MoneyGram takes aim at Southeast Asian remittances by going digital
By Tan Jee Yee March 13, 2020
- MoneyGram offers both traditional cash transfers alongside online and app-based transfers
- Partners Ripple to utilise blockchain in remittance, thus lowering cost, expanding its reach
Not many think of it, but remittance is one of the most important financial services in the world. Money transferred by foreign workers to their homes are vital to developing nations – “the lifeblood of developing economies”, describes the headline of a World Economic Forum piece.
To quote the lead author of World Bank’s 2019 Migration and Development Brief, Dilip Ratha: “Remittances are on track to become the largest source of external financing in developing countries.” The numbers are rising. World Bank estimates that officially recorded annual remittance flows to low- and middle-income countries reached US$529 billion in 2018, rising 9.6% from 2017.
Global remittances, which include flows to high-income countries, reached US$689 billion in 2018. Remittances to countries in South Asia, Central Asia, Southeast Asia, East Asia and the Pacific that year reached US$299.6 billion – not including what World Bank believes to be substantial amounts sent via informal channels.
There are still massive gaps that need to be addressed. Dilip, who is also head of the Global Knowledge Partnership on Migration and Development (KNOMAD), wrote that “the high costs of money transfers reduce the benefits of migration,” and that one way to reduce costs include “renegotiating exclusive partnerships and letting new players operate through national post offices, banks, and telecommunications companies will increase competition and lower remittance prices.”
Another way to help is through digital technology, as what many fintech players are attempting as well as traditional players such as MoneyGram, one of the world’s largest money transfer companies, is attempting.
A US-based company, MoneyGram operates in more than 200 countries with a global network of about 350,000 agent offices. It has 48 million annual users, with US$160 billion in flows through MoneyGram international.
MoneyGram operates in a money transfer model that allows money senders to transfer across their network of agent offices. For instance, a migrant worker in Malaysia looking to transfer money to Indonesia can do so through one of MoneyGram’s agents. The sender will receive an eight-digit code, which will allow the receiver to withdraw the cash from an agent in Indonesia.
The transaction, as explained by MoneyGram’s Asia Pacific and South Asia head Anil Kapur, takes only a matter of minutes. The company’s advantage is one of speed and flexibility – it’s not only fast, but its wide network of agents means that recipients in rural areas can withdraw from the nearest possible agent instead of travelling to towns or cities to a specific bank.
Compliance is also another strength. Besides being a regulated entity across the globe, which ensures that a sender’s money is transferred through a formal channel, Kapur says that MoneyGram screens everyone who makes and receives a money transfer – their names are checked against lists put up by various governments and agencies to ensure that they’re not criminals or terrorists.
Remittance in the digital age
MoneyGram is now getting prepared to facilitate remittance in the digital economy. To start with, the company has introduced MoneyGram Online, their online money transfer service which operates in 65 markets (not available in Malaysia yet, but it’s about to start in Singapore).
More vital, perhaps, is their MoneyGram App, which allows users to transfer money from their bank account from one country to another. The recipient doesn’t need an app to withdraw the money through an agent. It’s not here in Malaysia yet, but it’s an “opportunity we’re exploring,” says Kapur.
Kapur acknowledges that their primary customer base demands that transferring is done with cash, but their digital offerings serve as alternative options to those who are more technologically savvy. On top of that, high smartphone penetration rates in Southeast Asia would mean that there will inevitably be a large segment seeking the convenience of digital money transfer.
Their digital strategy extends beyond just that. The company is in discussion with fintech partners that are already providing their respective services through an app. Where MoneyGram comes in is to serve as their back-end platform. “These fintech companies have the customer base and the front-end of the service, but they may not know how to get the money to the customer. We can provide that,” says Kapur.
He adds that MoneyGram also ensures that their systems are API-friendly, which allows partners to implement their systems with ease.
Lowering cost with blockchain
Adding channels for remittance is importance, but that doesn’t quite address one other primary gap of money transfers – cost. For this, MoneyGram is looking towards another form of digital tech: blockchain.
The company’s business model is called ‘settlement’, and is a complex process. To simplify, when a MoneyGram agent receives money from a customer, they pass the money on to MoneyGram, which holds the money in their bank account before transferring it to the receiving agent’s bank account.
Kapur says that transferring the money between different banks can be costly, and one way to mitigate it is by partnering with Ripple, the real-time gross settlement system that enables payment providers to send money using their advanced blockchain technology. “We’re seeing good results, and it’s a clear example of what we’re doing in evaluating different opportunities going forward,” he says.
According to the World Bank, remittance flows are projected to reach US$574 billion in 2020 and rise up to US$597 billion by 2021, and this is based on conservative methodology that doesn’t account for increasing migration flows, falling remittance costs and progress in technology.
But as remittance services become more important, so too will the technology that supports it in making remittances more efficient and cost-effective. Perhaps we’ll see more innovations yet.