Industry News

The biggest mobile payments market no one is talking about

This Tuesday marked the first-ever International Day of Family Remittances, dedicated to the millions of migrant workers who regularly send money home to their families, sometimes across the globe.

If you hadn’t heard about the celebration – or haven’t given much thought to the larger “remittance economy” – you aren’t alone. It is a topic that doesn’t get nearly as much attention as it should, given the number of people and scale of the economics involved.

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According to the United Nations’ International Fund for Agricultural Development (IFAD), which sponsored a global forum this week in Milan on remittances, migrant workers from developing countries sent home a staggering $436 billion – a sum roughly equal to the entire economy of Switzerland – to their families back home in 2014. In Europe alone such workers transferred more than $100 billion, providing money for food, housing, education and other goods and services to more than 150 million relatives and dependents across the world.

Just as remarkable as these numbers is the proportion of the money sent home that is spent just making such transfers happen. By IFAD’s count, transaction fees and other related costs average 7.9% of the amounts sent, which adds up to almost $35 billion.

This figure represents the costs of a dizzying array of official and unregulated paths for processing remittances, from well-known commercial cash transfer services like Western Union to the informal global “Hawala” network.

It also includes a broad and growing range of increasingly sophisticated mobile payment-based solutions and habits. Such transfers have traditionally centered on the ability of mobile users in one country to purchase airtime and other “top-up” credits for users in another country, and cater to migrants who want to better control how the money they are sending home is being spent.

Overall, however, it is expected that simple cash transfers via mobile devices will become the most common gateway for remittances. This is certainly likely when one considers the benefits compared to traditional cash transfer services, which require users to travel to physical remittance centers, often waiting in long lines for the pleasure of filling out paper forms and paying large commissions.

Beyond cost and convenience, development advocates like the IFAD see “mobile remittances” as beneficial because they simultaneously help build the financial infrastructure in those countries where the recipients of the remittances live.

But as a large percentage of people in such “underbanked” countries already possess and use mobile devices – and are often bigger users of mobile money than anyone in the developed world – it is unlikely that the switch to mobile remittances will need much encouragement from the United Nations or anyone else. Instead, it will be up to firms serving this market to keep up with demand.