Remittance business is booming: Latent opportunity for the Mobile play

Its a flat world. Between the years 2001 and 2012, the Indian migrant population increased by nearly 2.4% to reach 22 million in 2012. However, the inward remittance in India during the same period increased even more, by 15.5% to reach US$ 70 billion. Remittance of money to India has grown really fast in the last 10 years and it seems to be still hot. The only thing which has changed is the way money gets transferred. It has shifted from money carrying relatives/friends to increased presence of Money Transfer operator’s (MTO) such as Western Union, Money Gram etc. It will be worth noting that MTO’s in India have a share of close to 30% of the remittance while their share globally is just around 18-20%. One of the main drivers for MTO’s success in India is the presence of a large unbanked and under banked population.

India continues to dominate the global market for inward remittance followed by China and Philippines. The Indian remittance market grew at a CAGR of 13.2% of the last 5 years (Refer Chart Below). The remittance market in India is expected to grow strong in coming years (exchange rates are favorable to remitters) and the market is expected to witness a steady growth rate of 10-12% every year. The depreciating value of INR compared to U.S. dollar is expected to fuel the market for remittance in India.

Top Five Countries – Inward Remittance over the last 6 years

Source: Knowledgefaber

The transaction cost associated with transferring money through an MTO is higher than Banks in India primarily due to the real estate for MTO’s which adds up to their cost. This increased cost of transaction has led new players such as Xoom enter, to solve that problem. The company provides mobile money-transfer solutions on smartphones and tablets, which eliminates the need to go to physical locations. Additionally, not having the physical locations saves a lot of rental costs and hiring costs for Xoom. Even players such as Western Union are now focusing on a mobile app that services mobile transfers with ease.

Mobile Remittance seems to a perfect option for existing players to cut cost and increase margins. According to the World Bank Report 2012, it is estimated that close to $55 billion will be remitted via mobile phones across the globe during 2016. This will be four times the amount that was transferred through this technology in 2011.

New players entering the payments market also seem to be interested in this segment called Mobile Remittance. Firms such as Pangea, Regalii and Transferwise (profiled by Lets Talk Payments) have made their presence felt. These companies are trying to make themselves ubiquitous and to enable transactions using customers mobile, web and retail touch points. They are also enabling multiple methods such as prepaid, credit/debit card and cash.

LTP View: Mobile remittance is today allowed in most of the emerging economies such as Philippines, Bangladesh, and Kenya etc. where it has generated close to 85% of the transaction value last year. How would countries such as India (US$ 71Bn, 2013E) and China (US$ 60Bn, 2013E) adopt to these technologies is to be seen. These 2 countries alone have a market share of 31% of the global developing countries remittance market which is estimated at US$414 Bn for 2013.