This story appears in the April 2009 issue of Cards&Payments.

It is telling of the troubled economic times that to Roy Vella, director of mobile for the Royal Bank of Scotland Group, having a bank the British government recently nationalized as a partner in a mobile-remittance scheme is an advantage. It means the bank is on sound financial footing.

"If the UK government collapses, then we have a problem," he says.

RBS received the endorsement of the United Kingdom-based GSM Association in February to be part of the large trade group's mobile funds-transfer program, which seeks to help mobile operators enable foreign workers and other migrants to send funds home to family and friends using their cell phones. Visa Inc. and Belgacom International Carrier Services, a subsidiary of Belgium-based Belgacom SA that provides roaming services, also got the nod from the association, joining The Western Union Co. funds-transfer organization in the program.

The GSM Association believes the broad reach of mobile networks could help increase the value migrants remit worldwide by all channels to £500 billion (US$700 billion) in the next three to four years–more than double what it was last year–even as the association targets smaller average remittance amounts and lower fees.

Still, the association and its partners know the global economic downturn poses a problem keeping up the momentum of their nascent mobile funds-transfer program.

The slump is gutting growth overall for remittances and likely will hinder telecommunication companies' plans to convince migrant workers to use their phones to send funds home instead of the low-tech methods they use now. The economic woes only add to the challenges the prospective mobile-remittance services face in gaining approval from financial regulators in both developing and rich countries.

"The workers that are traveling overseas are losing their jobs," M. Leland Dill, Western Union senior vice president and head of digital ventures, said during a speech at the Mobile World Congress in Barcelona in February. "People are going to be saving more, sending less (but) trying to maintain communication with their families."

Western Union has been a part of the GSM Association's Mobile Money Transfer program since 2007, the year the association launched it.

Remittances workers sent to developing countries, such as India, China, Mexico and the Philippines, grew by more than 22% that year,  revised World Bank estimates show.

But the organization in February estimated growth in remittance value would slow in 2008, to 8.5%, to $305 billion from $281 billion in 2007 (see chart). All told, migrants sent about $400 billion home last year, including to contacts in developed countries.

The World Bank in November predicted remittance value actually would fall by nearly 1% this year, or by up to 6% in the worst case, as economies sputter in the United States and in the Persian Gulf, among other regions, that host millions of migrant workers.

Consumers today send and receive most remittances in cash, often through such funds-transfer organizations as Western Union and MoneyGram International or more-informal methods. Bank branches and ATMs are scarce in many of the countries and regions where recipients live.

Under the mobile funds-transfer concept, workers sending funds home could initiate the transaction using a "mobile wallet" on their phones. The message goes over the mobile network to recipients, who may or may not also have a mobile-money application on their own phones.

Organizations such as Western Union still could be involved in the transaction, taking the cash in from the sender before he initiates the mobile message, cashing out the recipient or both. But budding mobile-money players such as banks and Visa and MasterCard Worldwide want to capture some of that market share. They would process the transfers, and their affiliates could take in or distribute the cash or digital value.

Visa, for example, would try to persuade recipients to use prepaid payment cards or other Visa-branded accounts to spend the funds they receive, perhaps on remote purchases on their phones, or withdraw the cash from ATMs–provided point-of-sale terminals and ATMs are available. But that will be a problem across vast areas of India, China and other developing countries, where there is little infrastructure for electronic payments or withdrawals.

Cutting Banks Out?
Mobile operators could cut out financial institutions almost entirely, especially for domestic remittances, as they are doing in Kenya.

Indeed, with a 2,000-to-1 ratio of mobile phones to ATMs worldwide, mobile-commerce players see a promising market both for domestic and cross-border remittances using mobile phones and networks. Recipients might get their cash from traditional funds-transfer organizations or from independent agents mobile operators recruit.
UK-based Juniper Research had trumpeted the mobile-remittance concept by forecasting that the total value of mobile funds transfers would grow tenfold between 2009 and 2013. But the firm recently slashed its forecast for the transfers by up to 50%, to $73 billion for 2011. Juniper last year had forecast 100 million subscribers would transfer funds using their phones by 2013, and the global market for mobile remittance would be worth $5 billion to service providers by then.

That revenue take for service providers also will fall with the economy, says Howard Wilcox, a Juniper senior analyst.

"That's not to say it won't be growing; it just will be slower," he tells Cards&Payments. "We could see quite a significant impact because of the layoffs. One aspect is countries could be seen to favor domestic workers over migrant workers."

Still, the GSM Association and companies it is enlisting to offer funds-transfer services to mobile operators remain optimistic–at least when they talk about their projects in public.

"Clearly, a statement like that sells a lot of reports," Royal Bank of Scotland's Vella said at the Mobile World Congress, responding to the slashed forecasts for mobile funds transfers. "I don't think it fundamentally changes the need to move money across borders. Yeah, the amount of flow is going to change, (but) that's the whole tide. It's not that mobile money transfer is going to change by itself."

Gavin Krugel, a director of the GSM Association's mobile-remittance program, says mobile funds-transfer projects either have launched or are under development in 54 markets. They include well-known remittance schemes already in operation from Philippine operators Smart Communications and Globe Telecom, Kenya's Safaricom, along with France-based Orange Money, which France Telecom Group recently launched in Africa. Mobile operators lead the schemes, which handle domestic transactions almost exclusively. But banks operate some schemes in the pipeline.

Not only remittance schemes but mobile payment and mobile banking also continue to move forward, Krugel tells Cards&Payments. "I haven't seen a slowdown in deployment of mobile money (projects)," he says.

Steve Kietz, CEO of U.S.-based MobileMoney Ventures, the joint venture of Citigroup and SK Telecom of South Korea, says offering mobile-banking services does not require a huge investment, so banks likely will not scrub these types of projects. "The realization is, you have to show innovation if you want to keep the best customers," he says.

Kietz confirmed Citi also is going ahead with plans for a mobile-payment trial in Bangalore India using Near Field Communication technology. Cards&Payments has learned the trial was to launch as early as this month and will deploy up to 15,000 NFC phones, which will support MasterCard Worldwide's contactless PayPass payment, transit ticketing and mobile-couponing applications. Kietz would only say it would be the "biggest NFC pilot ever." Mobile operator Vodafone Essar Ltd. also will participate in the trial, Cards&Payments has learned.

Regulatory Hurdles
For remittance schemes, regulatory issues, not the economic downturn, are the biggest hurdle organizers must clear, especially when the funds cross borders.

Regulators fear the senders and recipients could use the schemes to launder money. MasterCard and the GSM Association tried to organize a remittance trial two years ago to enable Philippine workers in the United Arab Emirates to send funds home using their mobile phones, but the project was beset by several delays, including technical problems, and MasterCard could not launch the pilot.

And MasterCard was not among the nine companies to make proposals to the GSM Association to be permanent part of the Mobile Money Transfer program, the GSM Association's Krugel confirmed. The card company has its MoneySend card or account-based remittance service available only in India and Singapore. 

The association hopes RBS will help with bank regulators in the various countries in which it does business. The bank mainly will offer the program expertise in foreign currency exchange. Visa also could help regulators through its affiliated banks and provide the broad reach of its processing network and infrastructure of ATMs and point-of-sale terminals that accept Visa-branded cards.

But that card infrastructure remains weak in many of the countries to which migrants would remit funds via the mobile channel.

There are other ways for these individuals to spend or cash out the funds than through Visa cards, says Pam Zuercher, head of Visa's global mobile initiative.
"It's never been about the card; it's the 16-digit (Visa) account," she says.

Recipients might spend the funds on purchases directly from the phone or online with the account number, or they could cash the account out.

The procedure for recipients to make purchases or to cash out with the account numbers in poor countries remains vague. But GSM's Krugel says Visa could bring in nonbanks to the remittance schemes, perhaps as account or card issuers.

Zuercher, meanwhile, maintains she has not seen bank interest in offering mobile-payment or mobile-banking services wane since the economic crisis took hold last fall.

Moreover, the World Bank believes remittance activity usually is resistant to economic downturns, as migrants scrape together funds to send home.

And the GSM Association believes adding mobile to the remittance mix will lower average fees for migrants to send funds home, in part, because they can send funds more frequently, in lower amounts. Fees, at present, often exceed 10% of the amount the migrants send.

Lower fees will help, but as global economies brace for continued job losses and falling activity, remittances using any channel are sure to suffer.  CP

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