CROSS-BORDER MONEY TRANSFER MARKET

INTRODUCTION

International money transfer is a huge and competitive industry. Before 2020, the industry was booming. The amount of cash migrants from low-and middle-income countries sent home to their friends and family reached a record $548 billion in 2019 but is projected to decline 14 percent by 2021 due to worldwide shutdown for COVID pandemic.

Migrants and their families from low income or mid income countries who rely on remittance, they are heavily hit by the pandemic. They also don’t have access to digital platforms. Facilitating digital remittances would require improving access to bank accounts for mobile remittance service providers as well as senders and recipients of remittances.

However, digital transfers are breaking down borders for foreign migrant workers of high/middle income group countries, during the pandemic. Large companies like Western Union, Moneygram, gaining mostly from their digital business in 2020. Also, fintech startups like Transferwire, RIA, giving a strong competition to the traditional ones in term of digital innovations and customer base.

In post Covid world, a structural change in the international money transfer market can be seen. People are expected to be more comfortable and absorbed by the digital platforms.

By reducing the number of middle men in process of transferring, digitization brings contactless payments, fast timings and lower fees.

When historical trend of remittance flow is observed, a crisis expectedly reduces the flow of remittance as people loose jobs, then the aftermath the crisis the flows rebound sharply as people overcome.

Lastly, remittances once again come to an average level like before the crisis. But also, COVID19 is surely much more severe than any other crisis happened.

Still in the long run migration flow is expected to increase significantly as well as remittance. The wide income gap between high- and low-income countries (i.e., 54:1) will drive the growth of remittance market.

• WB predicts, Global remittances to decline sharply by about 20 percent in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown.
• The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country.
• Remittance flows are expected to fall across all World Bank Group regions, most notably in Europe and Central Asia (27.5 percent), followed by Sub-Saharan Africa (23.1 percent), South Asia (22.1 percent), the Middle East and North Africa (19.6 percent), Latin America and the Caribbean (19.3 percent), and East Asia and the Pacific (13 percent).

• In 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6 percent to $470 billion. The outlook for remittance remains as uncertain as the impact of COVID-19 on the outlook for global growth and on the measures to restrain the spread of the disease.
• In Q3 2020, the global average cost for sending remittances was 6.75%. The global average remained below 7.00% since Q1 2019.

• Remittance flows to the East Asia and Pacificregion grew by 2.6 percent to $147 billion in 2019, about 4.3 percentage points lower than the growth rate in 2018. In 2020, remittance flows are expected to decline by 13 percent. The slowdown is expected to be driven by declining inflows from the United States, the largest source of remittances to the region.
• Remittances to countries in Europe and Central Asiaremained strong in 2019, growing by about 6 percent to $65 billion in 2019. In 2020, remittances are estimated to fall by about 28 percent due to the combined effect of the global coronavirus pandemic and lower oil prices.
• Remittances flows into Latin America and the Caribbean grew 7.4 percent to $96 billion in 2019. In 2020, remittance flows to the region are estimated to fall by 19.3 percent.
• Remittances to the Middle East and North Africa region are projected to fall by 19.6 percent to $47 billion in 2020, following the 2.6 percent growth seen in 2019. The anticipated decline is attributable to the global slowdown as well as the impact of lower oil prices in GCC countries.
• Remittances to South Asia are projected to decline by 22 percent to $109 billion in 2020, following the growth of 6.1 percent in 2019. The deceleration in remittances to the South Asian region in 2020 is driven by the global economic slowdown due to the coronavirus outbreak as well as oil price declines.

• The major MTOs are Western Union, Moneygram, Transferwise, Xoom, UAE Exchange, RIA.
• Western Unionis the largest MTO by dollar volume traded.
• Consumer-to-Consumer (C2C) transactions increased 6% in the quarter, while revenues declined 1% on constant currency basis.
• In the third quarter of 2020, digital revenues increased 45% year-over-year, representing 21% of Western Union’s consumer business, and trended at an annual rate of over $900 million.
• The Company has achieved significant progress in its digital growth strategy in 2020 through both its market leading westernunion.com channel and digital partnerships.
• Cross-currency money transfer firm Western Union has announced the launch of Digital Location, a new tool that enables people to send money from home, on March 2020. Users can choose phone calls or video in multiple languages to connect to a money transfer personal service assistant.
• On Nov 2020, the Company has entered into a definitive agreement to acquire a minority stake in fast growing Saudi Digital Payments Company, or stc pay to further advance their digital growth.

• Moneygram
  • Total revenue was $323.2 million, representing a slight increase on a reported basis or -1% on a constant currency basis.
  • Money transfer revenue was $297.6 million, up 5%, or 4% on a constant currency basis, driven by the strength of their digital business.
  • On Feb 2020 they launched, MoneyGram FastSend™, a new service through which consumers can send money quickly and easily to their friend's mobile phone number via the MoneyGram website and mobile app. The new service, supported by the Visa Direct rails, enables the industry's fastest transaction times and the most seamless money transfer user experience.
  • Digital revenue accelerated from the second quarter to $53.2 million representing a 95% year-over-year revenue growth rate for the third quarter
  • Digital partnerships delivered transaction growth of 79% in the third quarter
  • Account deposit and mobile wallet transactions increased 157% in the third quarter
  • Digital transactions accounted for 27% of all money transfer transactions in the third quarter
  • For the fourth quarter, the Company anticipates reporting total revenue growth of approximately one percent on the continued strength of the money transfer business, offset by lower investment income. Based on these revenue trends coupled with the continued expense benefit from its Digital Transformation, the Company anticipates reporting Adjusted EBITDA growth of approximately 10 percent.
• In the past decade, many fintech startups have entered the remittance market and grown rapidly to be considered important competitors by traditional players such as Western Union. Each startup has come up with a new way of improving remittances while focusing on a specific consumer base or geography.
• WorldRemit serves a considerable share of African migrants, while RIA Money Transfer targets migrants from Latin American countries, and Azimo focuses on the European Market.
• Another success story is TransferWise which has experienced the biggest and fastest growth in total annual revenue since its founding in 2011.
• Through their borderless and global expansion strategies, they have been able to quickly reach over 6 million users and process £4bn in monthly transactions.
• It claims to use a peer-to-peer model of matching customers’ transactions off against each other, which negates its needs to transfer currencies manually (and expensively) via transactions with third parties in the interbank market.

RECENT PARTNERSHIPS IN CROSS-BORDER MONEY TRANSFER MARKET

Since IndusInd Bank and NPCI have partnered to make cross-border money transfers possible using the beneficiaries' UPI IDs, Indians can now receive remittance money from their abroad sources much more easily. 

By doing this, sending money won't require you to remember your bank account information. IndusInd Bank announced in a statement that it has partnered with NPCI to provide its money transfer operator (MTO) partners with real-time cross-border remittances to India utilising UPI IDs.

 With this effort, IndusInd Bank has become the first bank in India to use UPI for international transfers or remittances from NRIs.

According to this agreement, the MTOs will link to the NPCI's UPI payment systems via the IndusInd Bank channel for cross-border payment validation and settlement into beneficiary accounts. IndusInd Bank has initially begun using DeeMoney using UPI to send foreign inward remittances (FIR) to Thailand. Money transfers and currency exchange services are provided by DeeMoney, a Thai provider of financial solutions. 

One can effortlessly send money by adding the Indian beneficiaries' UPI IDs to the DeeMoney website. For cross-border payments via UPI, IndusInd Bank stated that it also has plans to add more partners in a number of other nations in the near future.

It's a huge step in streamlining the functionality of remittances because people living abroad may now easily transfer money to a beneficiary by adding their UPI IDs, rather than having to remember their bank account information. 

Enabling overseas remittance using UPI is a significant step toward enhancing its utilisation as a platform and will significantly increase NRIs' adoption of it worldwide. 

Using UPI, the effort will make remittances for overseas travellers considerably easier and more effective.

RECENT ACQUISITION IN CROSS BORDER MONEY TRANSFER MARKET

MakeMyTrip's fintech branch, TripMoney, has acquired a majority share in forex services firm BookMyForex. BookMyForex's portfolio of services, which includes currency exchange with real-time exchange rates, multi-currency prepaid forex cards, cross-border remittances, and other ancillary goods, will be rolled out soon for the benefit of MakeMyTrip and Goibibo clients, thanks to this funding.

Customers in numerous cities across India will be able to get their forex needs met through BookMyForex's broad network of partners, which includes chosen banks and reputable exchange providers.

The purchase of a majority stake in BookMyForex is in keeping with our strategic goal of creating a travel super app with a full range of services for discerning travellers.

Faering Capital, as well as the company's founders and promoters, will continue to invest in BookMyForex.

CROSS BORDER MONEY TRANSFER MARKET AND BLOCKCHAIN

• Blockchain removes multiple intermediaries that participate in traditional cross-border money transfers. Money is transferred directly via blockchain from Bank A to Bank B, eliminating the need to go through two other correspondent banks and reducing the time and cost of the transaction.
• The cost savings a customer can make by using blockchain-based cross-border payment solutions are substantial.
• Blockchain also simplifies the Know You Client regulatory requirements by storing the client’s details once on the blockchain where the information can be stored, retrieved and accessed whenever needed and eliminating duplication.
• Some of the most prominent blockchain startups in this field are outlined below
• Ripple Labs is an American blockchain company that developed the Ripple Protocol, a real-time gross settlement (RTGS) system and remittance network.
• Launched in 2012, Ripple’s operations have grown significantly since its inception and its cryptocurrency XRP has reached a market cap of over $10bn as of September 2020.
• It partnered with SBI Remit, Japan’s largest money transfer provider, in order to facilitate instant remittance transactions through the blockchain.
• Bitpesa is a Nairobi based digital foreign exchange and cryptocurrency liquidity provider in Africa.
• BitPesa’s goal is to decrease the cost and increase the speed of payments in frontier markets for both individuals and businesses. In addition, it is trying to enable international remittance transactions through cryptocurrency, mobile money, and digital channels.
• While blockchain is a disruptive technology, its goal isn’t to necessarily kill its competition but rather to supplement it and renovate the infrastructure that banks and Money Transfer Operators rely on.
• Some major blockchain players have made it a priority to keep great relationships with financial institutions and operate as their partner.
• For instance, Ripple partnered with Western Union and MoneyGram in 2018 to pilot and experiment its cryptocurrency-focused product xRapid. Later in 2019, Ripple reinforced its interest in partnering with large remittance companies by acquiring a $50 million stake in MoneyGram and expand their xRapid partnership. On the other hand, Western Union teamed up with the Filipino startup mentioned above, Coins.hp, to streamline the remittance process in the Philippines.

CROSS BORDER MONEY TRANSFER MARKETNEW TECHNOLOGY

Technology Behind Crypto Can Also Improve Payments, Providing a Public GoodA new kind of multilateral platform could improve cross-border payments, leveraging technological innovations for public policy objectives.

For many users, crypto assets have been a disappointment rather than a revolution, and global organisations such as the IMF and the Financial Stability Board have called for stronger regulation.However, some of the quickly growing crypto technologies may eventually hold more promise. The private sector is constantly inventing and personalising financial services.

Tokenization, encryption, and programmability are examples of new payment technologies.Tokenization is the process of expressing ownership rights to an item, like money, on an electronic ledger—a database shared by all market players that is designed to be publicly available, synchronised, quickly updatable, and tamper-proof. Anonymity of token balances and transactions is unnecessary (and actually damages financial integrity).

Encryption aids in decoupling compliance checks from transactions, allowing only authorised parties to access sensitive data. This increases openness while also fostering trust.

Programmability enables financial contracts to be written more simply and automatically implemented, as with "smart contracts," without the need for a trusted third party.

Innovation in the private sector.With these new tools, the private sector is innovating in ways that might be more transformational than the first wave of crypto assets: tokenization of financial assets, tokenization of money, and automation.

Tokenization of stocks, bonds, and other assets has the potential to reduce trading costs, integrate markets, and broaden access. However, paying for such assets will necessitate funds on a suitable ledger. Stablecoins are one example, to the extent that they conform with regulations.

Banks are also experimenting with tokenized checking accounts. And automation is common, allowing third parties to programme functionality in the same way that developers make smartphone applications.

Even if the private sector pushes the bounds of innovation and customisation, it cannot guarantee that transactions are secure, efficient, and interoperable.

Instead, the private sector is expected to establish client-only networks for exchanging assets and making payments. Open ledgers may arise in an attempt to bridge private networks, but given the low economic potential, they are likely to lack standardisation and appropriate investment. Using private money to settle transactions would also put counterparties at risk.

The role of the central bank, Because of its dual nature as a monetary instrument—a store of value and a form of payment—as well as infrastructure required to clear and settle transactions, digital currencies can be of assistance. Policy debates have mostly focused on the first element, but we believe the second should be given equal weight.

CBDC, as a monetary instrument, offers security; it reduces counterparty risk and increases payment liquidity. CBDC, on the other hand, as infrastructure, might improve interoperability and efficiency across private networks for digital money and even assets.

Payments might be conducted between private funds using the CBDC ledger or platform. Money might be escrowed on the CBDC platform and then released when specific circumstances are satisfied, such as the receipt of a tokenized asset.

Furthermore, the CBDC platform might provide a basic programming language to guarantee that smart contracts are trusted and interoperable with one another.

In the digital world of the future, this will also become a public benefit.A public platform might enable banks and other regulated financial entities to exchange digital representations of domestic central bank reserves across borders.

Participants might trade secure central bank reserves without being explicitly controlled by each central bank, nor would significant modifications to national payment systems be required.

Again, transactions need more than just the transfer of cash. Risk sharing, currency exchange, and liquidity management are all included.

Money may be transacted simultaneously because of the single ledger and programmability, removing the chance of one side being left out. More generally, it is possible to create risk-sharing agreements, sustain sparsely traded currency markets using auctions, and automate capital flow restrictions (which are already in place in many nations).

The platform would significantly reduce the risks associated with such contracts. In order to prevent unsuccessful transactions, it would make sure that contracts are completely backed by escrowed funds, automatically performed, and consistent with one another.

Consider the possibility of using a contract for a payment due tomorrow as security today, which would reduce the cost of holding idle cash.Encryption can control the transfer of information in addition to the transfer of currency.

For instance, the platform might verify that users adhere to anti-money laundering regulations while still allowing them to place anonymous bids on items like foreign exchange while still being able to view the overall balance between bids and asks.

CROSS BORDER MONEY TRANSFER MARKETCOMPANIES PROFILED

• Western Union
• MoneyGram
• XE
• Transferwise
• WorldRemit
• Azimo
• Remitly
• RIA
• Xoom
• Torfx