As I did for 2013, I have put together the 10 most important news stories for the Money Transfer Industry in 2014, as a way to reflect back and at the same time analyze the trends for the coming year. They are not necessarily in order of importance. They are based on my personal opinions and ideas from friends and colleagues in the industry.
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THE TEN MOST IMPORTANT NEWS OF THE MONEY TRANSFER INDUSTRY FOR 2014
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1. Volume of Money Transfers continue on the rise. The estimated global remittance volume will be close to US$580 B in 2014 and rise above US$600 B in 2015. Volume to developing countries are rising globally by 4.4% to reach US$454 B in 2015.
In October 2014, the World Bank published its Migration and Development Brief 23 in which it estimated that the officially recorded global remittance flows are expected to rise from US$582 billion in 2014 to US$608 billion in 2015. The remittance flows to developing countries are projected to reach US$435 billion in 2014, 5% percent higher than 2013 but the growth will moderate to 4.4% in 2015, raising flows to US$454 billion. This outlook is based largely on lower projected GDP growth rates in key remittance-sending countries and you can read the Brief – http://bit.ly/ZrysYa – to understand the point of view of the Migration and Remittances Team at the World Bank. As far as inflow volumes to the major remittance receiving countries, India may reach US$71 billion in 2014. India has the largest emigrant population with over 14 million people born in India living abroad in 2013. China follows with US$64 billion, then the Philippines with US$28 billion, Mexico US$24 billion, Nigeria US$21 billion and then Egypt, Pakistan and Bangladesh (US$15 to 18 billion). It is important to remember that remittances are a relatively small share of GDP for these countries: 3.7% of GDP for India in 2013 while it is 42% for Tajikistan, 32% for the Kyrgyz Republic, and 29% for Nepal. Oil prices are an important factor in remittance flows from the Gulf Region and Russia, so we don’t know yet how remittance volumes will decrease from these countries (plus the effect of the slowing Russian economy due to international sanctions that will further decrease Russian outflows while increasing the inflows). The Syrian crisis is reshaping the remittance industry in the neighboring countries.
2. Bank Discontinuance and De-Risking took new heights with more bank account closures in the US, Australia and other countries prompting responses and statements from the World Bank, US regulators and other agencies.
Bank Discontinuance and De-Risking was all over the news this year with bank account closures in the United States hurting the Money Transfer Industry deeply. Some might say that this was part of the “unintended consequences” of Operation “Choke Point” which was aimed basically at the US payday lending industry (http://bit.ly/1wB2pCT). The close of Bank Accounts in the US of foreign MSBs and other financial institutions (including small Banks) by large commercial banks in the US – and the pressure of those US Banks for banks in other countries to close MSB accounts, has made the situation extremely difficult for the survival of a number of MSBs and MTOs. All of these situations prompted a number of articles and speeches from regulators. The remarks of Jennifer Shasky Calvery, Director of FINCEN in August 2014, tried to persuade Banks to go case by case: “Just because a particular customer may be considered high risk does not mean that it is “unbankable” and it certainly does not make an entire category of customer unbankable.” (http://bit.ly/1DZhyTt). The remarks of Under Secretary Cohen of the US Treasury on November 2014 , (http://1.usa.gov/1v3IaP3 ) caused some discomfort when he stated that there was “no consensus that a serious “de-risking” trend is underway”. The US Treasury will hold a Roundtable Discussion on Financial Access for MSBs on January 13th that we hope the Money Transfer industry will attend (http://1.usa.gov/1vsUtyj ).
The situation is more critical now in Australia. Small and medium sized companies in the country are being forced to shut down because all of the major banks have been closing their accounts and letters of discontinuance were sent to the 5,000+ MTOs in the country. It seems that the discontinuance was based largely on the terrorist links of Bisotel Rieh, a money transfer company linked to Syria & Lebanon. MTOs in Australia have formed ARPAC (Australian Remittance and Currency Providers Association) to fight for the industry survival and a class action against Westpac Bank is in motion.
3. The cost of remittances continues as a major objective of multilateral agencies such as the World Bank and its influence in the G20 agenda while more governments discuss the idea of taxing remittances. It’s all politics?
The cost of remittances continues as a major objective of multilateral agencies such as the World Bank and its influence over the G20 agenda. The Remittance Prices Worldwide (RPW) database of the World Bank Payment Systems Development Group continuously monitors remittance costs in several corridors. It reported that the cost of sending money has continued to fall in 2014 with the global average total falling from 8.9% in 3Q 2013 to 7.9% in 3Q 2014. When the weighted average was considered (weighted by the size of bilateral remittance flows) the cost fell from 6.6% in 3Q 2013 to 5.7% in 3Q 2014. The World Bank also stated in the October 2014 Brief – http://bit.ly/ZrysYa – that smaller remittance markets are also becoming increasingly contested, as mobile operators enter the market and new online services are being offered. We all know that compliance and regulatory costs are preventing the decrease of the cost of remittances as companies increase their spending in these areas. Bank Discontinuance are hurting competition, easing the pressure to the major MTOs to lower prices.
At the same time that the G20 made announcements that the group would continue insisitng on the lowering of remittance costs. Interestingly enough some of its more vocal members are imposing taxes on remittances, such as India. Other countries are taxing remittances too while the US Congress is planning to discuss a new law to require a fee on remittances for customers that cannot prove that they are in the US legally using the funds collected to enhance US border security, all a by-product of US politics over migration. UK politicians are now denouncing “rip-off remittance fees” with the signing of petitions to “allow proper competition” and “boost tech entrepreneurship” to lower costs (http://ow.ly/Gg4Ga). It is important that I mention that competition in pricing has indeed hurt the performance of the two major MTOs (see #8)
4. Telcos on the move. With still major regulatory and technological hurdles to overcome and many partnerships and cost structures to be agreed upon, mobile wallets to be tested, Telcos are moving ahead with money transfers.
Telcos on the move. The mobile penetrations rates in the developing world, and the success of MNOs providing money transfer services in a number of markets, are challenging banks and MTOs. In October, this issue prompted me to publish a document entitled Are Telcos, Money Transfer Companies (MTOs) and Banks on a collision course over remittances? which was discussed at IMTC WORLD 2014 in Miami Beach and you can download it here: http://bit.ly/1r1psE8 if you haven’t already done so. There are still major regulatory and technological hurdles to be overcome and many partnerships and cost structures to be agreed upon, as well as mobile wallets to be tested and fully utilized by customers. The fact that Telcos are moving ahead into money transfers, is not only an African phenomenon spearheaded by the success of M-Pesa. Globe’s GCASH Mobile Wallet in the Phillippines is now 10 years old. There are other factors that give us clues into this trend. The hiring of an ex-SVP at Western Union to be the Global Head of Remiitances and Mobile Financial Services for Millicon-Tigo is a sign that Telcos are being serious (http://linkd.in/1xa7bZH). The purchase of Homesend by MasterCard, as I mention in the document, is also a sign of things to come. As payments expert Karen Webster CEO of Market Platform Dynamics says in her analysis of 2015: “Mobile operators may find themselves traveling different roads depending upon what part of the world they happen to be in. In emerging countries, the road for mobile operators could be a little more scenic and a little less friction filled. […] in those countries, just about every bank-centric mobile scheme has fizzled. […] The road is quite different in developed countries where the carriers are facing highly developed payments and financial services” (http://bit.ly/1GTMWAA). This is why these developments have been successful in receiving markets, where customers have seen the choice of receiving funds in their phone and then collecting cash or using funds in the domestic mobile payments ecosystem. Mobile Remittances in the sending countries are also on the rise but whether Telcos can lead this segment in the developed world is another thing. Tier 2 & 3 Telcos already serve millions of migrants in the developed world with cheap long distance and top-up services. Partnering with MTOs is, in my opinion, their best bet, although, some of them are trying to develop their own remittance operations. (See #6)
5. Online Remittances are disrupting the traditional agent-based ecosystem as more clients look for these alternatives and every major MTO in the world increases its online channel developments. Are we finally seeing the shift?
Online Remittances are disrupting the traditional agent-based ecosystem. The actual percentage of online money transfer use worldwide is quite debatable but it is certainly growing at a rapid pace. Of the sample surveyed by the Remittance Prices Worldwide (RPW) database of the World Bank Payment Systems Development Group, as stated in the October Brief, online remittance account 23%. The ways of paying for a transaction (bank accounts, bank wires, credit and debit cards), requires a more technically savy and financially included customer, but most companies report a fast uptake by Indians, Filipinos, Colombians, Vietnamese; even Mexicans in the US are being atracted to online channels. Fraud is still a major issue and new and sophisticated systems are being implemented, as we have seen in the recent IMTC Trade Fairs and other events, such as Money2020. Every major MTO in the world is increasing its spending in online channel developments and online marketing to increase its brand exposure in the digital world. I must say that some MTOs do not feel that their agent-based business models are being affected just yet. Prof Arun Sharma, in his IMTC USA 2014 presentation (http://bit.ly/13qd4En), sees the market as a two-track system where online and agent-based channels are running in separate tracks. These agent-based MTOs are being confonted everyday by the difficulties of developing an online business model that requires a different mentality to effectively succeed. Add-on financial and communication products are being offered alongside online remittances and this trend will gain steam with new innovative products as companies expand their offerings.
6. Mobile Remittances on the rise with every online money transfer provider hastily rolling out their mobile solutions with a good response from new and existing clients while mobile-only service providers get funding and forge ahead.
Mobile Remittances – money sending mobile platforms – are seen by MTOs as the next step after succesful implementation of an online money transfer platform. Such has been the case of US online MTO XOOM, which started offering its mobile solution recently and has seen a strong uptake in 2014 with more transactions now coming from phones than desktops. UK MTO WorldRemit announced in November the rollout of its new mobile App for Android devices with its IOS version to be available shortly after. It is interesting that 82% of the remittances of this online MTO to Kenya are received on M-Pesa Mobile Money, while 60% of all transfers to Zimbabwe are sent to EcoCash Mobile Money. The use of mobile phones to send international remittances has also been achieved in Africa by providers expanding their domestic money transfer services across borders. These Operator-to-third-party, Intra-operator and Inter-operator models are trending as Mpho Moyo from Analysis Mason explans here: http://bit.ly/1ANCp6z. Mobile-only service providers in the developed world are relatively new and relatively few, and US MTO Remitly is leading the pack with a low-cost service to the Philippines, which is expanding to other countries after a succesful presence at IMTC (http://bit.ly/1Cmvt45). As I mention in #4, Telcos in the developed world will have a much more difficult road ahead in these markets but some might be able to become, as partners of MTOs, significant players in the industry.
7. US Regulator moves forward and fines the first Compliance Officer of a major Money Transfer Operator (MTO) sending chills throughout the industry. Some say US Regulators needed a “sacrificial lamb” and quite a few have deemed it unfair.
In the beginning of the year, news leaked that FinCEN in the US had notified Thomas Haider, former Chief Compliance Officer of MoneyGram, that he could be fined up to $5 million for compliance failures that resulted in the 2012 money-laundering fraud scheme where the company agreed to forfeit $100 million and entered into a deferred prosecution agreement. This promped me to write a blog (see here: http://bit.ly/1oxjpD0) and develop a panel at IMTC USA 2014 in San Diego, moderated by Connie Fenchel with panelists Christine Carnavos, Jean-Jacques (J) Cabou and Michael Volklov , where the issue was discussed at length. And on December 18th it was announced that FinCEN had assessed a $1 Million Civil Penalty and was seeking to bar him from the Financial Industry (http://1.usa.gov/1xahywP). FinCEN Director Jennifer Shasky Calvery, with her harsh words, has sent a strong message throughout the financial industry: “Mr. Haider’s failures are an affront to his peers and to his profession. With his willful violations, he created an environment where fraud and money laundering thrived and dirty money rampaged through the very system he was charged with protecting. His inaction led to personal savings lost and dreams ruined for thousands of victims.” Some colleagues have told me that US Regulators have been looking for a “sacrificial lamb” and they finally had found one. Christine Carnavos wrote in May: “Regulators need to ask themselves – will punishing compliance officers help build an effective regulatory structure – and how – or will it have a “chilling effect” on the very result desired? Is it fair to punish 5-10 years after the alleged violations or is it an abuse of government power? And the MSB industry should ask itself -how are we equipped to address the risks of individual liability for our compliance officers, management and Board of Directors?”
8. The performance of Public Traded Money Transfer Companies has been a concern of many analysts that watch the payment industry closely. It hasn’t been a good year for the two major MTOs due to competition for market share & lower pricing.
The performance of Public Traded Money Transfer Companies in 2014, has been a concern of many analysts that watch the payment industry closely. It hasn’t been a good year for the two major MTOs, Western Union and MoneyGram. Industry analyst Phil Olson, Director at William Blair Technology Group, did an excelent presentation of the Money Remittance Industry Overview at IMTC WORLD in Miami Beach in October: (http://bit.ly/1E7IUXB). Phil’s detailed analysis went from the factors that can impact valuation, the regulation and compliance burdens to how high, consistent growth in revenue and transaction count is driving valuation figures. If we look at Stock Price Performance, which doesn’t give us the whole picture, we see that Western Union began 2014 with a price of $16.92, dipping to $15.67 in October to rebound in the last few days of 2014. In the case of MoneyGram, it began 2014 with a price of $20.16 and has gone to the floor in the last few days of 2014, to less than $9. Xoom, which began it’s year at $27.03 went down to $14 in November rebounding to around $18 by year’s end. Let’s remember that it’s IPO offering price was $16 but close out the trading day at $25.49 on 2/15/2013. Xoom’s November launching of Bill Payment services (acheived through the acquisition of Blue Kite on February 2014) will contribute to Xoom’s continued growth. In the case of the fourth Public Traded Money Transfer Company, Ria Envia, we can only see the data for its parent company Euronet Worldwide Inc (EEFT) which has had a very good year. The consolidation of its Indian Remittance service in 2014, the partnership with Walmart to provide the platform behind domestic Walmart-to-Walmart money transfer service, announced in April 2014 and the acquisition of HiFX, an UK online-based international money transfer specialist, in March 2014, will certainly contribute to an interesting 2015 for Ria.
9. Is Remittances the best driver for financial inclusion? As the concept of inclusion changes, as some banks develop agent-based networks and as mobile access to financial services widens, will remittances take a driver seat?
I have long insisted that Remittances can be the best driver for financial inclusion as it touches the lives of the sending migrant worker and also his family back home. But market data and a large number of succesful institutional experiences do not back my belief. Because doing both, Financial inclusion and International Money Transfers are not easy tasks. In the receiving end, banks are very active but few have been able to do a great job of getting clients to use other services, maintain accounts and keep money in the bank. Very few Microfinance Institutions have been succesful entering the remittance market by themselves. Partnerships with MTOs have worked slightly better. But as the concept of inclusion changes, as inclusion tools & practices are developed, as banks develop agent-based networks, as mobile access to financial services widens and as online remittances expand, will remittances take a driver seat in the financial inclusion of migrants and their families? In India and elsewhere, remittances have emerged as the most common anchor product offered by alternate banking channels, (banking channels used by the unbanked such as money transfer agents), as Ritesh Dhawan and Sakshi Chadha from Microsave have demonstrated very recently with the work of First Rand Bank (FRB) in Mumbai (http://bit.ly/13vVcrJ).
In the sending side, the offering of other financial products to remittance senders has been complex. The cash-sending model works well. Banks that have moved in to provide remittance sending services have mostly dropped out of the market. In the US, Wells Fargo perseveres. In other sending markets banks can be counted in one hand. Traditional MTOs are moving to provide online remittances (see # 5) and new services are being tested (mobile remittances and add-on financial services such as gift cards and bill payment). But these services require users to access these products using debit cards, prepaid cards or checking accounts so the early adopters have been, understandably, the financial included. And as Nancy Castillo, Manager at U.S Financial Diaries for the Center for Financial Services Innovation (CFSI) wrote to me recently: “Is this new generation of remittance products trends driving financial inclusion in the US by nudging potential customers to obtain banking products as a prerequisite for access to these services, or do these new products instead leave the most vulnerable and disenfranchised remittance senders – those who prefer to transact in cash – behind?”. I am looking forward to see how this pans out. I will argue that both trends are basically true and I will add that there will always be cash remittances services offered; they are not going anywhere soon. They might get costlier than online/mobile channels though.
10. Is Bitcoin as a remittance tool ready to pick up steam? We have seen a year full of regulatory discussions on cryptocurrencies, growth of the blockchain ecosystem and the emerging of firms devoted to Bitcoin & Remittances.
Is Bitcoin as a remittance tool ready to pick up steam? We have seen a year full of regulatory and compliance discussions on cryptocurrencies, growth of the blockchain ecosystem and the emergence of the first firms devoted to Bitcoin & Remittances. And it is The Philippines where this reality might have a chance of first succeeding with Rebit.ph, http://bit.ly/1H05boi, a service of Satoshi Citadel Industries, a holding company for Bitcoin-related ventures. Another Philippine-based firm is Ron Hose’s coins.ph, http://bit.ly/1zQJgio, which besides its mobile wallet is promoting bitcoin remittances to the country. And of course, Kenya is also in the forefront, with Bitpesa, http://bit.ly/1t8BmcM. CEO Elizabeth Rossiello said “the new service is aiming to gain 1% of Kenya’s remittance market within a year of launching in March 2014” [6,500 transactions per month].
Even if ATMs and Kiosks have not been successful in the traditional remittance market, maybe bitcoin remittances might reach a nice volume through the deployment of Bitcoin ATMs around the world. With close to 500 ATMs now deployed, US & Canada lead the pack followed by Australia and The Netherlands. Of this deployments, Singapore’s Numoni, http://bit.ly/1viHoHN, founded two years ago by former Visa International executive Norma Sit, is one of the most interesting. He launched a mobile phone-based e-wallet service, in 2014, that allows migrant workers to remit money and handle other transactionssuch as airtime. The company, with ATM deployments in Singapore and Malaysia, is targeting the migrant and unbanked populations.
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