The cross-border bill payments market is in its infancy, yet there is significant demand among migrants to pay bills in their home countries. While there are regulatory and technological challenges, the key to success in cross-border bill payments depends on effective customer education and marketing, as well as partnerships, says Robin Arnfield
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A lot of the money that people send across borders is actually intended to be used for paying relatives bills back home, Steve Barha, CIO at Canadian bill payments network operator TIO Networks, says.
But sending $100 to a relative via Western Union doesnt mean the money will be used to pay a bill.
The convenience of being able to pay bills directly is an important facility for people who want to manage their money effectively.
In todays challenging economic climate, migrants want to control what happens to their hard-earned cash when they send it home, says Brenda Amarant, vice president of marketing at Fairfield, New Jersey-based bill payments provider Softgate Systems.
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By GlobalDataPaying a relatives bills direct to the utility company means the sender can be sure the money isnt being squandered.
With person-to-person (P2P) remittances, there is also the risk of theft. Our customers tell us: I sent money home to my mom. Shes housebound, so my cousin went to the agents office to get the cash, and some of it disappeared on his journey to my moms, says Lisa Shields, CEO of hyperWALLET Systems.
Specialist players
Currently, neither of the two largest remittance companies Western Union and MoneyGram offer cross-border bill payments. Both firms offer US-only bill payments at their US branches, although Western Union also runs local bill pay services in Argentinas Canada, Panama, and Peru.
MoneyGram and Western Union are planning to develop cross-border bill pay services, leveraging their global remittance networks as well as their domestic bill pay services and existing relationships with billers in different markets, Beth Robertson, director of payments at US consultancy Javelin Strategy & Research, says.
Cross-border bill pay is currently a niche service, dominated by specialists such as Softgate, TIO, Foreign Currency Direct, GlobalWebPay, and iSend. While Foreign Currency Direct and GlobalWebPay cater for online users, Softgate, TIO, and iSend deal with cash-preferred (the industry term for people who only use cash, due to lack of bank accounts) customers.
Softgate has 10,000 merchants directly connected to its network, which offer its US domestic bill payment, cross-border bill payment, and international airtime top-up services.
We offer cross-border airtime top-up to 350 mobile carriers in 60 countries, and cross-border bill pay to 10 billers in Jamaica, Mexico and Guatemala, Amarant says.
Softgate provides its services at clerk-operated point-of-sale terminals as well as at 1,000 automated cash-based bill payment kiosks operated by TIO. iSend provides the foreign utility billers for Softgate and TIO Networks.
Were seeing good volumes in cross-border bill pay, although not as high as our volumes for cross-border airtime top-up, says Amarant. But cross-border bill payment is definitely growing.
Amarant says it takes a while for consumers to learn about cross-border bill payment services and then to get to trust them. Consumer education and marketing are very important, she says.
Yasuko Fumuro, vice president of public relations at Microfinance International Corp. (MFIC), agrees. Washington, DC-based MFIC used to offer cross-border bill payment at its Alante Financial branches, where migrants can cash cheques, take out loans, and pay US bills.
We discontinued our cross-border bill pay service from the US to Mexico and to Guatemala, as we didnt see a strong demand, Fumuro says.
But I think that, if wed put more effort into marketing, these services would have been successful. Theres definitely a huge demand for cross-border bill payments among migrants, and we want to start offering a service again. A survey we conducted in 2010 among El Salvadoran migrants found that they have a great need to pay their childrens school fees back home. We havent worked out how to offer cross-border tuition fee payments yet.
iSend
Connecticut-based bill aggregator iSend has seen 15% growth month-on-month for the past year in cross-border bill pay, says Steve LaBella, iSends president and CEO.
We provide cross-border bill pay services from the US, UK, and Canada to 10 countries, and international mobile airtime top-up to 30 countries, he says. We either have direct relationships with a foreign biller or with a processor that works with that biller. We aggregate payments for a particular biller and send the funds via wire transfer, or, if they have a US bank account, we use the domestic ACH network to transfer to that account. The customer data file for each bill is sent separately from the funds transfer.
iSend focuses on Latin American and the Caribbean, but is now branching out into Africa and the Middle East.
We recently added Egypt and Nigeria, says LaBella.
The more billers and countries we add, the more we can attract a wider demographic of customers. The challenge is that different countries have different regulations, and individual billers in each country have their own requirements. Our role is to smooth out these complexities for clients such as TIO or Softgate who are providing our service to their customers.
TIO
In late 2010, TIO started offering cross-border bill payments to Mexico, Guatemala, and Jamaica from its 1,000 bill payment kiosks in partnership with Softgate and iSend.
Our kiosks are already used to process cash-based bill payments in the US, so consumers trust the kiosks to settle the funds for US bill payments, says Barha.
This means theyll also trust us to settle bill payments for them in their home country.
TIO charges a flat fee of $4.95 for foreign bill payments, and discloses the foreign exchange conversion rate, prior to the transaction being set up.
We aim to be as transparent as possible, so the customer will trust us, says Barha.
TIOs domestic US bill pay service is also available at the 22,000 point-of-sale terminals that are connected to its network, as well as at 35,000 merchant locations connected to its partners networks.
We have the functionality to offer cross-border bill pay at the cash register, but we havent seen the demand yet for this from the third-party processors we work with for POS terminal-based domestic bill pay, says Barha.
The UK
London-based GlobalWebPay operates a P2P online remittance service that also offers the ability to pay bills abroad.
When we launched GlobalWebPay in December 2010, we thought the mix of transactions would be 90% P2P transfers and 10% cross-border bill payments, says GlobalWebPay director Patrick Mason.
In fact, the mix is 50% P2P transfers and 50% bill payments.
Typical bill pay transactions include people in the UK paying mortgages and property taxes on their Spanish holiday home, or expats who want to pay bills back in the UK.
Buckinghamshire-based Foreign Currency Direct operates the currencies.co.uk site, where UK residents can set up standing orders to pay bills or tuition fees in Europe.
We offer a regular payment plan, and customers can send payments through this plan as often or as rarely as they like, Stephen Hughes, chief currency analyst at Foreign Currency Direct, says.
In May 2011, we saw £600,000 ($983,140) transferred via our regular payment service. We have 2,500 users of the (regular payment) service, and the average amount transferred per transaction is £500- £700.
GlobalWebPay and Foreign Currency Direct see their low charges as a selling point. Foreign Currency Direct has no fees apart from a 2% foreign exchange spread.
We accumulate all the transfers to a particular country and then get the best FX rate for them, says Hughes.
GlobalWebPay charges a flat fee of £4.75 per transaction. Mason says GlobalWebPay is able to keep charges low, as it holds local currency accounts with correspondent banks around the world, and nets off its end-of-day balances between accounts used for sending and receiving payments.
This enables GlobalWebPay remittances and bill payments to be treated as local payments in the destination country, Mason says.
Regulation
One of the challenges for firms wanting to offer cross-border bill pay is regulatory compliance.
Many US states stipulate that, if a retailer offers a remittance or cross-border bill pay service to foreign countries, they need a money transmitter licence, says Softgates Amarant.
Unlike cross-border airtime top-up, cross-border bill payments come under KYC (know your customer) and AML (anti-money laundering) regulatory laws, says Neil St Germain, senior vice president at US consultancy Speer & Associates.
Because international airtime top-up is a low-value transaction, it isnt so closely regulated. Theres no KYC requirement, for example.
As part of TIOs regulatory compliance programme, we set a ceiling for transaction amounts, says Barha.
Also, we set limits on the number of transactions a terminal can do each day, both in terms of total transactions and in terms of individual customers. We check the velocity of transactions to see how many payments are going to specific accounts and to see if there is sudden spike of transactions at a particular terminal. We also check whether funds are going to a suspicious destination.
If a client wants to send over £500 via GlobalWebPay, then they must give us a copy of their photo ID, so we can do a full KYC check, says GlobalWebPays Mason. They can either post us a photocopy, or they can email us a scanned copy. We have software to tell if the scanned document is legitimate or a forgery.
GlobalWebPay only sends money to countries where the banks are well regulated and operate KYC checks.
This means we only deal with banks in more developed regions such as Europe, Scandinavia, North America and Australia, Mason says.
Business case
While firms such as iSend and Softgate are making progress in cross-border bill pay, other firms have held back, citing the lack of a compelling business case.
In 2008, TimesofMoney, a digital payment service provider owned by Indias Times Group, launched BillPay2India, a website enabling US-based non-resident Indians (NRIs) to pay utility and insurance bills at home. TimesofMoney also operates the Remit2India online remittance portal. However, TimesofMoney has discontinued the BillPay2India service, a spokesperson tells EPI.
hyperWALLETs Shields says her firm receives a lot of requests for cross-border bill pay services from people wanting certainty that remittances are actually used for paying bills.
Although there is a big market for cross-border bill pay, it would be a challenge for us to offer this service, says Shields.
We offer a service provided by TransferTo that enables Filipinos in Canada to top up mobile phones in the Philippines, as this is a natural fit with our Canada-Philippines remittance service. But we dont offer cross-border bill pay.
The problem is that there is no easy plug-in router to link up the bill payer in the sending country and the biller in the destination country, says Shields. However, it is much easier to set up cross-border airtime top-up.
You bulk-buy airtime from a mobile carrier in the destination country, and then resell it at a premium to customers in other countries, Shields says.
Airtime is very cheap in developing countries, so, if the cost of a months airtime in the Philippines is, say, CAD3.00, we can resell it for CAD5 in Canada. But you cant bulk-buy electricity in the destination country and then sell it to migrants.
Eric Barbier, CEO of TransferTo, a subsidiary of payments terminal vendor Ingenico, says one barrier to setting up cross-border bill pay services is that utilities in developing countries are generally state-owned entities.
This makes them difficult to deal with, he says.
But mobile carriers are usually privately-held, so they are entrepreneurial and better able to work with a foreign partner. Weve seen cross-border airtime top-up transaction volumes more than double every year for the last three years. In 2011, transaction volumes are set to double again.
In the view of Hannes van Rensburg, CEO at South African m-payments platform provider Fundamo, cross-border bills payments is a commoditized business, where consumers expect low levels of charges.
There isnt a lot of money in bill aggregation, says van Rensburg. I cant see a business case for cross-border bill pay, Shields agrees.
However, van Rensburg sees potential for mobile phones to be used for international bill pay, due to their ubiquity.
At some point, the infrastructure will exist for cross-border mobile bill pay, he says. Currently, there is a lack of bilateral agreements to facilitate the routing of payments from a mobile phone to a billers account. I think that Visa and MasterCard will play a major role in driving mobile cross-border bill payments. Only the card schemes have the power and the brand names to make this happen.
Speer & Associates St Germain notes that 80% of the population in Latin America, both banked and unbanked, have mobile phones.
Given that utility bill payments in Latin America tend to be low-value, it makes sense to offer both domestic and cross-border bill payments on mobile phones in the region, he says.
