory bodies in the jurisdiction.

Whether you are a start-up or an established Money Service Business, it is very important that the AML policies and procedures are clearly incorporated within your business model. For more information, advice and support, please contact us.

RemitONE provides proven compliance products for Money Service Businesses and Central Banks and would be delighted to help your business. Contact marketing@remitone.com or call +44 (0) 208 099 5795.

Mobile Money in Africa

Africa is something of an anomaly in the developing world. It’s a continent that many people forget is not a single country but 55 individual countries with dozens of currencies. It’s also a continent where around 66% of the adult population remain unbanked. However, while more than half of the continent has no access to a bank account, the mobile economy is booming. Indeed, Sub-Saharan Africa is the world’s fastest-growing mobile phone market. For the remittance sector, this poses a pretty enticing opportunity.

While the typical customer living out in rural Kenya might live several days away from the nearest bank, they are likely to have direct access to a mobile phone that can be used to send and receive digital payments. This is why the mobile money systems in the region have spread so fast. But how will MTOs cope with increasing digitisation and compliance issues as more customers go online and start using mobile apps to send their money?

To dive deeper into the current mobile money climate in Africa, RemitONE Associate Sales Director Oussama Kseibati recently hosted a webinar attended by esteemed panelists with expert knowledge of the regional remittance landscape. Muhammad M. Jagana, CEO of Kuringo, Sidharth Gautam, Head of Sales at AZA Finance, Leon Issacs, Managing Director of DMA Global, and Linus Adaba, Head of Group Remittance Distribution at Ecobank lent us their thoughts and feelings on compliance and mobile money in Africa in the wake of the COVID-19 pandemic.

Muhammad M. Jagana

In larger cities and towns, there really is no issue when it comes to mobile adoption. Where we’ll face significant challenges is in the last mile of the inclusion journey; the towns or villages that are maybe 200 miles away from a major city.

How do you onboard these clients so they can use mobile money in their local shops and businesses and how will a small local shopkeeper take that payment and convert it into cash to pay their supplier? It’s one of those situations where unless everybody goes digital at the same time, there’s always going to be those at the bottom of the ladder missing out.

For these people, some of whom might not even be aware of the benefits of mobile money, it’s going to be a case of not only education but ensuring that regulators can make it easier for them. For example, in the Gambia, we have two mobile money operators and those two operators are incompatible with one another because they are direct competitors.

Rather than trying to shoehorn everyone onto the same network, we need to ensure there are regulations in place that allow for integration between different networks. It’s up to the regulators to figure out the logistics, of course, but the banks and agents need to play their part too. Something akin to the PSD2 regulations would make the most sense but realistically that’s a rather large hill to climb.

Sidharth Gautam

I completely believe that digitisation and mobile adoption is the key going forward in Africa. At the moment, cash is still king but there is a sea change on the horizon. There are hordes of challenges standing in the way of this change, of course. There are liquidity issues even on the cash pickup front, particularly in Western Africa, as well as the KYC process to sort out, user interface and customer satisfaction. It all comes into play.

There are a lot of plates that need to keep spinning, so to speak. And the regulator has to be on top of it all; the engine leading the train. It’s not an easy task to bring the offline to online puzzle together but it’s not insurmountable either.

Linus Adaba

Personally, I’ve always enjoyed working things into silos and that’s partly how I see mobile money adoption in remittance filtering through into the African market. I see one silo of mobile money that is state-led and the other that’s more private or enterprise led and we are seeing so much more innovation on the private enterprise side because of the lack of regulation.

In order for the state-led operators to catch up, they need to start investing in better compliance tools and putting good compliance managers in place. This way they can ensure people who are using mobile money are at the level of KYC that regulators expect.

When we’re talking about the last mile of the inclusion journey, as Muhammad mentioned, telecommunications companies are selling SIM cards even in the most remote villages, so the infrastructure is definitely there. The problem is that they need to subject themselves to the central bank in each country and there is a lot of technology that’s allowing nimble KYC to be done.

For remittance businesses, meanwhile, there needs to be something of a threshold. Because if it’s just remittance across borders, the full KYC protocol is simply not necessary. In this case, there could perhaps be some sort of a ‘KYC light’ solution. I also see a strong headwind in countries where you have a national ID system in place and we’re currently looking at ways to link this ID with SIM cards to help with faster and better KYC.

Oussama Kseibati

To lead on from Linus mentioning SIM cards and national ID. I think it would be hugely beneficial for the African mobile money market if there was a database such as PSD2 in Europe. With this database in place, once you’ve reached a certain compliance standard with your systems and technologies and you’re ticking the right boxes, doors can open for you automatically.

If there was a centralised database working across countries all linked to SIM cards, you’d be able to use that to do KYC. But what would need to happen first is for a standard to be implemented that will make it easier and more open for people to trade with each other. And that probably isn’t going to happen anytime soon.

For now, instant payments with instant delivery is the way forward for the region I feel. M-Pesa is a positive sign of things to come. It was a major success for Africa throughout the pandemic and the adoption of mobile wallets is continuing to rise in general. Indeed, digitally ready players have seen business growth through the roof as people are migrating towards mobile payments to remain safe from the virus. However, there has to be action in terms of regulation and regulatory frameworks.

Reaching the Great Unbanked

Everything is moving towards the digital market and many unbanked customers are using mobile platforms. That large influx and the onboarding that needs to be done is going to require a lot of compliance and a lot of work but it’s almost certainly going to result in faster, better and more affordable remittance for Africa. Given the fact that remittance rates are so high in the continent right now thanks to a heavy reliance on cash payouts and physical infrastructure, that can only be a good thing.

To read more on what our panellists had to say regarding the more specific challenges facing mobile adoption in the region, click here for our companion piece or check out the full webinar here. If you are a money service business interested in expanding into the region, meanwhile, RemitONE is an award-winning provider of MSB technology.

If you need support with all your operational needs please contact us by emailing marketing@remitone.com to see how we can support you.

Remittances: Getting digital-ready for post-pandemic recovery

The world bank has predicted that remittances are set to decline by 20% as a direct result of the pandemic, marking the sharpest decline in recent history. This is understandable on a surface level, of course, as remittance payments are most commonly sent between families and friends, and in the current climate, for migrant workers particularly, the pandemic has caused a dramatic fall in wages and employment.

However, the remittance sector is nothing if not resilient and for some, the pandemic has proven to be something of a catalyst for a sea of change that’s been simmering just under the surface for years now. Could COVID-19 be the final push the sector needs to jump off the digital cliff edge once and for all? With ‘Neobanks’ like Monzo, Starling and Revolut paving the way, the waters are not quite as untested as you might think.

Of course, our industry has various supply chain members, all of which will have a different opinion and angle on the story. As a leading technology vendor, we reached out to an aggregator (Sidharth Gautam from AZA Finance), a payment processor (David Lambert from Transact 365), an ID verification provider (Richard Spink from GBG) and a Money Transfer Operator, (Nadeem Quershi from USI Money), to ask them how they were preparing for a digital post-pandemic recovery and where they see the biggest innovations happening moving forward.

How do you see the future of the payments industry evolving?

Nadeem

The COVID crisis has had a profound impact on the escalation of digitisation in the payment industry. Our previous primary method of processing payments was rather manual, but in the wake of social distancing, we’ve been forced into ensuring our processes are more digitised. I think that’s going to have a major short and long term impact with digitisation continuing to escalate at a rapid pace.

Richard

It’s always going to be down to what the individual MTO wants to achieve when they run a compliance process. There’s a difference between just running a process and being compliant and our experience is that some businesses will want to take that seriously and others will want to just pay lip service to it. There are two reasons for that – one is that there’s a cost to being compliant and the other is that there’s a proliferation of vendors out there now. When I started in the UK 10 years ago there were perhaps 10 vendors. Now there are around 50 money transfer operators in the UK alone and hundreds globally.

How do you see the digital channel fees changing for MTOs as the channels shift from agents to a heavier reliance on digital channels?

David

The fees themselves always come down as volume goes up. When you’re talking about lower risk payment processing the margins are always going to be razor-thin. Already today I’m seeing fees online that are almost rock bottom and it’s only going to get slower. Then there’s the prospect of open banking which is going to blow everything open and remove the baseline costs even further. Ultimately it’s a competitive and a healthy environment and the fees are going to be falling but we are in this to help each other and make money. So while the fees might be coming down, we should always keep our shared end goals in mind.

Sidharth

70% of the remittance market today is cash-based but the tide is shifting and as it does the fees are going to go down. We’re already seeing it move southwards and as the 30% increases and the 70% reduces it’s going to exacerbate that reduction exponentially.

Richard

Prices will go down, of course. But they’re not going to suddenly plummet. There is a point at which we won’t go below (that rock-bottom David referred to) then there’s the cost of going digital that smaller MTOs have to consider. The price point will come down over time but then the technology you choose to invoke will change over time too.

The other thing that’s happening at the same time is that businesses are talking about digital ID. So the technologies to digitise identities is already there but the confidence to accept it probably isn’t just yet. In the next 12 months if you’re looking at how to make your process complaint online you have plenty of choices and the decision needs to be whether you’re looking for a quick fix or a process that’s scalable in the long term?

How does risk play into digitising money transfer?

Nadeem

The real question is do MTOs assume more risk online than in the traditional model? I believe that they don’t. We’re living in an age where digital risks have been largely mitigated by the complexity of new digital IDs. So I honestly don’t see it as any riskier than the traditional model of somebody visiting a brick and mortar location and presenting a physical ID. We have automated lists with regards to sanctions and screening so can build watertight systems to manage risks that are arguably just as proficient as the traditional model.

David

I partially agree with Nadeem. However, I’d argue that the moment you remove the cardholder from the equation in a physical capacity, the risk naturally increases. We can never be 100% sure on the surface if the cardholder who is making the transaction is the actual cardholder. Not if we can’t physically see them.

Where Nadeem is correct is in the responsibility of technology in ensuring those risks are reduced. If the tech is implemented correctly and the right controls are in place then there is going to be less risk. But fraudsters are very smart and they’re always getting smarter. I’ve worked in money transfer for a decade now and have seen so many different ways that fraudsters can behave – loopholes and tricks that technology can struggle to keep up with. The risks are manageable if you do it correctly but if you get it wrong then the risks can be ten times higher.

Sidharth

My response would be somewhere in between Nadeem and David’s. Our business is focused primarily on Africa and in that region, we’re seeing a lot of digital MTOs joining our platform, more and more every day. AI will definitely play a part in mitigating the risk but the risk is always going to be there. The question is how fast the technology can improve.

Richard

As soon as you’re online you’re introducing more risks, but the technology is there to mitigate the risk. As a rule of thumb, If it looks dodgy then it probably is. As long as you run a verifiable process online to mitigate those risks then it’s worth any cost. All online businesses must accept that fraud is part and parcel of the deal. As long as you accept that, go into it with your eyes open and put the right amount of resources behind it then it’s always going to be worth the risk.

Does the digital model present more opportunity for MTOs or are we operating in a saturated market?

Nadeem

The amount of MTOs that have gone digital in the last 9 months is probably more than in the last 9 years and COVID has played a major role in that. A lot of these conversions are not new entrants into the market but are existing MTOs that has been operating more traditionally and have been forced into the digital model.

David

There’s always an opportunity to be found in chaos. Throughout history, hundreds of companies have been forged in times of crisis. Disney was formed out of the 1929 depression, Microsoft came out of a major recession in the 70s and in 2008 it’s the banking crisis that kicked off Bitcoin and Fintech. The way that compliance has moved forward so fast in recent months has really spawned a rise in applications for electronic money licenses.

The implications of that are massive and have led to an environment where everybody wants to be a digital bank. It’s like when the Beatles came along and everybody wanted to be in a rock band. Now, thanks to the Monzos and Revoluts of the world, everybody wants to be involved in Fintech. This is perhaps why, now that we’re all in crisis mode, that so many MTOs are looking to upgrade their money licenses so they can perform different functions and expand into something more.

Sidharth

Asia and Africa are frontier emerging economies. Whilst the vaccine will be a reality in the western world it’s going to take a lot longer to filter into the emerging markets. Given that they are the primary markets for our industry it’s even more apparent that digital is the way to go. Because whilst the western world might be able to return to some semblance of normality sooner rather than later, the emerging markets that rely on remittance are still going to need to rely solely on digital.

Richard

In theory, as long as a financial service business has a steady platform, they can drive the business in any way they want. I think the difference is whether your focus is on driving transactions or taking the bolder step of becoming a fully regulated business. Revolut is a good example of a business that has spent all of its time and effort acquiring customers and are now embarking on the hard bit of actually becoming a proper bank.

I think that everyone would like to see an organisation do that successfully – pivot from a business that has a large number of customers into one that actually makes money from lending money. There’s an opportunity there to scale a business from an MTO into something that provides other financial services too.

Are we seeing MTOs evolve into these Neobanks or are we saying that the pie is quite big and each will have its own role within that pie?

Nadeem

We are seeing the more established MTOs move from conventional standard payments into things like e-money wallets and they are using this type of functionality as part of their wider growth plans. But generally, I think we will be seeing some form of consolidation amongst the larger MTOs. In the larger sense, the more established players have access to more resources so they will be the ones that will be moving forward.

David

Sometimes I feel like an outsider and sometimes it’s good to have that perspective where I’m not immersed deeply inside the money transfer sector. But I advise, consult and work with several different money transfer companies. One of the things that’s interesting that I see from my perspective is that everybody has their strengths and their positions within the market. If you look at companies like Small World, for example, they work with so many smaller MTOs to provide payouts and if you look at Azimo they rely on a number of different partners to help them get into certain parts of the world.

No one can do everything by themselves as one complete unit. So consolidation and licensing are interesting for me because every single MTO out there is trying to do something relatively unique. One company might be stronger in one area than another and by working together they can offer something more holistic and of greater quality overall. So I think consolidation should 100% be on the roadmap for everyone. My only fear about consolidation is that it actually shrinks the competitive element of any industry but I think that’s a little further down the line.

Sidharth

It’s already happening. Around two and a half months back WorldRemit acquired Sendwave for $500 million. This was a growth acquisition and it’s one of many floating around right now. There is also word on the grapevine that Western Union may buy Moneygram, which is one of the top three MTOs in the world.

David

Sidharth said something interesting about acquisition for growth rather than acquisition for revenue and I have seen that a lot in the payments industry. There is a huge amount of consolidation of payment service providers buying other payment service providers simply to grow because growth is so essential for a lot of MTOs, especially when we’re operating on such thin margins.

With all this technology at our disposal, why are we still having an issue with de-risking?

Richard

Since I started talking to MTOs in 2012, I’ll be honest, it’s not got any easier. The first question I ask people as a qualifying question is ‘have you got a bank account’. If they haven’t got a bank account then they’re wasting my time because I know they won’t be using our software until they get that bank account.

The big banks just won’t take the risk. It’s too much hassle and that’s a business banking problem anyway. They could easily take the risk if they choose to, it’s whether they have the resources to be able to deliver that and that’s where you’ve got the disruption coming. Can smaller banks take on that risk? Because in another sense they have less risk in it potentially going wrong.

Nadeem

De-risking has been going on for a number of years but at the end of the day, from a bank’s perspective, it comes down to purely to risk versus reward. For this reason, I don’t think you’re going to see a change in banks attitudes or habits when it comes to de-risking. David also correctly mentioned the rise of the Neobanks and some of these smaller challenger banks but they come with their own set of limitations.

What about regulators? Should the onus be on them to make sure that this continues to be a vibrant and healthy 600 billion dollar industry?

Nadeem

Regulators are there to create a framework, structure, processes and regulations. When it comes to safeguarding good practices, regulators are increasing some of these rules and regulations but can they force banks to actually support clients? I don’t think that’s their objective or their remit.

David

I don’t think it’s in the regulators best interests to push the banks, I think when a company becomes FCA regulated it has to be independent of the banks in some respect. Because, if the FCA and banks were in cahoots with each other it would be it much easier to operate but you’d also leave yourself much more open to fraud. If the two remain independent and they are independently scrutinised you have a sort of double lock system.

Sidharth

Regulators are becoming more and more progressive enablers to our industry. At least in my experience. In the UK and Europe, we have the example of open banking which is fuelling innovation and is also making the industry more compliant. All the stakeholders are becoming more and more transparent and it is helping to increase the credibility of the segments.

Africa and Asia are still very very fragmented. 54 countries with 54 different regulations. So they have a lot of catching up to do but then you can clearly see in Kenya, Uganda and Nigeria that things are moving at a very fast pace and regulators are moving likewise.

Finally, where do you think the biggest innovations will be moving forward?

David

A lot of innovation is happening right at our doorstep in the Fintech space. Payments is an ever-evolving industry. Every single day there’s a new payment method, a new way of doing things or a new market that can be exploited. Once blockchain technology has crossed over into the mainstream and people realise they can effectively move money as fast as they can send an email, that’s going to be the big breakthrough, that’s the innovation.

Nadeem

There is excitement around blockchain, digitisation of tokens and the ability to make payments instantaneously, of course. But there’s also innovation around digitised prints in terms of digital KYC and simplifying processes for consumers. I think simplification is going to be a key in terms of ensuring not only that funds are instantaneous but that the customer relationship does not simply finish at the point of collection or deposit.

Our thanks to David, Richard, Nadeem and Sidharth for their words and their time.

For more information or to speak to one of our experts please email marketing@remitone.com

R1 Webinar: The Future of Remittances

Has COVID catalysed the digital transformation of the remittance industry?

COVID-19 has fundamentally changed a lot this year. In the case of the money transfer industry, the immediate impact has not been a positive one. The World Bank has predicted that global remittances are set to decline by 20% as a direct result of the pandemic. Something needs to be done and it’s the young and nimble money transfer operators (MTOs) that are best equipped to create a new digital path in a world where physical contact is restricted.

The evidence of digital transformation

Digital transformation has been slowly changing the remittance sector for decades now and COVID has hastened that transformation. The fact is, where digital was once an option it’s now a necessity and that has completely changed the game for all banking sectors.

According to recent RemitONE transaction data trends, there has been a major acceleration of digital channel use during the pandemic. The use of physical agents, meanwhile, is down, which might seem insignificant but points to a drastic overall shift in consumer habit.

Throughout history, it’s the sectors that have been able to adapt to the times that have weathered the storms and retained their relevance. With the recession caused by COVID-19 taking a toll on the ability to send money home and remittance flows projected to decline even further by 14% in 2021, an easier, cheaper remittance solution has never been more vital.

Digital money transfer

Studies have proven that remittance not only helps to alleviate poverty in developing countries but can also lead to an increase in domestic spending. If there’s one thing we need right now it’s for people to be spending more. Digital-first MTOs are the ones ready to offer the most robust and accessible easy-to-use remittance services with fair and reliable exchange rates.

Of course, this is not a change that can happen overnight. Historically speaking, migrant communities would rely on physical money transfer services and these services have, as a result, become pillars of the community. Indeed, it’s estimated that the recipients of many international remittances are unbanked, which might go some way towards explaining why 90% of remittances currently begin and end with cash.

Does this mean it’s up to remittance operators to prove their worth and make themselves more accessible? Because digital operators that use the latest remittance software are not faster and only more affordable due to the obvious lack of overheads but have been proven to be better at evaluating customer experience and security.

Digital acceleration beyond the pandemic

It’s no exaggeration to suggest that COVID-19 changed the world overnight, but the impact on the migrant community has been under-reported. For months now, foreign travel has been almost impossible, which means migrant families have been unable to visit their families. What’s more, the pandemic has amplified the pressures migrants face in striking a balance between supporting themselves and supporting their families back home. For these families, digitally native money transfer operators will play a crucial role in redefining remittance and money transfer for a post-COVID world.

There are several benefits of digital transformation for the remittance sector for both legacy and upstart operators. Through the use of money transfer software on desktop computers and via smartphone apps, it’s never been easier and faster for customers to keep a reliable track of their remittance journey. The pandemic might have offered an opportunity for operators to use this software to foster trust and build new customer bases that keep communities connected and able to hold each other up.

This is proven by the growth of M-Pesa as the predominant payment method in Kenya. This is a digital solution that manifested because a traditional banking ecosystem was simply not accessible for a majority of Kenyans. That digital alternative quickly became the preferred option when users realised how powerful, easy, and convenient it was. Ultimately, it’s a safer, faster, and easier service that should help shoulder some of the stress that migrant families currently find themselves under.

Conclusion

Consumer preference has been shifting away from cash for years now and with many cash-based remittance solutions forced to close due to COVID-19, the future is definitely in digital. What money transfer operators and other fintech organisations need to understand is that this represents an incredible opportunity for them to prove their worth.

Borders might be closed but migrant workers still depend on remittance and if they’re going to make that switch from their old inflexible and outdated conventional means to more accessible solutions, they might need a bit of a gentle push.

To discuss your online offering with our team of experts please contact marketing@remitone.com

R1 Webinar: How money service businesses can maintain growth during a global pandemic

15:00 GMT, Wednesday 25 November 2020

Access the event today at 15:00 GMT here – https://zoom.us/j/97768332874

Join our next webinar where we will review recent challenges Money Service Businesses are facing, impacted by the global pandemic.

We will reveal how RemitONE clients have adapted to these new challenges and in doing so have maintained business growth and ensured compliance:

Maintaining business growth – Challenging for any business impacted by the global pandemic and with the World Bank predicting global remittances will decline by 20% in 2020, it is critical that we all take action to keep money transfers flowing.
We will share how JMMB have maintained business growth. How they have increased transaction volumes, expanded operations and scaled their business.

Ensure compliance– Regulators have become even more stringent and we are seeing growing pressure by central banks to track inbound and outbound transactions.
We will explain how Bank Asia delivers a robust and compliant platform. How they enforce KYC and AML procedures with ease, allowing them reduce costs and focus on other business goals.

Licensing – A three-fold increase in new entrants to the market, judging from the number of MSB applications being submitted to regulators in different regions.
We will reveal how Nation Transfer successfully obtained an SPI licence so they could facilitate cross border payments from the UK via digital channels.

Join our next webinar where we will discuss how we are working with clients to overcome these key challenges and take advantage of the opportunities that lie ahead!

We look forward to seeing you there.

15:00 GMT, Wednesday 25 November 2020.

Access the event today at 15:00 GMT here – https://zoom.us/j/97768332874

About RemitONE

RemitONE is a technology and business services firm that breathes innovation and excellence into the money transfer world for all types and sizes of organisations including banks, money transfer operators, micro-finance institutions, telecom firms and start-ups. Our technology allows you to manage your entire money transfer business and connect with our extensive client and partner network worldwide. Our consulting services have an impressive success rate for money service business license applications and alternative bank account solutions.