Reducing the Cost and Increasing Efficiency of Remittance Transfers: Global Experiences May 27, 2009 JACQUELINE IRVING, Migration and Remittances Team, DECPG GDLN PROGRAM FOR ECA

How to reduce remittance transfer costs* and increase transmission efficiency?  Increasing the number of remittance services market competitors  In particular, render exclusivity contracts illegal, where these exist  Developing new, more efficient technologies  Strategic partnerships between remittance service providers (RSPs)  Raise remittance senders’ awareness of alternative channels and their costs *See, in particular, Ratha, Dilip and J. Riedberg, On Reducing Remittance Costs, 2005, available at ; Orozco, Manuel, 2002, “Attracting Remittances: Money, Market and Reduced Cost,” IDB, Washington D.C.,

Reducing transfer costs and expanding outreach in rural areas  Developing new delivery technologies—mobile phone, internet, cash cards  Certain nonbank RSPs may have potential to play greater role in delivery of remittances: –National postal system networks? –Microfinance institutions?  New partnerships between banks, MTOs and/or other RSPs to improve remittance transfer to rural areas

Country experiences: Reducing costs and increasing efficiency  Philippines’ Smart Padala case /1  Senegal’s Money Express case /2  Overview of country initiatives underway (as reported in World Bank’s Migration & Remittances Team central banks survey) /3 /1 Ratha and Riedberg (2005). /2 Mohapatra, Irving, Ratha, “An Overview of Remittance Markets in Sub-Saharan Africa,” forthcoming in 2009; Money Express website at /3 Irving, Mohapatra, Ratha, “Survey of Central banks on Migrant Remittance Flows: Final Findings,” forthcoming in 2009.

Country experiences: Reducing costs and increasing efficiency Philippines’ Smart Padala case

Smart Padala International Case*  Smart Communications: leading Philippines’ mobile phone services company  Introduced service for sending cash cross- border via text message in 2004  Text-based telecoms remittance transfer service: –Reduced transfer costs –Quick means of sending remittances –Expanded rural access *See Ratha and Riedberg (2005) ; Smart Communications website.

Smart Padala: How does it work?  Smart Padala service works with bank and other RSP partners in some 20 remittance-sending countries.  A Filipino migrant takes the funds to be remitted to a Smart Padala partner in his host country.  The migrant provides basic information about the recipient: name, Smart mobile phone number to which money will be sent, and the recipient’s Smart money number. *For more information, see the Smart Communications website at

Smart Padala: How does it work?  The migrant pays a fee of 1% of the amount to be transmitted.  The Smart Padala partner texts the family member beneficiary in the Philippines to alert him of the money transfer.  The beneficiary receives a text message on his phone within minutes alerting him to the transaction.

Smart Padala: How does it work?  The beneficiary can pick up cash at any Smart Padala partner or can choose to obtain the remittances via a Smart Money card.  A Smart Money (cash/debit) card allows the holder to:  withdraw his remittances from a participating ATM (Banco de Oro, Expressnet or Megalink ATMs in the Philippines);  make purchases using the card at participating retailers.

Smart Padala: Comparison with other channels A service centered on text messaging—a technology that is cheaper than mobile phone calls in the Philippines. A quick and relatively inexpensive channel for remittance transmission—transfers within minutes More secure than physical cash delivery Receiver has choice of picking up cash, withdrawing from an ATM, drawing on funds at a retailer using a prepaid card. Even unbanked recipients in many rural areas can access funds.

Smart Padala: Comparison with other channels  Accessing remittances requires that recipient have a mobile phone  Recipient must have physical access to a Smart Padala partner or participating Smart Card retailer to encash/draw on funds  Many Filipino mobile phone users were already very familiar with text messaging; others may still be wary of this new technology  Retailers may be wary of this new service and may be unwilling to participate

Remittance transfer via mobile phone: Applicability for ECA  Requires adequate level of mobile phone penetration rates/telecoms technology  Mobile phone penetration rates in the CIS have been growing faster than rest of Europe*  93% average for the CIS in 2007, up from 18% in 2003 (119% for Russia in 2007)  Poor land lines led to increased competition in mobile telephony, which has driven down fees *According to the International Telecommunications Union. See the ITU website at

Remittance transfer via mobile phone: Applicability for ECA  Some countries have lagged behind in mobile phone penetration (e.g., Tajikistan and Turkmenistan with penetration rates of just 4% as of 2007*).  But the CIS region appears poised for mobile telecoms growth: large population, poor landline infrastructure, and multinational providers such as MTS already have a presence in the region.  Can partnerships be formed between third party agents/operators in sending and receiving countries?  What are the national regulatory challenges related to cross- border transactions via mobile phone technology in the CIS? *According to the International Telecommunications Union. See the ITU website at

Remittance transfer via mobile phone: Applicability for ECA  Are local retailers in the CIS willing to participate in a prepaid/debit card service?  Are remittance senders and receivers willing to trust a service that transmits money via mobile phone text?  Are remittance senders/receivers willing to trust partner banks and other RSPs involved in providing such a service?

Country experiences: Reducing costs and increasing efficiency Senegal’s Money Express case

Senegal’s Money Express Case*  Money Express is the money transfer operator (MTO) arm of Group Chaka, a Senegalese-based IT company founded in  Group Chaka sought a way of providing a cheaper alternative to costly money transfer services.  Launched Money Express in 2002 in partnership with WAEMU member countries’ savings banks.  Network now covers all WAEMU countries and Chad; has begun moving into Anglophone Africa (Ghana). *See Mohapatra, Irving, Ratha, “An Overview of Remittance Markets in Sub-Saharan Africa,” forthcoming 2009; Money Express website at

Senegal’s Money Express Case How does Money Express provide a cheaper, efficient money transfer alternative?  Leverages parent Group Chaka’s IT-expertise.  Chaka developed electronic transfer technology to cut the cost of money transfer to 3-4% of amount sent.  Strategic partnerships with RSPs in key remittance- sending countries and in Senegal.

Senegal’s Money Express: How does it work?  Developed software to transfer cash into a deposit account in migrant’s home country.  Offers range of electronic transfer services: cash to account, cash to cash, account to cash, and account to account.  Takes into account local remittance market and regulatory conditions.  Forms partnerships with local players to gain access to senders/receivers who might choose informal channels.

Senegal’s Money Express: Strategic partnerships  Chaka drew on relationship with an early client, Société Générale, which handles the settlement part of cash-to-account transactions.  Offers a flexible service range due to its partnership with the Banque de l'Habitat du Sénégal (BHS): most Senegalese migrants hold accounts with BHS.  Partnerships with smaller, local RSPs in sending/receiving countries-- more in touch with low income migrants and families.

Senegal’s Money Express: Strategic partnerships  Some local MTO partners in Europe cobrand their shops with Money Express to boost name awareness.  In Italy, Money Express has its own license and its own shops, reflecting local regulatory conditions.  Money Express also franchises retail shops targeting African migrants in Italy to provide its services.

Senegal’s Money Express: Strategic partnerships  Partnership with Senegal’s national postal service to gain access to recipients in rural, unbanked areas.  Now also works with Benin’s national postal service.  Partnerships with small savings banks in some countries.  Partnerships with microfinance institutions.

Senegal’s Money Express: Competitive advantage  Offers a full range of transmission services  Targets low-income clients by taking into account local remittance market and regulatory conditions.  Forms partnerships with local players having access to senders/receivers who might choose informal channels.  Western Union and other competitors have responded by cutting their own fees somewhat.

Strategic partnerships to access to lower income clients: Applicability for ECA  Partnerships between local/regional MTOs that have telecoms infrastructure and national post offices that have branch networks in rural areas?  Partnerships between national postal services in key remittance corridors may lead to new systems/technologies for transfer to rural unbanked?  Benefits to partnerships with microfinance institutions for remittance delivery in some countries (e.g., Tajikistan)?

Country experiences: Reducing costs and increasing efficiency World Bank Migration & Remittances Team Central bank survey findings: Overview of country initiatives

World Bank Central bank survey findings: Overview of country initiatives to cut costs/increase competition

World Bank Central bank survey findings: Overview of country initiatives in ECA

World Bank Central bank survey findings:* Overview of ECA initiatives to cut costs/increase competition  Four of the 12 ECA remittance-receiving countries’ CB respondents--Albania, Moldova, Kyrgyz Republic, and Tajikistan--indicated they have such national initiatives.  Kyrgyz Republic and Tajikistan cited improving effectiveness of/public trust in banking system.  Albania and Moldova cited information campaigns to raise financial literacy/awareness of formal remittance services.  Albania’s CB also encourages banks, post office, postal savings banks to forge agreements w/counterparts in key corridors (Italy, Greece). * Irving, Mohapatra, Ratha, “Survey of Central banks on Migrant Remittance Flows: Final Findings,” forthcoming in 2009.

Reducing the Cost and Increasing Efficiency of Remittance Transfers: Global Experiences THANK YOU