Dubai: For many traditional remittance services, access to facilities to receive money is often limited, particularly for the poorest people in more rural areas, where the banking sector is under-represented and the economy is largely cash-based.

Those who would benefit most are therefore the least likely to be able to receive remittances from migrant workers. They are locked out of the market due to their social, economic and geographical position.

Mobile phones now significantly outnumber ATMs, giving mobile operators a level of reach far greater than money transfer providers and banks.

Mobile operators are therefore uniquely positioned to solve the access problem and drive costs down to levels that open the formal remittance channel to users that would otherwise seek informal methods.

In addition, retail premises and staff costs of banks and remittance companies lead to high fixed commission costs for remittances. The average commission fee is an estimated 15 per cent per transaction, increasing to over 25 per cent for remittances below $100. These high costs limit the ability of individual workers to distribute funds to a larger number of people and penalise the poor who can only afford to send small amounts of money.

World Bank estimates

The World Bank estimates that reducing remittance commission charges by 2-5 per cent could increase the flow of formal remittances by 50-70 per cent, which would boost local economies. Reducing the cost of sending each individual remittance encourages the delivery of lower value remittances, at values far less than today's average transfer of $200.

The GSM Association forecasts that the ‘formal' global remittance market could grow from about $300 billion (Dh1.1 trillion) today to over $1 trillion in five years, with the help of mobile communications. Financial services for the unbanked are undoubtedly one of the most exciting opportunities for mobile telecom operators hoping to counter slowing subscription rates and falling average revenue per user.

Roughly 45 million people without traditional bank accounts around the world are using mobile money services. McKinsey & Company estimates that this could rise to 360 million by 2012 if mobile operators were to achieve the adoption rates of some of the early movers. This could generate an extra $5 billion annually in direct revenues from financial services fees such as transactions and cash out, and an additional $3 billion annually from indirect revenue from reduced churn and higher average revenue per users.

Mobile shift

That's why most money exchange houses are shifting towards the mobile remittance window. In this system, mobile phones are used as a ‘mobile wallet' to transfer money to beneficiaries. However this can't work without the telecom operators and banks facilitating the applications to enable money transfer.

This way, customers do not have to queue up in front of the money exchange houses for remittances.

"We are planning to launch mobile money remittance programme to India and other countries soon," Sudhir Kumar Shetty, Chief Operating Officer of UAE Exchange Centre told Gulf News.

"However, the payment gateway facilities at the beneficiaries' end will have to be made available before the technology can enable mobile money transfer. From our side, we are ready for this."

He said mobile money transfers could reduce the thriving hawala and informal money transfer business.

"With the desegregation of traditional brick-and-mortar financial service delivery models, mobile money transfer [MMT] gives banks access to a far more effective channel to serve customers that were previously deemed non-profitable," a spokesperson for MMT said.

"Whether they will be able to seize the opportunity or not will depend on their vision and their ability to engage positively with mobile network operators."

  • $316b value of officially recorded remittance flows todeveloping countriesin 2009
  • $1tr value forecast of formal global remittance market in five years
  • 45m people without traditional bank accounts aroundthe world who are using mobile money services