Over the sea and far away…

There was an interesting piece in the Economist last week about remittances. Exciting, right? Anyway, it’s an important enough topic and (because of this importance) relevant, in my opinion. As the article states, the World Bank estimates that in the past year alone, cross-border remittances totaled to $483 billion. Because this is mostly made of small amounts sent by migrants to their families at home, banks have been reluctant to participate, albeit an ever-growing trend, mainly because existing interbank transfer systems were made to move money in large sums. It’s surprising to think that the potential 10% charge by money-transfer agents, not to mention the hassle and long lines inherent in the process with some, is still preferable to the even more expensive and inconvenient service offered by banks (according to the article, “a World Bank study in 2009 found that banks charged an average of 12% for small remittances, whereas money-transfer agents such as Western Union averaged 9%.”)

The main actors in the international remittance market are Western Union – which handles almost $1 out of every $5 that is wired – and MoneyGram. The “mouth-watering margins” these companies make are attributed, at least in part, to the industry’s far-from-transparent pricing structure. However, new startups are entering the market, thereby challenging certain structured business models. Some of these companies highlighted in the article include:

  • Xoom – an online international money transfer service offering a less expensive way to send money to family and friends from the Xoom website
  • CurrencyFair – a peer-to-peer marketplace where users are able to trade currencies without the exorbitant, and often opaque fees of other currency trading platforms
  • M-Via – allows Americans to top up their phones at local shops, such as 7-Eleven, and send money to other members
  • Currency Cloud – an automated foreign exchange system which helps businesses send and receive money in different currencies

(Side note: I personally tried out CurrencyFair and, although I just played around, I can attest to its intuitive interface and simple, yet streamlined, design – preferable for your average internet user and currency-exchanging novice, such as yours truly. I will definitely play around with that a bit more…)

These companies still face natural challenges of scale – both financially and in terms of agents who handle the entry and exit of the asset that matters most – cash – compared with their bigger-name competitors. They also face a handicap in regard to the perception of safety which is associated with brand familiarity, not to mention the very real issue of fraud detection which some newer players can be unprepared for.

It’s encouraging to read not only that more people are creating new ways to send and receive money which enhances options and lowers prices for those who use it, and often, need it most, but also that communities outside the ICT arena (like the Economist) are paying it more, warranted attention.

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Emerging Markets Mobile Banking Runs Ahead Of Google Wallet – By Tom Groenfeldt | Forbes

Straightforward article offering a basic, but thorough, explanation as to why mobile phones have changed banking much faster in emerging markets than in developed countries – also covering the distinction between mobile banking and mobile money

‘Users can do anything [through their phones] that you and I would be used to via normal Internet banking,’ said [Diarmuid] Mallon. ‘The two biggest uses are person to person payment and bill pay. Often in these countries a large part of the population works away from home and has no way to send money back to the family. In a lot of countries, they give cash to someone they trust. Person to person payment is a big changer. The other is bill pay — if you aren’t banked, you can’t cut a check to pay for your electricity. The only way to pay is to go to the office of the electric company and queue up, spending most of your day there to pay. Moving that into a mobile channel is a big change.’

Emerging Markets Mobile Banking Runs Ahead Of Google Wallet – By Tom Groenfeldt | Forbes

Instituto Palmas’s Mobile Payment Partnership with Redecard, MasterCard, Vivo, and Caixa Econômica

Now to make the connection between my beloved Instituto Palmas and mobile payments!
In December of last year (2011), Instituto Palmas commenced an important partnership along with Redecard, MasterCard, Vivo, & Caixa Econômica to allow for the purchase and sale via mobile phone of any product by registered vendors in the neighborhood (in Conjunto Palmeiras, Fortaleza, Brazil – see my previous post for more info about Instituto Palmas).
Taking a quote from the Institute about the partnership:
It is a local consumption strategy on the way to become a huge technological innovation for community development. The customer does not pay anything to the cell phone operator to make the payment. Banco Palmas coordinates and runs the entire process.
The program is still in its beginning months, so I’m excited to see how this introduction to mobile payments catches on in Conjunto Palmeiras going forward!

Visa to provide new payment mechanisms to Egypt’s unbanked, but… now?

I recently read The Daily News Egypt’s article about Visa’s new program to provide digital payment capabilities via pre-paid card, computer, and mobile devices to the large unbanked population in Egypt.

It’s exciting to see major financial service corporations leveraging their names (essentially their reputations), capital, and international influence to create impact or, at the very least, substantial headway into expanding financial access to the global unbanked and underbanked populations. Frankly, though, coverage of these partnerships and programs can seem a bit boiler plate (speaking for myself, of course). The pattern seems to follow “so & so multinational corporation partnered with such & such telco to start helping bring unbanked citizens of nation ABC into the financial system.” Obviously this is a gross simplification but, point being, there does not seem to be enough depth offered as to why

I would love to know more about why Egypt and why now, for example. The country is emerging from the aftermath of huge political and national changes which have affected every aspect of citizens’ lives, most importantly perhaps being the economy.

Egypt’s growth from GDP has contracted to around 1% in the last year. And according to this week’s article in the Economist, Egyptians are worried about the financial system and are depositing less money than ever in their banks. Unemployment is soaring, not only in Egypt, but in the entire region post-Arab Spring. Linked are crippling blows to two major sources of capital flow: tourism and foreign direct investment. The article even goes on to deem Egypt “the worst off” in relation to the fiscal crises of the Arab Spring economies.

Egypt does have a large domestic consumer market which is an important factor in deciding to launch a mobile payment campaign. But to not mention these intricacies or realities at all in discussion is stunning. And I am not only speaking of Egypt’s situation and Visa’s plans there. For example, for all the talk out there about Nigeria’s mobile payment platform headlining news, I see so few (if any) articles, posts, or discussions about the recent strikes that halted the country and turned it upside down. Does that not have any effect on consumers and their trust in the financial system, official institutions, or each other?

These are just two examples. I, personally, would like to know more behind the decisions being made and the thought processes of leaders in these mobile payment and banking discussions. I know for a fact that the people at Visa are taking into consideration the condition of the country; I would like to hear more about what they are thinking in particular. For me, it all seems a bit… missing, as if some realities are being ignored, or simply not considered. Maybe I’m losing my mind. Or maybe I need to re-arrange my RSS feeds. But, for me, it would just be nice if there were more complex debates among ICT4D professionals as to the feasibility of individual technological and financial access endeavors at certain points in time. It’s ok to hold on the implementation of a new product or program if social or economic conditions are not “ripe.” It seems as though many investors like to ignore this logic when possible.

It’s a little difficult to see how such a financial and infrastructure investment could be considered categorically “great!” today when the Egyptian people’s main goal, for the most part, is getting food on the table tonight.

Egypt's Economy Is Near Paralysis - Khalil Hamra/Associated Press (via the New York Times)