Reducing the Cost and Increasing Efficiency of Remittance Transfers: Global Experiences

1. Reducing the Cost and Increasing Efficiency of Remittance Transfers: Global Experiences May 27, 2009JACQUELINE IRVING, Migration and Remittances Team, DECPGGDLN PROGRAM FOR ECA

2. How to reduce remittance transfer costs* and increase transmission efficiency? • Increasing the number of remittance services market competitors • In particular, render exclusivity contracts illegal, where these exist • Developing new, more efficient technologies • Strategic partnerships between remittance service providers (RSPs) • Raise remittance senders’ awareness of alternative channels and their costs *See, in particular, Ratha, Dilip and J. Riedberg, On Reducing Remittance Costs, 2005, available at http://siteresources.worldbank.org/INTPROSPECTS/Resources/Onreducingremittancecosts-revisedMay12.pdf; Orozco, Manuel, 2002, “Attracting Remittances: Money, Market and Reduced Cost,” IDB, Washington D.C., 2002.

3. Reducing transfer costs and expanding outreach in rural areas • Developing new delivery technologies—mobile phone, internet, cash cards • Certain nonbank RSPs may have potential to play greater role in delivery of remittances: • National postal system networks? • Microfinance institutions? • New partnerships between banks, MTOs and/or other RSPs to improve remittance transfer to rural areas

4. Country experiences: Reducing costs and increasing efficiency • Philippines’ Smart Padala case /1 • Senegal’s Money Express case /2 • Overview of country initiatives underway (as reported in World Bank’s Migration & Remittances Team central banks survey) /3 /1 Ratha and Riedberg (2005). /2 Mohapatra, Irving, Ratha, “An Overview of Remittance Markets in Sub-Saharan Africa,” forthcoming in 2009; Money Express website at http://www.money-express.com. /3 Irving, Mohapatra, Ratha, “Survey of Central banks on Migrant Remittance Flows: Final Findings,” forthcoming in 2009.

5. Country experiences: Reducing costs and increasing efficiency Philippines’ Smart Padala case

6. Smart Padala International Case* • Smart Communications: leading Philippines’ mobile phone services company • Introduced service for sending cash cross-border via text message in 2004 • Text-based telecoms remittance transfer service: • Reduced transfer costs • Quick means of sending remittances • Expanded rural access *See Ratha and Riedberg (2005) ; Smart Communications website.

7. Smart Padala: How does it work? • Smart Padala service works with bank and other RSP partners in some 20 remittance-sending countries. • A Filipino migrant takes the funds to be remitted to a Smart Padala partner in his host country. • The migrant provides basic information about the recipient: name, Smart mobile phone number to which money will be sent, and the recipient’s Smart money number. *For more information, see the Smart Communications website at http://smart.com.ph

8. Smart Padala: How does it work? • The migrant pays a fee of 1% of the amount to be transmitted. • The Smart Padala partner texts the family member beneficiary in the Philippines to alert him of the money transfer. • The beneficiary receives a text message on his phone within minutes alerting him to the transaction.

9. Smart Padala: How does it work? • The beneficiary can pick up cash at any Smart Padala partner or can choose to obtain the remittances via a Smart Money card. • A Smart Money (cash/debit) card allows the holder to: • withdraw his remittances from a participating ATM (Banco de Oro, Expressnet or Megalink ATMs in the Philippines); • make purchases using the card at participating retailers.

10. Smart Padala: Comparison with other channels • A service centered on text messaging—a technology that is cheaper than mobile phone calls in the Philippines. • A quick and relatively inexpensive channel for remittance transmission—transfers within minutes • More secure than physical cash delivery • Receiver has choice of picking up cash, withdrawing from an ATM, drawing on funds at a retailer using a prepaid card. • Even unbanked recipients in many rural areas can access funds.

11. Smart Padala: Comparison with other channels • Accessing remittances requires that recipient have a mobile phone • Recipient must have physical access to a Smart Padala partner or participating Smart Card retailer to encash/draw on funds • Many Filipino mobile phone users were already very familiar with text messaging; others may still be wary of this new technology • Retailers may be wary of this new service and may be unwilling to participate

12. Remittance transfer via mobile phone:Applicability for ECA • Requires adequate level of mobile phone penetration rates/telecoms technology • Mobile phone penetration rates in the CIS have been growing faster than rest of Europe* • 93% average for the CIS in 2007, up from 18% in 2003 (119% for Russia in 2007) • Poor land lines led to increased competition in mobile telephony, which has driven down fees *According to the International Telecommunications Union. See the ITU website at www.itu.int.

13. Remittance transfer via mobile phone:Applicability for ECA • Some countries have lagged behind in mobile phone penetration (e.g., Tajikistan and Turkmenistan with penetration rates of just 4% as of 2007*). • But the CIS region appears poised for mobile telecoms growth: large population, poor landline infrastructure, and multinational providers such as MTS already have a presence in the region. • Can partnerships be formed between third party agents/operators in sending and receiving countries? • What are the national regulatory challenges related to cross-border transactions via mobile phone technology in the CIS? *According to the International Telecommunications Union. See the ITU website at www.itu.int.

14. Remittance transfer via mobile phone:Applicability for ECA • Are local retailers in the CIS willing to participate in a prepaid/debit card service? • Are remittance senders and receivers willing to trust a service that transmits money via mobile phone text? • Are remittance senders/receivers willing to trust partner banks and other RSPs involved in providing such a service?

15. Country experiences: Reducing costs and increasing efficiency Senegal’s Money Express case

16. Senegal’s Money Express Case* • Money Express is the money transfer operator (MTO) arm of Group Chaka, a Senegalese-based IT company founded in 1994. • Group Chaka sought a way of providing a cheaper alternative to costly money transfer services. • Launched Money Express in 2002 in partnership with WAEMU member countries’ savings banks. • Network now covers all WAEMU countries and Chad; has begun moving into Anglophone Africa (Ghana). *See Mohapatra, Irving, Ratha, “An Overview of Remittance Markets in Sub-Saharan Africa,” forthcoming 2009; Money Express website at http://www.money-express.com.

17. Senegal’s Money Express Case How does Money Express provide a cheaper, efficient money transfer alternative? • Leverages parent Group Chaka’s IT-expertise. • Chaka developed electronic transfer technology to cut the cost of money transfer to 3-4% of amount sent. • Strategic partnerships with RSPs in key remittance-sending countries and in Senegal.

18. Senegal’s Money Express: How does it work? • Developed software to transfer cash into a deposit account in migrant’s home country. • Offers range of electronic transfer services: cash to account, cash to cash, account to cash, and account to account. • Takes into account local remittance market and regulatory conditions. • Forms partnerships with local players to gain access to senders/receivers who might choose informal channels.

19. Senegal’s Money Express: Strategic partnerships • Chaka drew on relationship with an early client, Société Générale, which handles the settlement part of cash-to-account transactions. • Offers a flexible service range due to its partnership with the Banque de l'Habitat du Sénégal (BHS): most Senegalese migrants hold accounts with BHS. • Partnerships with smaller, local RSPs in sending/receiving countries-- more in touch with low income migrants and families.

20. Senegal’s Money Express: Strategic partnerships • Some local MTO partners in Europe cobrand their shops with Money Express to boost name awareness. • In Italy, Money Express has its own license and its own shops, reflecting local regulatory conditions. • Money Express also franchises retail shops targeting African migrants in Italy to provide its services.

21. Senegal’s Money Express: Strategic partnerships • Partnership with Senegal’s national postal service to gain access to recipients in rural, unbanked areas. • Now also works with Benin’s national postal service. • Partnerships with small savings banks in some countries. • Partnerships with microfinance institutions .

22. Senegal’s Money Express: Competitive advantage • Offers a full range of transmission services • Targets low-income clients by taking into account local remittance market and regulatory conditions. • Forms partnerships with local players having access to senders/receivers who might choose informal channels. • Western Union and other competitors have responded by cutting their own fees somewhat.

23. Strategic partnerships to access to lower income clients:Applicability for ECA • Partnerships between local/regional MTOs that have telecoms infrastructure and national post offices that have branch networks in rural areas? • Partnerships between national postal services in key remittance corridors may lead to new systems/technologies for transfer to rural unbanked? • Benefits to partnerships with microfinance institutions for remittance delivery in some countries (e.g., Tajikistan)?

24. Country experiences: Reducing costs and increasing efficiency World Bank Migration & Remittances Team Central bank survey findings: Overview of country initiatives

25. World Bank Central bank survey findings: Overview of country initiatives to cut costs/increase competition

26. World Bank Central bank survey findings:Overview of country initiatives in ECA

27. World Bank Central bank survey findings:*Overview of ECA initiatives to cut costs/increase competition • Four of the 12 ECA remittance-receiving countries’ CB respondents--Albania, Moldova, Kyrgyz Republic, and Tajikistan--indicated they have such national initiatives. • Kyrgyz Republic and Tajikistan cited improving effectiveness of/public trust in banking system . • Albania and Moldova cited information campaigns to raise financial literacy/awareness of formal remittance services. • Albania’s CB also encourages banks, post office, postal savings banks to forge agreements w/counterparts in key corridors (Italy, Greece). * Irving, Mohapatra, Ratha, “Survey of Central banks on Migrant Remittance Flows: Final Findings,” forthcoming in 2009.

28. Reducing the Cost and Increasing Efficiency of Remittance Transfers: Global Experiences THANK YOU