UAE dirhams
The cost of remittance is rising gradually. There are fewer fee-free currency tranfer offers being provided. Image Credit: Shutterstock

Dubai: UAE residents sending out remittances are starting to find there are fewer ‘0% transaction fee’ offers wooing them anymore. Not just that, the charges on those remittance transactions are actually inching higher – and could go up further.

Whether that happens or not, it’s another cost factor that residents in the low- to mid-income wage bracket need to factor in.

“Recent research in the UAE revealed that labour workers often spend close to one month salary in a year on international money transfers after factoring all the costs, from service fees, (currency) spreads, transportation costs, cash-out fees,” said Marc Michel, Chief Business Officer at Dubai-based Astra Tech, which owns the web-based calling app Botim and is adding payment and remittance capabilities through its platforms.

Costing more?

“I do see the waiving of fees on remittance transfers disappearing as this is a common practice in many industries to quickly gain market share,” said Zahir Moghal, CEO of Delma Exchange. “Banks are now more focused on generating revenue from remittance transfers - and less likely to waive fees.

“Additionally, the competition in the remittance space has increased, which has also made it more difficult for banks to waive fees.”

The push – quite aggressively so – by banks into the remittance space was seen by many as actually bringing down the cost of sending money abroad compared to the fees that currency exchange companies had. In fact, through 2019-22, the ‘real’ cost of sending money did come down, as banks and remittance firms competed to attract clients.

“The current split between remittances through currency houses and banks is difficult to say, as there is no reliable data available,” said Moghal. “However, I believe that most remittances in the UAE are still processed through currency houses. This is because currency houses typically offer lower fees and competitive rates than banks - and a wider range of services.”

During its IPO earlier this year, Al Ansari Financial Services, which is the market leader in the UAE remittance space, also emphasised the continued growth prospects for remittances via currency houses. (And in other Gulf markets too.)

The natural evolution for a current exchange business is to become a full-service payments provider. This means offering a wider range of services, such as peer-to-peer payments, B2B payments, and B2C payments

- Zahir Moghal of Delma Exchange

Can fintechs offer lower costs?

While banks and currency houses slug it out, a third front is opening up in the remittance industry – fintechs. The first wave of licenses to fintechs to carry out cross-border payments have been issued, and the take up rates have been impressive, according to market sources.

One such entity, Astra Tech is building its payments/remittances scope. “Payby, our payments arm, was able to secure the SVF and RPS licenses last year (from the UAE Central Bank), which enable us to operate a wallet,” said Michel. “With these two licenses, we are able to offer almost all payments services including remittance, wallet, P2P transfers, payment acceptance, etc.”

This is where the Botim recently launched ‘multi-currency prepaid card’ feature comes in. ”We are accepting applicants to the waitlist,” said Michel. “Botim’s multi-currency card will enable customers to store money on their wallet in AED or USD, and customers will be able to transact with it at any point-of-sale terminal or cash out at any ATM machine.

“It will also enable blue collar workers who earn Dh3,000 or less to get access to basic financial services.

“When we design or price our products, we put ourselves in the middle of their (customers’) problems. With this mindset, we decided to go for a lower service fee model. And launch offers around key holidays to empower them in times of need.”

While not a fintech in the strictest definition, the financial services arm of UAE tech-telco giant e& is another getting a lot of attention when it comes to remittances. The entity, e& money, has been running ‘zero fee’ offers and, given the inbuilt customer base e& possesses, has been quite effective, market sources say.

Another key segment that will drive further growth is B2B remittance. As trade starts to rise and the effects of rising interest rates and inflation subside we forecast that we will see a massive growth in this segment

- Marc Michel at Dubai-based Astra Tech

There is much to play – and win – in the remittance space. The UAE recorded $50 billion in ‘personal’ outward remittance volumes during 2021. “This made it the second largest remittance market globally and the largest regionally,” said Michel.

“We believe this remittance trend will only continue to grow given the demographics of UAE having 88 per cent expats. The UAE has become an attractive destination for talent and is constantly innovating to stay at the top. This trend will continue to drive growth in the consumer remittance segment.”

And at lower fees where possible…

"We have seen a significant interest from customers and have issued more than 230,000 cards." - Melike Kara of e& money Image Credit: Supplied
Digital remittances are no longer a niche
Given that the UAE is the second-largest country for outward remittances and customer behaviour is shifting towards digital, e& money harnesses technology, advanced analytics, and global partnerships to offer competitive rates and diverse payment options.

Based on market insights, we believe that the current share of digital in consumer remittances is around 30 per cent, and we are expecting it to reach 50 per cent in the time between 2028-30.

The rising costs of traditional channels amplify the need for our digital solutions, ensuring each hard-earned dirham reaches its intended destination. Our mission is to guarantee a smooth and cost-effective process for sending money home without excessive charges or complex processes.

e& money's digital first card, launched in March, lets any UAE resident access it within 10 seconds just by registering for the e& money app. We have seen a significant interest from customers and have issued more than 230,000 cards.

Melike Kara, CEO, e& money