A free market environment and consistent technological innovation have enabled the UAE - one of the world's most vibrant remittance corridors - to set the pace for the $583 billion money transfer industry, with the lowest remittance cost on the planet surpassing the target of five per cent set by the World Bank and the G-20, says an industry veteran.
At below three per cent, the UAE's remittance industry, which recorded $29 billion in outbound remittances in 2014, offers the lowest fee structure that is way below the current global average of 7.8 per cent.
And if the entire global remittance market can meet the target of five per cent in five years set by the World Bank and the G20, remitters across the globe stand to save $20 billion in fee annually.
"This is possible if there is free market competition like the one prevailing in GCC countries and the use of advanced remittance technology. Indeed, technology can play a vital role in reducing costs," says Y. Sudhir Kumar Shetty, president of UAE Exchange.
As one of the most recognised home-grown global super brands, the UAE Exchange has been blazing trails in money transfer technology and setting new trends and service benchmarks for the past 30 years. With the recent £1 billion acquisition of Travelex, the global leader in currency exchange with a presence in 27 countries with 1,500 branches and 1,200 ATMs, UAE Exchange has reinforced its leadership as the world's number one remittance company.
Speaking to Khaleej Times in an interview, Kumar, who along with B.R. Shetty, founder of UAE Exchange, was instrumental in systemically changing the remittance industry scenario by cutting the transfer time to seconds compared to one to three weeks required three decades ago, discusses the evolution of remittance technology, dynamics of the industry and its growing significance.
What is significance of the remittance industry in the current globalised, interconnected economy?
Remittances are increasingly becoming a crucial subject in the agenda of various governments globally. While in some countries, remittances have become a significant contributor to GDP, in some, it is more than all the foreign direct investments put together and in a few others, it is yet to get strongly formal. The dynamically changing global scenario, be it political, economical or technological, adds to the fragile eco-system in which remittances have been sustaining, supporting millions of families, worldwide.
Give us your views on the global remittance scenario. Which are the world's leading remittance corridors and recipient markets of the industry?
The remittance industry has come a long way in the last three decades. Globalisation opened up opportunities beyond borders and people are increasingly getting comfortable with the idea of moving away from home for better commercial prospects, especially from the developing countries. The United States, Saudi Arabia, Germany, Russia and the UAE remain the top five migrant destination countries. This has triggered phenomenal growth in the remittance segment. Today, remittance is one of the most stable sources of income for many economies, outdoing even corporate and university funding.
According to the World Bank, in 2014, the total global remittances were $583 billion. USA leads the sending markets with $131 billion transferred out, followed by Saudi Arabia ($45 billion), the UAE ($29 billion), the UK ($25 billion) and Germany ($24 billion). Meanwhile, the top five fund-receiving countries are India ($70 billion), China ($64 billion), the Philippines ($28 billion), Mexico ($25 billion) and France ($25 billion).
The World Bank estimates that GCC transferred $102 billion in 2014, mostly to South Asian nations of India, Bangladesh, the Philippines, Pakistan, Sri Lanka and Nepal. In 2014, remittance to Nepal was $6 billion. In 2015, in the month of May alone, Nepal received an estimated $1 billion as aid to earthquake victims. During the crisis, many money transfer operators waived off the transfer fee so as to enable the Nepali community to send more money home.
What is the impact of remittances on developing countries' economies?
Remittances play a significant role in developing countries' economies. They often provide a significant source of foreign currency, increase national income, finance and imports, contribute to the balance of payments in households and provide capital for small businesses and entrepreneurial activities. For instance, studies based on household surveys in El Salvador and Sri Lanka found that children of remittance-receiving households have a lower school drop-out ratio and that these households spend more on private tuition for their children.
The World Bank estimates that remittances form a significant percentage of the GDP for many economies. For instance, remittance substantiates over 52 per cent of the GDP of Tajikistan, Kyrgyz Republic (32 per cent), Nepal (28 per cent), etc. This gives us a fair view of the important role remittance plays in the lives of millions of households worldwide. It's time that due importance is given to the subject by policy makers, making the process of money transfer very migrant-friendly without weakening the compliance aspect.
How has technology impacted remittances? How did technological innovations help speed up the transition and cut delay and cost of money transfer?
It is in the last three decades that remittance has actually grown and the last decade has contributed the most in terms of technological innovation. I remember earlier demand drafts were the only form of cross-border money transfers, which took about three weeks to realise. This delay and cost discouraged people to use formal channels of money transfers, giving rise to informal means.
Like everything else in life, remittance too is rapidly going digital. Cash to card transfers, online money transfers and mobile money transfers are catching up. Many African countries have reliable mobile wallets into which money can be transferred. The cost of infrastructure is very low, opening up a huge opportunity for reducing the cost of remittances. Money2anywhere.com, M-Pesa, Money2India etc, can be harbingers of change. All this is possible due to technological innovation,
How can the cost of remittance be further reduced?
The current global average charge for remittance is 7.8 per cent. The G20 countries and World Bank have targeted to reduce it to five per cent in the next five years. Currently, Africa is among the highest with 14 per cent and the UAE is the lowest at two per cent. This super tax brings around $2.3 billion loss to Africa per annum. The right use of technology can further reduce the cost to three per cent, saving a whopping $20 billion. Technology can play a vital role in reducing costs. Going digital seems to be the most promising course to take. Online money transfer portals like Money2anywhere.com, mobile money transfers, instant bank transfers like Flashremit, etc, can reduce the infrastructure and follow-up costs, while strengthening security and speed, thus benefitting the customer immensely.
How active is UAE Exchange in terms of implementing technology to improve security and reduce cost?
For UAE Exchange, safety of customers' money and identities are of top most priority. All necessary steps are taken to ensure that compliance is never compromised. Latest in technology is adopted to achieve this. Today, with close to 800 branches across 32 countries, we are the largest globally networked remittance brand. A dedicated team of 9,500 professionals, representing 42 nationalities, serve over 400,000 customers a day.
We have a loyal customer base of over 7.9 million customers worldwide. In 2014, we handled $28 billion in money transfers globally, which is six per cent of the total global remittances. India, which is the largest receiver of remittances in the world, received $70 billion. Out of which $7.3 billion was transferred through UAE Exchange, which is 11 per cent of the total remittances to India.
Xpress Money, our global instant money transfer brand, has a strong presence in 150 countries with over 170,000 agent locations. It serves millions of customers with instant cash transfer solutions.
We are well aware that digital is the future of remittances and hence we were among the first to introduce an online money transfer portal, Money2anywhere.com. We are the first remittance brand to have a SWIFT membership. We also have a principal membership with MasterCard. Our innovative, self-operated kiosk called MyBranch enables customers to send money or pay bills by themselves. Research and work is on for our own mobile money transfer technology. Our various kiosks, cash dispensing machines, interactive website, mobile app, etc., depict our tech-savvy nature. We are ready to stand up to the expectations of our next-gen customers. We are prepared to meet the future.
Our group has acquired Travelex, the global leader in currency exchange, which has a presence in 27 countries with 1,500 branches and 1,200 ATMs. While we leaped ahead, we also ensured that we proactively worked for the society, which nurtured us. In line with this, we have welcomed nationals in each of the countries, where we have operations, to be a part of our organisation.
In the UAE, for instance, as part of the Emiratisation initiative, we have 10 per cent of our employees from among UAE nationals, who work across 140 branches across the country. Similarly, programmes are run across other countries too, especially in the GCC. We have also extended aid to children in Africa through Unicef, flood victims in Philippines through the United Nations World Food Programme, victims of earthquake in Nepal and more.
By Issac John
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