April 24, 2018
The world is getting smaller; the boundaries across countries are fading when it comes to business and money. People from all around the world are moving to different countries for work. Developed economies provide great opportunities for migrants to earn money and sustain the livelihood of their families back in the developing nations. In fact, the World Bank attributes 10% of the top 25 developing countries’ GDP to remittance inflows.
The high cost associated with sending remittances through the traditional channels – banks or cash-based MTOs (Money Transfer Operators) – has been one of the biggest challenges in the space of remittance.
Another major challenge has been a lack of transparency in terms of fees charged and FX conversion rates offered by these traditional providers.
Also, the multi-hop model of correspondent banking causes a significant amount of uncertainty and delay in the time taken for settlement. Customers hardly have a clear visibility into how their money is moving across borders.
The emergence of FinTech players and their innovative technologies, a network of relationships and unique digital-first business models has been a game changer, as the remittance prices have been on a decreasing trend over the past couple of years. In Q1 2018, World Bank reported the global average cost of sending remittance at 7.13% – a slight increase from Q4 2017 (7.09%), but a 4.23% YoY decrease from Q1 2017.
While these digital MTOs are certainly a driver of change, these are only the initial steps of progress as the global remittance community is still way behind the UN’s SDG (Sustainable Development Goal) target for remittance cost of 3%. Apart from their low-cost services, most of these MTOs also claim to offer full transparency in their fee structure, with no hidden fee. As these digital MTOs are rapidly gaining popularity; there is a burning need to benchmark and verify the claims made by these MTOs. At MEDICI, we have always been proactive in doing so.
MEDICI has always been interested in the developments in the consumer remittance space. This segment represents a massive market, great opportunities, and very promising players. Through our global engagement network, we have closely followed the rise of many FinTech challengers in this space who have pushed the boundaries by challenging incumbents and banks with lower costs, higher speeds, and enhanced transparency related to remittance transactions. To understand this space better, we have been studying the developments in several regions, engaging with several banks and MTOs, and analyzing them in terms of their transfer fee and FX rates in several key corridors.
During one such study for the Singapore region, we have analyzed five major remittance service providers – three MTOs and two banks – operating in five key corridors. The providers under the scope of this study are: DBS Bank, InstaReM, OCBC Bank, TransferWise and WorldRemit. The corridors covered in this study were: Singapore to India, Indonesia, the Philippines, the UK, and the US.
The objective of our analysis was to understand the true cost of making a consumer remittance transaction through these providers across select key corridors. For this study, MEDICI’s research methodology consisted of two different approaches: Actual Transactions and Desktop Research.
In the Singapore-India corridor, we conducted actual transactions, where we transferred SGD 1000 through each of the five providers analyzed in this study. The knowledge of actual amount received, as against the expected amount claimed by the conversion tool on these banks’ and MTOs’ website, gave a clear indication of the FX transparency and hidden fees involved with these providers. For the remaining four corridors, we conducted a desktop research, using the conversion tool on the website of these providers. The date and time of the actual transactions/desktop research was Dec. 21, 2017. 2:00 PM to 4:30 PM, SGT.
After conducting the study, we documented the findings and the transaction/research details with the relevant screenshots, in our report – Singapore Remittance Market: Comparative Analysis of Key Players.
Among all five remittance players analyzed for these five corridors under the scope of this study conducted on Dec. 21, 2017, InstaReM was found to be the most cost-effective money transfer service with its low transfer fee (which was standard across all five corridors) and competitive, real-time FX rates with no hidden charges, giving it an edge over the other remittance service providers.
OCBC Bank was found to be providing the costliest money transfer services in all these corridors. OCBC (SGD 25), InstaReM (SGD 2.5), and WorldRemit (SGD 0.01) provided services at a standard transfer fee across all the corridors.
TransferWise charged a different transfer fee for different corridors.
TransferWise and InstaReM provided very healthy FX rates which were found to be marginally better than mid-market rates.
DBS didn’t charge a transfer fee; however, it along with OCBC and WorldRemit provided services at a marked-up FX rate.
To learn more about the findings of this benchmarking study, download the report here (free).