Video: The International Money Transfer Market – Challenges, trends and opportunities March 18, 2022
Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the enormous rate of change over the last few years in the money transfer market, resulting in new technology, higher customer expectations and endless opportunities for MTOs.
The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.
- Aamer Abedi, RemitONE
- Elizabeth Rossiello, CEO & Founder of AZA Finance
- Hasan Fardan Al Fardan, CEO at Al Fardan Exchange
- Leon Isaacs, CEO & Founder of DMA Global
- Alex Orechoff, Financial Services Vertical Growth at Worldpay from FIS
The World Bank reported remittance flows grew by 7% in 21, and declined by only 1.7% in 2020. This is despite the severe global recession caused by COVID-19. What factors do you think have contributed to this growth?
Leon: The first point in the question is about the resilience of remittances. The people who are sending remittances need to send money and to support them both with consumption and investment needs. And that need doesn’t just disappear. In fact, it probably increased during COVID times, as families back home, found it even harder. So it really meant that people who were sending money were even more committed to finding ways to do it.
One of the key things is the changing ways in which money was able to move. So the shift to digital has clearly had quite an impact. And now every company that makes any pronouncement on remittances, is always talking about their digital strategy, how that’s making a change in what they’re doing. And I think this focus has really helped to actually bring more some more people to the market.
Hasan: I very much echo and agree with a lot of the sentiments obviously, you know, the market that we predominantly serve is the second-largest market in the world. And obviously, the organisations that had a higher degree of digital preparedness, I know people talk about transformation, it’s a big buzzword. But ultimately, it needs to translate to some degree of digital preparedness – companies that were definitely much better prepared, and benefited from drastically converting traditional cash business into a digital business.
The biggest risk with a sector is the lack of regulatory oversight, and you don’t have the benefit of robust KYC, AML, and general compliance framework, so something that we’re definitely addressing at the industry level.
Alex: What Leon was mentioning as well, is that a lot of what has happened, thanks to COVID is that people have been introduced to new digital options, and that has forced companies to really innovate quickly and offer a lot of different avenues that people were not necessarily curious about before. It hasn’t been the best onboarding experience for people, because we’ve been just trying to get everything online for our partners as quickly as possible. And it’s not necessarily the most efficient.
Elizabeth: We process for over 28 of the largest remittance companies out of and across the African continent. And already six years ago, one of our fastest-growing operators launched a corridor into Nigeria, digital-only, and it was the fastest-growing product they’d ever launched. Before that, they were a cash-only agent collection remittance company, mainly out of North America.
So for me, I don’t know why we even use the word digital, because it’s what is remittance without digital at this point? And what are financial services without digital? So, you know, we don’t even think, to work with companies that don’t have a digital offering. It’s like saying, “what is digital banking?”, everything is digital these days. And we need to go beyond that. It’s not just how to get things digitised, it’s how to streamline operations and optimise in a world that’s so fast-moving.
From a technology solutions perspective, there is literally a 100% shift to digital. But is it still fair to say that there is still a lot of emphasis on cash? How do we reconcile the two comments here?
Elizabeth: Well, first of all, even cash networks use digital verification networks. I mean, nobody picks up cash with a paper slip anymore. Nobody goes really into the bank with a printed out terminal, you’re getting a mobile code on your phone, and then you’re going to the cash agent network. And the cash agent network is dominated by mobile treasury and float operations that are digitised. And if they’re not, they’re not going to work.
So I think the companies that aren’t thinking about that, from a user perspective, from a mobile perspective, are missing out. And again, it’s not just the app, it’s also the cash management, the operations, the treasury management.
What is it like in the UAE? Do you have some data to share about this channel cannibalisation from cash to digital? Is it supporting what others are saying?
Hasan: Now there’s a very large uptake and a very large migration from traditional cash to digital and the rate of growth is very aggressive. However, cash is still very much dominant, from numbers that I have seen still around 70-80% of the market is still operating on a cash basis and it’s not necessarily because of the lack of availability of digital solutions or digital touchpoints. As an organisation and I think as an industry as well we hear a lot of emphasis on digitally-driven financial inclusion, but digital inclusion doesn’t mean that you exclude the cash customers as well.
So the future is definitely digital and the migration is definitely much higher and it will continue to accelerate in the coming years, but I still see it being relevant in the medium term.
Aamer: So you have regulatory pressures, of course, for example in the UK and Europe there is a lot of pressure to go digital. So if you’re a cash-based business the regulator just makes the landscape really hard for you to operate. The companies that collect cash from the agent shops etc are dominated by a single player which doesn’t make it conducive for other participants to participate in a fair manner.
Based on the research data that you have access to, is there a market out there where the consumers are refusing to go digital and want to carry on using cash? I know there are a few regions that showed a lot of reluctance.
Leon: I think that it depends on which region of the world as to how fast it gets there and I also think it depends on your time horizon. Some parts of the world have been going 10 years or more using various digital services and the benefits to the users are normally so self-evident you do wonder why people don’t change, but there are a lot of cultural and historical factors.
Also, we have to remember a lot of people in the world have come from countries where they haven’t necessarily had significant amounts of money themselves and also, they haven’t trusted governments or local banks – they think governments may have influence over banks or banks have collapsed and so. There’s still a generation out there that has deep mistrust in anything that’s not physically in their hands or in somebody else’s.
When cash is still king for domestic payments, it is very difficult to then accelerate international payments to make a real dent. So what we need to do is continue to encourage domestic adoption and then the international will flow much more easily.
Alex: What it pulls down to are habits and trust. Anything you have to change a habit is a point of friction, it’s not something that you want to do or you feel comfortable doing, even if all the logic says that you should be doing this new habit. It’s just human nature. So if you’re using cash most of the time chances are you’re going to prefer to do cash in this transaction, and you have to have a really good catalyst to push you off that previous habit in preference.
Aamer: So basically, the panel of experts here feels that the statement ‘cash is king’ is an overstatement. The rate of transitioning that’s happening right now from cash to digital is happening at a pace we hadn’t imagined, it’s so rapid. One of the big three players, I think close to 30/35% of their total remittance volume is digital. Contrast this to 3 years ago when I was in one of the conferences, digital was over 5%. So over a period of three years, one of the big three players’ digital remittances have increased from 5 to 30% which is significant.
From a payments industry perspective, what do you think is coming next?
Alex: One thing is how do we make a frictionless experience for customers and how do we enable that? How do we enable people to grow quickly into the corridors that they want to be in? And how do you ensure that you can have a real-time treasury in the future? Because that’s obviously one of the biggest challenges that a lot of remittance companies have today.
We’ll definitely see greater use of cryptocurrency and CBDCs, but thankfully that’s a ‘future us’ problem – I would say that’s more of a 5/10-year pursuit, depending on where the various central banks are going, in which case we are going to have to think about what are the other things we offer to expand our breadth of products and to add more value to our various customers on the side of paying in but also on the side of paying out.
Can you just define ‘Super App’ and then we can discuss what we mean by this all-encompassing mobile app?
Aamer: There’s a new buzzword we’re hearing ‘Super Apps’. I was in Saudi Arabia a few months ago and I was using one of these taxi services like Uber, Kareem, Bolt. One of them was offering something interesting – they were offering on the app the ability for someone to order a nurse and they would send a nurse within 24 hours to do a Covid test or a PCR test etc. and this is all happening from that one ‘Super App’ if you will, and that’s the buzzword here in our industry.
A lot of these new companies from neighbouring verticals/peripheral industries have an established customer base and they are always thinking of generating revenue from new sources and remittance becomes the obvious choice. It’s a case of APIs. The API these days, from technology vendors especially, are so sophisticated that it’s just a case of plug-and-play. So if you have an existing app you can simply plug into RemitONE’s API and take advantage of the services they have through the API so there’s not much work to do.
Alex: That’s where you’ll see that as a key thing and it also happens to be because you trust the brand that is all-encompassing on that ‘Super App’ – we trust Kareem because it gets us from point A to B and therefore anyone they’re selecting is probably going to be trusted as a result. So that’s the big benefit of the ‘Super App’ that you mentioned there.
Elizabeth: We’ve had digital ‘Super App’s for over 8 years over the African continent and AZA launched the first ‘Super App’ which went from just mobile money wallets to offering health services, government payments and even some banking services. It even had a white label for banks to use as well and what we saw was a real success for services that were adjacent to its core business, but services that were too far off like the medical services ended up being replaced by companies focusing on that.
So for companies that are coming from the traditional brick and mortar space, they’re facing even more of a challenge for them to launch something so agile. What we also recommend for customers that want a white label is to work with companies that know what they’re doing like RemitONE. They have a great product it’s a white label product but maybe think about devoting a team to just doing that.
What obstacles or challenges do you see along the horizon what do MTOs or exchange houses in the money transfer space need to prepare for now?
Leon: One of the obstacles is if you’re not doing a fully digital solution now then either you’re too late or you need to do something immediately – you’re probably too late, but if you’re not doing anything that’s probably the biggest thing.
I think we also have big problems still with de-risking. I know we’ve probably been talking about this at conferences since at least 2012 if not before and I think it just rears its head in a different form.
It’s one thing of course to say that we want to go digital but actually doing the transition is a challenge in itself. As a very successful organisation in the Middle East, what are your thoughts on this? What are the typical challenges an MTO would face as it transitions?
Hasan: You have to start from the perspective of the UX and I echo some of the comments from my colleagues here, provided you can deliver a seamless customer journey generally that really is the basis of transitioning your customer base. I would say players have different degrees of success, of how well they can execute that. You are seeing an environment of offline margin, you are seeing an environment of increasing compliance costs so really only the highly compliant and highly competitive and highly agile businesses will continue to succeed.
Who do you see winning the ‘Super App’ versus Marketplace battle when it comes to accessing financial services?
Alex: It’s going to depend on what other aspects of the market we’re talking about, so there are going to be situations where the ‘Super App’ is going to be preferred – either because that is the place where there’s the brand and the trust. Or that that’s where they’re getting other services that they prefer to use because it’s all of them in one place. It’s easier to just accept that I’m going to have a higher price or that I trust I’m going to have a better price for my remittance through the ‘Super App’.
Elizabeth: I think the marketplace where you’re going online is not something that the younger segments are using so we’re not seeing that inherent in the youth population, so I think customer segments are pretty split depending on age and just digital nativeness.
Leon: I think it ultimately comes down to who owns the customer and if you’ve got the right product. I would tend to lead towards a ‘Super App’ having more to offer than a Marketplace by definition, unless you actually own the customer accessing that Marketplace then you’re going to be challenged.
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