Money via the airwaves: mobile remittance connects with the world

21 November 2011

By Hazem Mulhim,

The airwaves as a wallet. A relatively new technology called ‘mobile remittance’ offers just that: the convenience of sending money from anywhere in the world, at any time, via cellular networks. Mobile remittance is a part of the mobile payments movement that has swept through many parts of Asia and Europe. The combined mobile payments market segments are expected to be worth more than USD 600 billion globally by 2013 (1).

Going mainstream

According to a World Bank report, remittance flows to developing countries in 2010, or immediately after the global financial crisis, reached around USD 325 billion. Remittances are expected to hit USD 404 billion by 2013, sustaining a lower but more sustainable growth rate of 7-8 per cent annually from 2011-13.

These generate around USD 400 billion in remittances and drive mobile money transfer revenues beyond USD 15 billion per year. Mobile remittances continue to expand to date, driven by the steady growth in expatriate financial transactions, high cell phone ownership rates, and the demand for alternatives to paper-based transactions.

Mobile remittance is especially gaining traction in migrant-heavy regions where millions of expatriate workers need convenient, accessible and swift channels to send over their hard-earned money to loved ones back home.

The mobile phone has become an essential communication device for migrants so why should it not be used to help them provide for their families? More so for those who do not regularly patronise banking institutions or want an exceptionally fast and yet highly reliable way of sending their hard-earned wages back home. The positive response to mobile remittance services is proving to be a sustainable rather than a short-term phenomenon and has become an exciting segment for the global payment solutions industry.

Why mobile remittance?

The remittance market has become a key focus of the banking industry due to its high revenue potential, scalability, and a very positive growth outlook for mobile money transfer. The number of mobile remittance patrons this year is expected to grow by almost 40 per cent over 2010 to reach 141.1 million, according to technology research and advisory firm Gartner (2).

Mobile remittance is gaining relevance because of its role as an economic catalyst; regardless of any economic uncertainty, the expatriate workforce will continue to send money back home. This in turn further stimulates world economic growth.

Moreover, mobile remittance enables people in rural areas and those without bank accounts to gain access to basic financial and money transfer services. There are several initiatives such as the Mobile Money for the unbanked, a programme partly supported by the Bill and Melinda Gates foundation, which are advocating the use of mobile phones to deliver financial services to people without access to banking facilities worldwide.

For telecom operators, mobile remittance allows them to maximise revenue potential by synergising inter-regional assets between sender and recipients. This segment offers significant growth potential in mobile commerce and financial inclusion.

Top models

The mobile ecosystem covers various participants whose collaboration is essential to the success of mobile money networks. These include the mobile network operators (MNOs), financial institutions, airtime agents, telecommunications retailers, regulators, and the consumers. There are many models of mobile remittance implementation as well.

In bank-led models, the financial institution controls the customer relationship and provides mobiles services as an add-on to existing offerings. In the mobile network operator–led models, the mobile network operator excludes the involvement of the financial institution
and thus solely handles delivery, clearing and settlement. Finally, in the partnership model, financial institutions, MNOs and third-party service providers collaborate on providing remittance services. The partners capitalise on their respective strengths in customer service, innovation and regulatory compliance to provide seamless and efficient remittances.

All-in-one approach

The partnership approach works very well as a mobile remittance model and enables cross-border person-to-person mobile-initiated payments. Those that make use of the SWIFT (Society for Worldwide Interbank Financial Telecommunication) messaging network are particularly well suited to handling the interconnections that must take place between MNOs, telecommunications hubs and banks. This addresses the security, interconnectivity, regulatory compliance and standardisation requirements of mobile remittances.

The growing popularity of the mobile platforms is indicative of a strong global demand for mobile remittance services that are reliable, fast, and of high quality. Mobile remittance offers a safer, more convenient and efficient mode of person-to-person financial transactions via a commodity everyone has easy access to: the trusty cellular phone. Innovators are hard at work developing mobile remittance services that suit the unique demographic, regulatory and infrastructure landscapes of the world’s remittances markets.

1. Mobile Payment: A journey through existing procedures and standardization initiatives", Stamatis Karnouskos, IEEE Communications Surveys & Tutorials, Vol. 6, No. 4, 4th Quarter 2004

2. Gartner Says Worldwide Mobile Payment Users to Reach 141 Million in 2011

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