May 21, 2015
For consumers who want to wire money to some far corner of the world, not much has changed since the days of the Old West. Trying to send a small amount of money from US to a relative in India or Mexico probably means queuing at a money-transfer agent, providing documents and other proof of identity and paying a hefty fee, probably reaching 10% (or more) of the value of the remittance. Similar hurdles and potential fees are observed on the receiving end. According to the World Bank the cross-border remittance market was worth total of $483 billion back in 2011. Majority of those were small amounts sent regularly by migrants to their families back home. As the number of migrants kept increasing, so did the market opportunity for remittances - about 8% annually in recent years.
It is easy to spot the significant opportunity for innovative disruption in this space. So far it has not been easy - most of the 'disruptors' tried to aggregate smaller transfers via established remittance channels OR utilize the power of peer-to-peer marketplaces and intelligent algorithms to optimize online bulk money transfers based on aggregated volumes between source and destination countries (i.e. remittance corridors), etc. Banks largely avoided the business; partly because of the costs associated with the existing interbank transfer systems, which were built to move money in big, rather than smaller chunks, partly because they did not have the necessary local agent network in the receiving countries. The recent Disruption In Remittance, Survival Of The Savvy article is an excellent overview of the current trends in the remittance area.
Can an alternative remittance solution emerge, which would be globally scalable, fully secure and ubiquitous, but not require expensive agent networks and reliance on the expensive interbank wire transfers? Can we try to utilize the existing global payment card network infrastructures? People around the world are already familiar with using payment cards. As already indicated, prepaid cards are clearly one way to approach remittances. On the other hand the concept of ProxyEMVPay cards might also be an interesting alternative for handling remittances, which may potentially be even more cost effective and convenient than using prepaid cards.
The reusable, pre-tokenized and ‘inactive’ ProxyEMVPay chip-cards (available as Visa, MasterCard or Amex branded) could be offered through local retailers in foreign countries, such as India, Mexico, etc., which are the traditional remittance destinations. Now, the potential remitter (who we assume already owns regular Visa, MasterCard or Amex credit/debit card or can get a prepaid card account for this purpose) can instruct the target remittance receiver, to obtain a ProxyEMVPay card (of a compatible brand), where they live. The remittance receiver must first register the ProxyEMVPay card online, by providing relevant personal data: remittance receiver’s name, address, email, mobile phone, etc. The provided mobile phone number/ email address is used to receive a unique registration code, which is required to finalize registration of the card.
Once the ProxyEMVPay card is properly registered, the ‘remitter’ can securely activate the remote ProxyEMVPay card, i.e on-demand link it to their (underlying) payment credit/debit/prepaid card account. The activation involves establishment of ProxyEMVPay card usage limits and also proper authentication of the ‘remitter’ as legitimate owner of the underlying payment card. Effectively the remote ProxyEMVPay card activation establishes 'virtual remittance channel between the two cards’.
Once the remote ProxyEMVPay Card is successfully activated, the ‘remittance receiver’ can normally use it, wherever Visa, MasterCard or Amex cards are accepted, including for ATM cash withdrawals. The issuer of the main underlying payment card authorizes all transactions initiated with active ProxyEMVPay card against linked payment card account. The ‘remittance receiver’ can continue to use the ProxyEMVPay card until any of its currently preset usage limits are exceeded, at which time the linkage between ProxyEMVPay and underlying main payment card is automatically invalidated and ProxyEMVPay card is made ‘inactive’ again (until the new activation is performed). The ProxyEMVPay service provider rejects all transactions attempted with ‘inactive’ ProxyEMVPay card, without involving underlying payment card issuer.
Other variations on this business model, but also using the ProxyEMVPay technology as core of the remittance solution, exist as well. E.g. another potential scenario would involve a local banking partner in the receiving country instead of relying on bank(s) in the sending countries. The ProxyEMVPay card would in this case be linked to a local prepaid account with the local banking partner.
The different models will have different economics, especially in the case of ATM cash withdrawals by the receiver. Based on bank and scheme fees for such transactions, the most economic model can be selected (potentially depending on the specific remittance corridors).