Sudhir Kumar Shetty Image Credit: Courtesy:UAE Exchange

Dubai: Money remittance business that has seen phenomenal growth in the UAE is likely to go through a consolidation phase in the not so distant future due to the rising competition, increasing costs and the large number of players in the business, Sudhir Kumar Shetty, Chief Operating Officer of UAE Exchange Centre told Gulf News in an interview.

“We have 132 licenced players in money changing and money transfer business in the UAE. Now many banks too are entering the business. We see competition coming from all sides,” Shetty said.

Over a period of time, all kinds of people have entered money transfer business ranging from banks, retailers and jewellers. Significantly, large and growing remittance to the developing world has attracted more players to the business.

According to the World Bank report, $414 billion was remitted to the developing countries last year and it is expected to grow to $436 billion in 2014 and in couple of years it is going to cross more than half a trillion dollars.

While the surging value of remittance is just one side of the story, the cost of operations too has significantly gone up. “Going forward I see a consolidation happening in this industry. If the revenue is not sufficient to take care of the growing costs in the business, some will have to reorient or go out of this business,” Shetty said.

Exchange companies are facing huge cost escalation in recent years due to the changing business environment and regulatory requirements.

“Two decades ago, we never had the anti-money laundering (AML) requirements and the infrastructure around it, various compliance requirements, skilled man power and training and security requirements along with costs relating to branch infrastructure, insurance and Emiratisation,” he said.

Relatively low entry barriers have attracted a number of players into this business. With low capital requirements of Dh1 million for money changers and Dh2 million for money transferrers, the UAE has a large number of licence holders in the business.

“Although it does not look like a capital intensive business, the average gestation period for return on investment in the business is widening and the business is increasingly becoming a volume driven,” Shetty said.

Shetty sees entry of more players including banks as a challenge but is determined to work around the competition with value added products and services to retain customers. Today, beyond the money changing and money transfer business the UAE Exchange Centre offers a host of products and services such as pre-paid card based forex services, bill payments, utility payments and credit card bill payments. “Going forward, value addition and product innovation are the core elements of our business future,” he said.

UAE Exchange Centre is one of the 26 applicants for the new banking licence in India. In the next round of licences form RBI, the company is a strong contender. “The specific advantage we have is that we are already operating in 31 different countries and are regulated by the respective jurisdictions. We have a network of 345 branches across India,” he said.

Today the company doesn’t have a specific mandate to channel the NRI remittances into investments but if it gets a banking licence it will be starting with a huge NRI customer base.