Is mobile banking the future of global remittance payments?


Ever since it was highlighted by the World Bank in its annual Global Economic Prospects report for 2006, the exponential growth of the global remittance market has attracted widespread attention. The report emphasized that official global remittances had doubled within five years to $230bn in 2005, a sum that exceeded international aid flows for that year by twofold – despite excluding the established and vibrant informal global remittance market.

Conservative estimates suggest that the market reached around $286bn last year and that as much as $200bn of that was received by developing countries. Moreover, experts also agree that the market’s staggering growth is unlikely to abate in the near future.

‘We agree with the World Bank that economic migration will continue to rise for the foreseeable future,’ confirms Hannes van Rensburg, CEO of mobile banking and transacting solutions company, Fundamo, ‘as the globalisation trend continues.’

Organisations like Fundamo are not surprised at the interest being shown in servicing this expanding market. ‘When you consider that the number of migrants worldwide is already more than 200m and that companies like MasterCard estimate that over 60% of the world’s 6.5bn people do not have access to banking services near home, the potential is enormous,’ observes van Rensburg.

Tackling global poverty

Most migrant workers support their families back in their home countries and numerous surveys suggest that remittances can constitute as much as half the income of supported families in developing countries.

‘Measuring the effect of a huge, predominantly informal phenomenon like this is, obviously not easy, but all the evidence suggests that remittances have become an extremely important way of tackling global poverty,’ argues van Rensburg. ‘Something that makes it even more vital that we continue to find migrant workers cheaper and more secure ways of sending money back to their communities.’

The size and scope of informal remittance services, like Hawala (In the most basic variant of the hawala system, money is transferred via a network of hawala brokers, or hawaladars. A customer approaches a hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The hawala broker calls another hawala broker in the recipient’s city, gives disposition instructions of the funds (usually minus a small commission), and promises to settle the debt at a later date), highlight the fact that the vast majority of migrant workers need to send money to areas with poor infrastructure and in which banks have little or no presence.

‘Wiring money home to loved ones is a big challenge for migrant workers,’ confirms van Rensburg, ‘formal services can be expensive and inconvenient and the alternative of using unregulated, informal services leaves the transaction open to negligence and theft.’

Indisputable benefits

Van Rensburg believes that the solution is to use innovative technology to distribute money electronically. ‘The electronic transfer of funds is first prize,’ he maintains. ‘It gives the sender and receiver peace-of-mind because they know the funds will be available immediately, safely and at a lower cost. It also allows the monies to be earmarked electronically for essentials such as doctors, housing and schooling.’

Citing the incredible boom in mobile phone use in most emerging markets, van Rensburg argues that tapping into existing mobile networks is the most cost-effective way of providing key financial services electronically to the billions of people beyond the reach of the conventional banking infrastructure. ‘The benefits for everyone involved are indisputable,’ he asserts, ‘lower running costs, time-saving, lower transaction costs, convenience and higher security.’

Big challenges and big rewards

Van Rensburg acknowledges that only a handful of banks and mobile phone operators currently allow customers