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One of the most profound impacts of globalization on individual consumers has been the explosive growth of international remittances sent by migrant workers to family and friends abroad. In 2006, $300 billion worth of formal remittances–those tracked by central banks of various governments–was sent around the world. Estimates of informal remittances are about half that amount, adding up to roughly $450 billion in cross-border, consumer-to-consumer transactions.
Largely dominated by such money-transfer operators as Western Union, MoneyGram and Ria, the sheer size of the remittance market has attracted an ever-growing number of new players, replete with new technologies promising to make remittances cheaper, safer and more reliable. New methods vying to challenge the dominance of traditional money-transfer operators include mobile phone-based systems; card-to-card transfers; international automated clearinghouse systems; remittances through the Society for Worldwide Interbank Financial Telecommunications, or SWIFT; self-service kiosks; cross-border bill pay; and mobile prepaid funds conversion.
Of those technologies, only mobile account-based services are truly disruptive. With more than 3 billion subscribers worldwide, mobile phones and their technology provide remittance recipients with an "untethered" electronic-payments infrastructure where none historically has existed.
With this infrastructure in place, remittance recipients not only receive funds at anytime and anyplace, they can conduct daily payment transactions, such as receiving cash from agents and making bill pay, person-to-person, mobile-phone account top-ups and proximity payments, in a nearly similar manner. Importantly, the use of mobile-based accounts to house remittances constitutes a "gateway" product to the formal financial sector, opening the possibility for savings, interest and microcredit.
Throw in a pricing structure potentially lower than that of the money-transfer operators' incumbent cash-to-cash, agent-heavy model, and mobile remittances become even more attractive. None of the other new remittance systems can match the mobile value proposition.
Mobile technology is popular with consumers but, ironically, mobile-based remittances will not topple the major money-transfer operators because the operators (and some multinational banks) play a vital network role connecting the remittance originating and recipient countries.
In other words, mobile does not trump the network. The two play discrete roles and do not compete. Recognizing this, major operators such as Western Union already have begun to integrate themselves into mobile-phone networks and are very well positioned to benefit from the rise of mobile remittances.
So where does mobile's disruptive power lie? Given that so many consumers have mobile phones, the use of mobile-based accounts and "m-wallets" for electronic transactions greatly reduces the need for consumers to receive cash at money-transfer operator agent locations.
Rather, recipients can access their remitted funds via mobile account-based bill pay, person-to-person transactions, prepaid cards and so on. Should recipients need to cash out a portion of their remittances, they increasingly will have the option of doing so at mobile-network operator agent locations, which vastly outnumber money-transfer operator agent locations.
No doubt, some money-transfer operators will lose out. Those that are smaller and regional only, such as those devoted to limited corridors between only two countries, and those that do not have the technological sophistication, market share or brand equity sought by mobile-network operators will be shut out of the mobile-remittance space.
If large money-transfer operators, along with multinational banks that offer remittance platforms, recognize mobile as complementary instead of as a threatening technology, they likely will continue to dominate. The large money-transfer operators' brand awareness, trust and good will from consumers are unassailable and often unable to be replicated. Adoption of cutting-edge technology would help keep any would-be disruptors at bay. CP
(Red Gillen is a senior analyst at Celent, a Boston-based financial-services
and technology consulting company. He can be reached at rgillen@celent.com.)
