Cash & Liquidity ManagementPaymentsPayments OutsourcingRemittance Win-win

Remittance Win-win

Q: Can we define the scale of the remittances market worldwide?

A: The most reliable figures suggest the global remittance market is worth approximately €250bn to €300bn per annum. Needless to say, this is a huge market with vast potential, growing dramatically in line with increased global migration. There are now some 46 million migrants in the US and 42 million in the EU, and this will irrefutably continue to grow, as will the remittance market. In most EU countries the migrant population accounts for between 7% and 12%; in the big cities, it is in the range of 10% and 20%. On a much smaller scale remittances services are also used by mainstream or ‘non-migrant’ customers, who send and receive money for gifts, emergencies, student gap year support and so forth. With the growing need for speed and convenience and as travel is extended to further remote locations, we also expect to see continued growth in this market.

Q: Where do you see the potential for banks and your migrant customer base?

A: Through extensive ongoing market research, we have identified the concept of the ‘migrant life cycle’. This cycle outlines a customer’s progression through the financial system starting from the simple cash-to-cash money transfer, to taking on sophisticated mortgages. We know that a high percentage of our customers open current accounts which provides banks the stepping stone to offer additional services such as savings products, loans and mortgages.

Q: Can we say that banks’ strategy has changed and that the credit crunch has made this a more attractive business?

A: Banks are definitely looking to increase this part of their business. The payment services industry continues to develop very fast indeed and the advent of the Payment Services Directive (PSD), which comes into force in November 2009, will bring new competition to the EU payments market in the form of the payment institutions (PIs). In addition to the more traditional transactors, such as online payment providers and remittance service providers, new competition will come from sectors such retail, as supermarkets, petrol stations, and corner shops will be eligible to offer payment services. That being said, banks will be looking to secure their market position and extend their revenue opportunities, such as remittances.

By partnering with an established and trusted remittance provider, banks will be able to provide customers with a new, fast and reliable service even to the most remote corners of the world, often beyond the scope of traditional banking channels.

Q: You’ve mentioned the PSD. Could you explain what impact this is likely to have on remittance services in Europe?

A: The directive will have a major impact on the EU remittance business. The question is how quickly this will take place. I don’t think we’re going to see an explosion of remittance providers, as it takes time and substantial investment to be able to provide the sheer scale and scope of a viable remittance network. Nor do I think will we see an avalanche of retailers immediately going into this business when the PSD comes into force. In time, both the remittances as well as the payments landscape in the EU will change dramatically. Besides the time required for the new compliance and regulatory procedures to become established, it will also be a question of consumer acceptance in taking on service from a variety of providers.

Q: Do you think the banks fully understand the remittances market?

A: As a former banker, I would say unfortunately, remittance services are not in the bank’s top priorities. Often, this service is relegated to a specific operations department that simply performs the service, just as any typical ‘utility’, as opposed to a strategic revenue contributor. Bankers tend to focus more on the traditional products such as loans, deposits, trading, and M&A. Given the current situation in the financial markets, however, we note that banks are increasingly interested in the remittance sector, particularly as it is a relatively risk-free and steady business adding significantly to their bottom line. Therefore, I think bankers will pay more attention to this business going forward.

Q: What are the advantages for the banks of partnering with a remittance provider such as Western Union?

A: Taking into account the current economic environment, all banks are taking a closer look at their core business and avoiding taking on too much risk. In this context, they’re looking increasingly at transactional services. This generates fee income, which is relatively risk-free.

Customers come to you on a regular basis and while the amounts they send are comparatively small, this recurrent business provides steady income for the bank. Today this has a strong appeal to banks, not just for the fee income itself, but also for the fact that in the past many banks have not concentrated on the migrant customer in a focused strategy.

Some of the Irish, British and Spanish banks have recognised this potential early on and have created special units for this segment, which typically accounts for 10% to 20% of the population in major cities. By partnering with Western Union, a brand that enjoys high recognition among migrants, banks have natural access to this customer segment.

Looking at a typical ‘migrant life cycle’ over three to five years, customers will over time develop into valuable clients using all types of bank services. Besides the traditional migrant base, the bank would be able to offer its current mainstream customers access to a trusted global service, often in high impact situations such as emergencies, for example, loss of money or sickness.

Q: Do you see more potential for business with global banks or do the smaller institutions have a greater need to outsource their remittance services?

A: There is no clear-cut answer to this question. We provide a global service on a local, often on a micro-level and we are interested to work with partners who will add value to this network. Priority will be given to those partners that position the partnership as more than simply an ‘add-on’ service. Generally speaking, it is probably fair to say that, currently, Western Union partnerships are dominated by the larger global and regional banks, as opposed to the (stand-alone) domestic banks. Although we work with banks on varied levels, for example, working with a global bank but with the partnership limited to a specific region. Furthermore, global decentralised banks often function as local banks on a country level.

Q: How do you plan to achieve a larger share of the market with bank partnerships?

A: Each specific market is carefully scrutinised to determine what kind of distribution channel best suit our customers’ needs. Our core business is the cash-to-cash offering, but as a growing percentage of our clients are opening bank accounts and their financial needs become more sophisticated, we see the need to extend the range of our services to incorporate this trend.

We see an opportunity to partner with banks to offer an account-to-cash remittance solution, which can be migrated towards an electronic channel. Banks do have some disadvantages for providing cash based services, such as the limited opening hours, sometimes locations not easily accessible to migrants, language barriers and in some cases an inability to market effectively to this sector. Through partnerships, difficulties such as these can be easily overcome, for example, through e-banking and internet banking solutions that provide customers with convenient and speedy services without the need to access a branch location.

Therefore, to address the needs of banks and their customers, Western Union has developed a model of bespoke solutions, enabling customers to transact through various electronic banking channels including mobile and telephone banking.

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