Can mobile remittances fix the industry’s image problem?

Remittances are an important part of the global economy, with more than US$586-billion sent across international borders in 2015 alone. While tech has done incredible things for the space in recent years, it seems that mobile remittance services especially have an image problem.

According to a survey from Amdocs, released this week, as many as 82% of people using services currently offered by existing players such as money transfer operators (MTOs) and banks, are dissatisfied and that 83% of respondents in developed countries — United States, United Kingdom, and Germany — are willing to send money internationally using mobile money, provided they are offered a service that is more secure, convenient, faster, and competitively priced.

“Mobile money is proving a vital financial resource for many developing countries, particularly in Africa and South Asia, where conducting simple financial transactions such as purchasing food or shelter are made difficult as access to traditional banking outlets is limited,” said Rajesh Agrawal, CEO and Founder of money transfer company Xendpay As mobile payments continue to gain popularity, instant mobile-to-mobile transfers will become the standard for individuals sending money across borders, replacing money sent in cash in the post or via risky high-street outlets.”

“Whilst significant advances are being made in respect to financial inclusion, the report shows that the cost of transferring money is still a major issue for consumers. What is needed is a mechanism to reduce the huge costs usually associated with money transfers, providing the average consumer with a safe, transparent and easy to use service.”

Of the problems listed above, pricing is the one that stands out most. The average cost of global remittances in October 2015 was around 7.52% of the total money sent during the previous quarter.

It’s a percentage that’s gradually shrunk over the years, but it still means that sending money across international borders can be prohibitively expensive.

Small wonder then that a number of companies have spotted mobile phones as a means of reducing those costs and cutting into a market that’s traditionally been dominated by a select few players.

Xendpay, for instance, allows customers decide the fees they pay, if at all. And in South Africa, MamaMoney is able to charge a flat rate of five percent, with no margin charged on exchange rates.

That’s pretty impressive given that the people sending remittances from South Africa have to, on average, pay 15% transaction fees.

It’s able to do so because it does not to have to rely on a partnership with one of South Africa’s major banks. That’s because it’s also the first company in the country to be licensed by the South African Reserve Bank as an Authorised Dealer with Limited Authority (ADLA), Category 3 Money Transfer Operator.

While MamaMoney is promising, and Xendpay has endorsements from the likes of Wikipedia founder Jimmy Wales, they’re far from the only players trying to drive the cost of mobile remittances down.

One of the biggest is WorldRemit, which allows people in a number of countries mobile money services such to EcoCash, M-Pesa, MTN Mobile money, Airtel Money, Tigo Pesa, Zaad and others. In fact, the claims to offer transfers to more mobile money services than anyone else.

And that illustrates one of the other major benefits of a mobile remittance service. While remittances are traditionally sent on a monthly basis, lower transaction fees — along with smartphone apps and mobile money services — mean that they can be sent on a more ad-hoc basis. An aunt in Canada could, for instance, pay for her nephew in Kenya’s school books on the day he needs them.

That in turn means more money flowing into recipient economies and more financially empowered populations in those economies.

It’s perhaps a little surprising that it’s taken so long to get to the stage where companies like WorldRemit, MamaMoney and Xenday can survive and thrive. The fact that it MamaMoney is the first company in South Africa to have the categorisation it does shows just how much of a bugbear regulation in the sector can be.

As WorldRemit’s Alix Murphy noted in an article on Memeburn it’s actually in everyone’s interests to ease up the international flow of money, especially when it comes to mobile to mobile payments.

Mobile is, after all, where the most exciting financial innovations are happening.

As Murphy notes:

FinTech heavyweights in areas like m-Insurance, microloans and Mobile Money – a financial service for unbanked people using just a basic mobile phone – are transforming lives, businesses and whole economies across Africa, Asia and Latin America. Mobile Money in particular has become the foundation for a range of other innovative financial products like life and health insurance coverage paid for by topping up prepaid airtime, interest-bearing savings accounts for non-banked customers, instant personal and small-business micro-loans, and even investment bonds bought through a mobile phone. 2016 will bring wider acknowledgement among fintech companies in Europe and North America of the lessons and experience to be gleaned from their peers in the developing world.

There can be little doubt then that as Mobile Money continues to gain popularity in the developing world, instant mobile-to-mobile remittances will become the norm rather than the exception.