As millions of migrant workers look for ways to send
money home, the market for remittance payments, previously the
domain of a few well-established players, is being blown wide open
with the arrival of several new technologies and innovations such
as prepaid and mobile payments. John Hill reports.
The last five years have seen a massive increase in money
transference in the form of remittance payments. Across the globe
payment volumes have almost doubled, from just over $200 billion in
2003 to just under $400 billion in 2008. Looking specifically at
developing countries, the percentage growth is slightly higher,
from $140 billion in 2003 to $305 billion in 2008.
A large proportion of this increase can be attributed to the spread
of various payment enabling technologies seen throughout Latin
America, Africa, Asia-Pacific and the Middle East. Items like
mobile phones and payment cards, as well as the rapid spread of the
internet to more remote and poorer regions now means it is that
much easier for people to keep in contact over large distances, and
also to transfer funds.
The United Nations has stated there are around 191 million
immigrants worldwide sending money to their relatives back home.
This money can vary between being the sole source of income for
recipients to simply being a supplement to their income. This is
clearly illustrated when you examine how much of a country’s GDP is
made up of remittances, with some developing countries like
Tajikistan making up almost 46 percent of their total income with
Remittance payments falling
According to the World Bank, remittances are set to fall in 2009.
Dilip Ratha, lead economist of the migration and remittances team
for the development prospects group at the World Bank, believes
total remittances are set to fall by 5 to 8 percent this year, with
some countries suffering a significant drop-off in money
“South-South remittances from Russia, South Africa, Malaysia and
India are especially vulnerable to the rolling economic crisis.
Also the outlook remains uncertain for remittance flows from the
Gulf Cooperation Council (GCC) countries,” Dilip said.
“Both low-income and middle-income countries are expected to see a
similar decline – about 5 percent – in remittance inflows in 2009,”
he added. “Although newspapers are reporting a large number of
migrants returning home, new migration flows are still positive,
implying that the stock of existing migrants continues to increase.
The persistence of the migrant stock will contribute to the
persistence (or resilience) of remittance flows in the face of the
The remittance market is dominated by a few large money transfer
companies such as Western Union and MoneyGram, while large
financial institutions have been much slower and seemingly more
reluctant to get involved. One of the problems with transferring
funds via these agencies is that the recipient usually has to go to
a transfer outlet to collect their money, which could be a long
distance from their home, although there is now the ability to
transfer funds over the internet with some of the agencies.
This is where recent advances in mobile and card technologies can
help. Funds are not only instantly transferred to either a mobile
phone-based account or prepaid card, but barriers for entrance to
the market are lowered significantly, as many of the capital costs
involved in running a money transfer company are removed,
especially the enormous expense of having to maintain so many brick
and mortar agency locations.
Prepaid card remittances
Prepaid cards are an especially interesting method of remittance,
due to their convenience, accessibility and liquidity. There are
several kinds of remittance-related card companies at the moment,
such as money transfer companies that are now offering prepaid
cards as part of their existing remittance options, prepaid card
companies that are branching out into remittance and those that
have a remittance card as their only product. These can be further
split into the different card types; card-to-cash, dual card and
The problems involved in using prepaid cards as a transfer method
revolve around two issues: regulation and infrastructure. Firstly,
since card regulations vary wildly from country to country, the
process of harmonising with local systems is difficult enough, but
when you take into account most of the largest recipients of
remittance are countries classed as developing, it becomes even
harder when co-ordinating with the local, perhaps undeveloped
payments infrastructure in terms of accepting the cards. Smaller
yet still significant problems such as no formal postal service or
house address system in the recipient country to deliver the cards
to can also make this a very costly part of the operation.
Despite the issues, from a remittance recipient’s point of view the
prepaid card option can prove invaluable. As well as the
convenience aspect, the prepaid account can provide a gateway to
more sophisticated formal financial services such as mortgages,
business loans, credit cards, chequeing and savings accounts.
UK prepaid card provider Advanced Payment Solutions (APS) has gone
for a tailored approach when it comes to their remittance programme
by targeting a specific market, in this case the Philippines. Aimed
specifically at Filipinos working in Europe, the remittance scheme
uses APS’s cashplus prepaid Gold MasterCard card, and enables
cardholders to send money back to their families in the
Philippines, via a partnership with Philippine National Bank.
Philip Harrison, director of business development at APS, thinks
prepaid cards are superior in many ways to traditional methods, but
knowledge of their existence is curtailing the market.
“For a lot of the individuals using traditional remittance schemes
it is a question of education. They don’t know that we exist, they
don’t know how to get a card, they don’t know they can get a card.
They don’t know anything about secondary cards or sending secondary
cards abroad, giving the relative the PIN and then teaching them
how to use the card in ATMs abroad or in a store for purchase,” he
“We take for granted that we know what plastic cards are and what
they do, but a lot of the recipients of these cards have never had
a card before and it really is a question of education. When you
look at the vast marketing budgets that some of the major
remittance companies have, despite the fact that our service quite
heavily undercuts their fees, it is a process that is still alien
to most remittance money senders.”
Obstacles to prepaid acceptance
Other issues besides infrastructure and regulation affect the
overall adoption of prepaid cards as remittance devices. How the
cards are reloaded and how the funds are transferred will affect
both the usefulness of the product to consumers and how much they
are charged for the privilege.
For example, on some cards, reloading and transferring will be
charged just one fee as they are done in one transaction, while
other programmes will separate the two. Similarly, some schemes
will give you the second (recipient’s) card free of charge, while
in others the sender bears all the costs, although in general the
recipient will have to pay a fee at an ATM to withdraw funds
whatever the scheme.
Western Union, the US-based money transfer specialist, has recently
introduced a programme with a Visa prepaid card which as well as
being a standard reloadable card also includes a loyalty function.
The scheme is fairly singular in that it is only being offered to 8
million of Western Union’s current customers. The loyalty scheme
comes into play when the customer sends money via Western Union and
points earned can be redeemed as transfer discounts or
While the majority of remittance payments originate from Western
nations – a 2006 World bank survey reveals the US sent $42.2
billion, Switzerland sent $13.8 billion, Germany $12.3 billion and
Spain $11 billion – three out of the top ten remittance sending
countries were from the Middle East and Asia, with Saudi Arabia
second only to the US, having transferred $15.6 billion.
In an attempt to take advantage of this potentially underserved
remittance market in developing countries, prepaid card provider
Krores has started issuing cards to migrants in the Middle East,
specifically targeted at workers from India and the
The scheme issues two cards, one for the sender and one for the
recipient, and includes a payroll function, where the card is
issued by the sender’s employer and part of the their pay can be
sent straight to the recipient. Vineet Katial, chairman of Krores,
says it was the ideal situation to set up the scheme.
“In this day and age, I was surprised to see the lack of financial
tools available to the emerging markets such as India, the
Philippines and the Middle East,” Katial explains. “We created our
two new products to give migrant workers and their families round
the clock access to their money at ATMs or to spend in stores and
online allowing them to be more financially included than
Another burgeoning form of money transfer is mobile payment.
According to the United Nations around half the world’s population
– about 3.3 billion people – have access to mobile phones, while
mobile penetration in developing countries is expected to be above
50 percent by the end of the year.
Mobile payments enable two people with mobile phones to send money
to each other, usually involving small amounts and usually via
The majority of transfer providers also have to have their service
backed by a bank or banking agent. For example Kenya’s M-Pesa
service enables remittances to be sent domestically by allowing
users to withdraw money from a network of agents that includes
airtime resellers and retail outlets acting as banking
Carlo Corazza, of the payment systems development group at the
World Bank, thinks the technology is still in its infancy and has a
way to go before it become a real tool for international
“Mobile money transfer is a huge market. There is a lot of
discussion around using it as a tool for sending money. But so far
the relevant experiments for sending money through mobile are just
at national levels, what they call domestic remittances,” he
“Cross-border remittances via mobile phone are still very small as
there are not that many operators working on this specific
platform. Mobile phones are just a tool to transfer money via a
debit card or credit card. It is not actually money stored in
accounts held by a mobile company,” he added.
“Examples of mobile companies providing financial services are few
and far between globally, so most mobile services are bank-based or
at least bank-supported. There is one service based in the
Philippines called Gcash, which actually gives the user a mobile
wallet, while mostly the others are all services that are supported
by a bank account.”