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The cross-border conundrum

In this viewpoint feature Stephen Gibb, Chief Information Officer at mobile payments specialist Upaid, looks at how businesses and consumers can benefit from cross-border payments in emerging markets such as Brazil.

The recent announcement from EU regulators to limit fees for direct debit payments across European borders could see an escalation in the amount of money sent across the continent using this method. In a joint statement, the European Commission and the European Central Bank said they would be prepared to support the idea of a so-called "multilateral interchange fee" for cross-border direct debits on condition that these fees were "objectively justified" and applied for a limited period only. Cross-border payment, where the sender and recipient are in different countries, is a multi-million dollar industry and, according to the World Bank, over 175 million migrants currently use transfer services, sending money to over 800 million recipients at an estimated average transaction value of US$200. As nations' economies become increasingly interdependent through trade and investment and as funds and people become more mobile globally, the need to move money across borders efficiently, securely, inexpensively and in a timely way intensifies.

Some businesses make regular cross-border payments and have very defined procedures in place for this. However, most of us will only make cross-border payments occasionally. UK government research suggests that 35% of ethnic minority households in the UK send money abroad. A significant proportion of the money transferred is sent to parents, spouses and children. Looking at the money transfer industry from a global perspective, remittance from all countries makes a large contribution to the economies of the countries receiving the funds. In fact, according to Juniper Research the portion of migrants' earnings returned to their country of origin, may represent up to US$200 billion a year in international flows.

Commercial prospects

Alongside the traditional remittance industry, the mobile money transfer sector represents a significant prospective market for mobile operators, financial services organisations, governments, retailers, and end users. Juniper Research forecasts that service provider revenues derived from mobile money transfer services and remittances, will exceed US$5 billion globally by 2013.

Mobile money transfer can enable migrant workers to send money home at far lower transaction rates than traditional services. In addition, for those who have no access to a bank account, mobile money transfer gives instant access to the funds through a ubiquitous device now carried by 3.3 billion people worldwide according to the ITU.

Brazil as a case study

At the very core of mobile money transfer is the ability to top-up the phone of a friend or family member from another country. The use of pre-pay mobiles in emerging markets remains the dominant form of mobile communication across many developing and emerging markets. For example, Brazil's mobile market is the fifth largest in the world in terms of subscribers and according to the Wireless Federation has 133.15 million mobile subscribers and mobile penetration currently stands at 69.52%, over 80% of which is prepaid.

In Brazil and other emerging markets where pre-pay mobiles remain first choice for consumers, the easiest way for mobile users to top-up their phone is to enter a shop and purchase a paper voucher or receipt. Not only time-consuming and costly for the retailer, this method of top-up is also extremely inconvenient for the user, who often has to travel miles to find the nearest shop and foot the bill associated with the journey. In addition, cash is traditionally sent by money transfer to be used for these top-ups, rather than a simpler service that will see the sender only requiring an internet connection to send the desired amount of top-up time.

While this point-of-sale network will still be required for funding and retrieving transfers for the un-banked community, cooperation between mobile operators, banks and merchants would see it vastly broadened. This paves the way for mobile transfer with the use of some form of e-ticketing.

Future trends

The money transfer market is set to change radically over the next few years. In emerging markets, particularly in rural areas, banking infrastructure is less developed, leaving the door open for other methods of transaction. For those people who do not have bank accounts, it is often difficult and expensive to transfer money through traditional banking and money transfer services. Many people who move abroad away from their home country do so to earn money to send back home to family members.

Consumers in these markets must have access to alternative money transfer options to enable them to not only transfer money but also to remotely top-up the phones of friends and family. Here, it is essential that a consortium of mobile operators work together with the banks to ensure that easy money transfer options are readily available. When we look at what the future may hold for the players in this market, from handset manufacturers to network operators and, crucially, banks, it is collaboration that will ensure success. Without this, the challenges for the consumer will continue and the process will remain one that is not easy or straightforward, and unlikely to take off in the mass market. In addition, lack of cooperation between the banks and mobile operators will also mean time delays. And time is money.

Concluding thoughts

The rapid growth in access to mobile telecommunications in emerging markets has created new opportunities to provide secure, low-cost financial services using mobile networks. I believe the ability to transfer funds safely and securely using mobile phones could revolutionise the way people around the world save, spend and transfer their money. If the mobile industry can work successfully alongside the financial services sector and the regulators, the remittance business could dramatically change. Mobile money transfer has the potential to seriously compete with existing money transfer agencies costing much less to deliver than installing more ATMs or developing the banking infrastructure.

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