Many people from Asia, Latin America, and Africa have been coming to Europe, the Middle East oil-rich countries, and North America in search of work and a better life. These people make up a large section of the blue collared workforce of these countries. They take up jobs that locals are reluctant to do.

These economic migrants regularly remit small sums of money back home to their countries of origin. These remittances, in most cases, are the only source of income for families back home. Most remittance is in the form of cash. The sums being remitted are small – rarely above $300.

Remittances are generally routed through agents appointed by Money Service Businesses (MSBs), also called Money Transfer Organizations (MTOs). The largest and most well-known MTOs, include Western Union, Money Gram, Ria (Euronet), etc. There are large numbers of smaller MSBs too spread across the globe. Together, MSBs have built a vast network of agents collecting and delivering money to all corners of the world over time.

To get a perspective of the business, its current State, and its future, I got around to having a conversation with Francisco Sanchez-Apellaniz, the Founder and CEO of a small European MTO – MoneyTrans. The company is headquartered in Belgium. Francisco, along with his brother, privately owns this remittance business.

I was curious to know from Francisco if the extended economic crisis affecting Europe has impacted the remittance business. What is the impact of the rising flood of immigrants into Europe on MTO business was another troubling question?

Francisco’s clients are largely migrant workers from Africa and, to some extent, the Philippines. He has been operating in this market for over seventeen years. His take on the economy and geopolitical impact would be grounded in reality. Francisco noted that his business had remained largely unaffected by either of these crises.

The big banks, on the other hand, have been impacted more. Governments in Europe and the US have had to bail out many of the large banks. Even after eight years of unconventional monetary policy is continuing, lending is slow, and unemployment levels continue to be high.

In this scenario, big banks have become risk-averse. Their support for MTOs has diminished hugely. This is affecting the remittance and money transfer business. Money laundering by evil people and terrorist fund flow has resulted in stricter regulation on the transfer of funds. This, too, has impacted the MTO business.

Banks have been reluctant to service customers like migrant workers who deal in small sums of money. The banks find the cost of servicing such people too high and find the business unremunerative. This has negatively impacted not just small remittance services but checked the growth of financial inclusion too. The ‘little guy’ finds it more and more difficult to access financial services.

MTOs have opted for consolidation, acquisition, and deployment of efficiency and productivity-enhancing technology to stay in business and continue to service their customers. However, the margins of MTOs are razor thin, and their ability to induct expensive cutting-edge technology is limited. This is affecting growth and service quality.

In this scenario, the obligation to serve the poor and the underserved falls on the State. To illustrate some of the interventions being done, I looked at the efforts being undertaken by India in financial inclusion. India is the biggest recipient of overseas remittances in the world. The largest numbers of poor too live in India.

State backing and top-down targets to provide banking services to the unbanked had yielded limited success, in India, until 2014. Three initiatives to push financial inclusion have since been undertaken in India. These have had a transformative impact on financial inclusion.

Every Indian has been provided with a secure electronic identity. Biometric technology has been used to prevent the creation of duplicate identities. This project, called Aadhar, has already covered ninety-five percent of Indians. (1.25 billion people) Secure digital identity is one of the pillars on which safe, secure, and traceable financial services can operate.

Investments have been made to build a unified payment gateway and to connect the entire country digitally. It will now be possible to make payments and transfers seamlessly across platforms. The platform uses cutting-edge authentication technology, enabling conducting of secure digital transactions. The platform can be accessed through mobile applications.

Many small banks and payment banks have been given licenses to service the needs of the unbanked and the small investor. Among the licensees are telecom providers, post office organizations, and microfinance institutions. The network, comfort with technology, and understanding of the need of the poor were some criteria that formed the basis of the allocation of licenses. And finally, zero-balance bank accounts for nearly the entire hitherto unbanked population in the country have been opened.

As they start operating, the new banks will now be forced to court the poor aggressively. The regulatory structures are such that these institutions can only target this segment of society. This competition and the technology backbone can potentially open interesting opportunities for overseas money transfer organizations like MoneyTrans.

Banks will vie for business henceforth. The ‘Little Guy’ will no longer be shunned but will be viewed as a valued client. Remittance collections amounts are substantial. They would be a low-hanging fruit that the new banks would want to capture.

This sets the stage for strategic tie-ups between the payment and small banks in India and global MTOs. This, to my mind, is the birth of global Financial Inclusion 2.0. Moneytrans, Western Union, Ria, and others, please note. Change is in the air.



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Sudhirahluwalia, Inc