Global Money Transfer Monthly

Mobile Money Transfer

Mobile money transfer is still in nascent stage in terms of its market penetration and market value for money transfer. However, it has large scope to grow, with the presence of more than 3 billion global mobile subscribers (Source: The EDC-GSMA Mobile Financial Services Survey 2007). In 2006, revenue generated by mobile money transfer market was about $10 million (Source: ABI Research). With market penetration of about 39.3% in China and about 27% in India, there exists abundant growth opportunities in these countries. The subscriber connections have increased 59.7% (YOY) in India and 18.3% (YOY) in China in 2007. The Asia pacific region is the fastest growing region, with growth of about 42% in subscriber connections in 2Q 2008.

Mobile money transfer makes banking transactions possible at anytime and from any place, this proves advantageous. Global players such as Obopay, Verizon Wireless and Vodafone and regional players such as Safaricom, Globe Telecom and Smart are making heavy investments, with a notion of grabbing the existing opportunities. Web companies such as PayPal, Amazon, and Google have focused attention on offering mobile payments. The success of Smart Padala and GCash service offerings in the Philippines and Safaricom's M-PESA in Kenya, are underpinned by mobile remittance, a service which addresses the needs of the impoverished "unbanked" communities in many developing countries. M-PESA, within a span of 11 months in service (by March 2008), was successful in attracting more than 1.6 million subscribers. It handled transactions worth KES.9.3 billion ($148 million).

CEO of GSMA, Rob Conway said, “Mobile networks now cover more than 80% of the world's population and 3 billion people have a mobile phone, creating an unprecedented opportunity to extend the benefits of financial services to the majority of the world's families for the first time. Mobile money transfers are a key driver in the development of a potentially vast market for financial services delivered via the mobile phone.”

Determinants of Growth:

Low number of global ATMs: Mobile phones outnumber the ATMs in the world, their ratio is roughly estimated to be 1:2000. Thus, mobile network operators have a greater reach than that of money transfer providers and banks. Thus, mobile phones have the potential to become one of the most preferred ways of sending and receiving remittances.

Limited access to banking facilities: Most developing countries of African and Asian continents have limited access to banking facilities and other financial services. The number of people having a bank account or a credit card is only a small portion of the total population, while the percentage of people having access to mobile phone is quite large.

High growth in emerging countries: Emerging countries such as China and India are expected to provide large scope to the growth of mobile money transfer industry. In India, about 260 million are estimated to possess mobile phones, this is expected to increase to a minimum of one-mobile-per-house by next decade.

A survey conducted by Invest India Market Solutions states that two out of three shopkeepers and self-employed farmers have a bank account. On an average, a farmer's annual income in India is $1,400, hence it becomes very expensive to set up new branches and provide banking services to them.

The cost setting up bank branch: Setting up branches for a bank and high banking transaction costs are the major obstacles for money transfer through banks, particularly in remote areas of developing countries. According to Tameer Microfinance Bank of Pakistan, the cost of setting a branch in a remote town of Karachi was estimated to be about $42,000, while operating expenses is estimated to be $28,000. A conventional banking transaction through mobile phones for a bank in Philippines costs about $0.50, compared to $2.50 when routed through a branch. The second largest telecom company of Philippines, Globe Telecom has about 1.3 million customers for its mobile-payment and remittance service.

Increased investment by mobile operators: Global mobile operators are making heavy investments to increase the number of users, especially in the emerging markets. According to GSM Association, mobile operators have spent more than $234 billion in building GSM and 3GSM (W-CDMA and HSPA) networks since 2002.

Factors determining the choice of service provider:

Various factors determining the choice of the mobile money service provider. According to a survey done by the Department for International Development (DFID), factor s influencing the choice of providers depend upon access, security and cost.

Even in developed countries, it is observed that a considerable proportion of the population are unbanked or underbanked, i.e. people who only use basic banking functions. This is mainly due to the cash and cheque-based economy. The Center for Financial Services Innovation (CSFI) estimates that in the USA, total households falling in the unbanked or underbanked category amount to 40 million (106 million individuals), which is approximately 30% of the entire population. Mobile money transfers can thus help extend the reach of banking services to people of both developed and developing countries.

Global Remittance Market: A key driver of mobile money transfer

The global remittance market is the major growth driver for mobile money transfer. The World Bank estimates current market remittance market to be about $318 billion, on adding contribution from informal transactions, it increases to about $600 billion. The World Bank expects this market to grow to $72 trillion by the end of 2030.

The growth in remittances is mainly driven by the rise in migrants, who regularly send money to their families at home. Western Union estimates global migration population to be 280 million by 2050. This growth would be driven by countries such as China, India, Mexico and Philippines.

According to World Bank, in 2007, migrant workers from developing countries sent home $240 billion, compared to $221 billion in 2006. The three major remittance receiving countries in 2007, as reported by the World Bank, were India ($27 billion), China ($25.7 billion) and Mexico ($25 billion).

In many developing countries, particularly Asian countries, the money received from remittances is a major source of national income. For example in Philippines, remittance contributes immensely to the country's GDP. Income from remittances is sometimes more than income from Foreign Direct Investment and International Aid donations in most recipient countries.

Philippines M-transfer market

According to United States Agency of International Development and Department for International Development, Philippines, the third largest recipient of remittances in Asia, receives total remittances worth $14.4 billion (in 2007). The remittances received contribute to approximately 10% of the country's GDP. Most of the Philippine population continues to be unbanked/underbanked, but has access to mobile services. Smart Communications, Philippines' leading mobile operator, with the aim to capitalise on this opportunity started offering a short messaging system (SMS) technology based remittance service, Smart Padala. This service was very successful and had generated 45,000 transactions in its first month of operation. A similar service was also launched by the second biggest telecom operator, Globe Telecom under the brand 'G-Cash', in Philippines. These services have been successful, mainly because sending remittances through mobile has been quick, less costly and more secure than other methods.

Opportunities:

The mobile money transfer industry has huge potential to tap the underbanked population and migrant workers to make remittances, using their mobile phones.

According to ABI Research, the mobile fund transfer market will offer approximately $8 billion revenue opportunity for mobile operators by 2012, which is more than $10 million in 2006.

According to a new research by Edgar Dunn, a specialist mobile banking and payments consultancy firm, in partnership with GSMA, the global trade association for the mobile industry, by 2015, with the convergence of mobile communications and financial services more than 1.4 billion people worldwide would use mobile wallets from current usage of 10 million. This software would enable consumers to manage their money using their mobile phone including making and receiving mobile payments.

According to Juniper Research, the global annual gross transaction value (including the remittance itself) will grow more than 10 times between 2009 and 2013 and exceed $5 billion by 2013. The top three regions (West Europe, Africa, and Middle East and Far East & China) will represent more than 60% of the global mobile money transfer gross transaction value by 2013.

Challenges

Replace use of cash:

Mobile phones are not capable of converting electronic value to cash or vice versa. They can only be useful in exchange of payments. Hence, a mobile payment solution has to be linked to banks, ATMs, or other third party agents. Mobile payment solutions are more likely to be adopted if it offers the flexibility to convert electronic value to cash or vice versa.

Regulatory requirements:

Deposit taking:

Central banks are mainly concerned about capital adequacy norms and other reporting requirements that have to be followed by mobile operators who mange deposits on behalf of others. Hence solutions that include creation of wallet or pseudo bank account or in situations where there is delay in clearing, proper clearance from the regulator is necessary.

Know your customer (KYC):

The cost of starting a new bank account by low income individuals is relatively high. Also, the implementation of KYC norms can discourage the purpose of reaching out to people belonging to this group. Hence, it is necessary to consider the characteristics of mobile phones, and the purpose of providing the service. The central bank will therefore have to amend the banking guidelines to comply with the registration process and adoption of mobile banking solutions.

Dispute management:

The current banking system has clearly definedli ability and dispute management systems. These systems have to be modified to increase their scope to include t ransact ions conducted through mobile. These changes must comply with the present laws, and association between banks and clients. Hence, it is very important to have a system to handle disputes accurately.

Clearing and settlement:

Every country has created laws for clearing and settling dealings between banks. Mobile banking solutions have to comply with these rules and must also carefully consider the legal outcomes of aggregate settlement and/or net settlement designs. It might also be important to become a member an Automated Clearing House (ACH).

The regulator of Philippines is making amendments to banking rules in advance to facilitate innovation, and is also closely working with banks and operators offering mobile banking solutions. This has helped the operators to gain more flexibility and enabled the regulator to become familiar with the problems faced by the service providers. This would enable in developing appropriate regulations that prevent frauds and at the same time provide impetus to growth of mobile banking solutions.

Outlook

The short term outlook is very positive. The opportunities can be availed by not just mobile operators but also by internet service providers, banks and other institutions. Revenue cannot only be generated by providing mobile content and remote payment services but also by offering services such as pre-paid top-up, electronic bill payment, mobile point-of-sale (mPOS), international fund transfer and making online payments. Bharti Airtel Chairman and Managing Director, Sunil Mittal said , “Remittances are playing a vital role in the social and economic development of India and many other developing countries. This initiative (mobile money transfer service) will bring down the cost of lower-value and high f requency mobi le remi t tances considerably and also enable smaller amounts to be transferred in a fast and secure fashion, thereby benefiting millions of people in the developing world.”

With increased adoption of mobile payment services, mobile remote payment technology and near field communication (NFC) proximity technology, these technologies are likely to be used in complementary. For example, mobile ticketing, wherein customers can buy tickets through mobile phone and later swipe their handsets over an NFC-enabled gate.

The long term future of mobile payments is hinged on NFC contactless technology and the alliance between banks and mobile. The future for NFC contactless technology is good, as it can be a better alternative to cash and card payment markets. This however can only be attained if there is robust alliance between mobile operators, banks and retailers. In the absence of an alliance, it can lead to growth of competing solutions and technologies, which could hamper acceptance of mobile payment solutions. According to a report by Atos Origin on 'Breakthroughs in the European Mobile Payments Market', the prospects of mobile payments are dependent on the cooperation of mobile operators and banks. Combined steps taken by mobile operators and banks would enable to offer better solutions at low prices.