The US$600 billion global money remittance industry is set for a massive shake-up in the wake of mergers and acquisitions among the big players and an onslaught of digital-savvy new players entering the market. In Australia, the domestic retail remittance industry, which is estimated to be worth about A$7 billion, is also feeling the heat with a number of online providers making aggressive moves to gain market share.
In particular, the retail money remittance industry is a top candidate for fintech disruption and innovation. As recently as a few years ago, many fintech companies had been focused on creating products and services for the investment, wealth creation and stock markets. However, now we are seeing more fintech companies coming up with payments and money transfer solutions. This could see remittance sector benefit from more advanced technologies and innovative solutions being launched across the globe.
These observations came following the aggressive expansion and buoyant merger and acquisition activities among the top players in the global money remittance industry. Early this year, MoneyGram, one of the biggest money remittance providers, accepted an offer to be bought by Ant Financial, an affiliate of China’s Alibaba Group. But that bid was bested by Euronet Worldwide, which offered a higher price to buy MoneyGram.
The high level of M&A activities is expected to spur more investment in online and digital technology as global players vie for consumers’ share of the wallet. And as fintech companies continue to inch their way in various financial services sectors, tech-savvy remittance providers are expected to gain market share away from the traditional players with massive distribution network.
The World Bank estimates the global remittance industry at around $600 billion dollars. Western Union and MoneyGram, the two biggest players in the industry enjoy a healthy share of the multi-billion-dollar industry.
Double-digit growth forecast for online remittance services
While the majority of remittance transactions are still done through physical distribution networks like money kiosks, remittance centres or through banks, online remittance services are also growing. Current industry estimates show that only about 5 percent of the total global remittances are done through online channels.
But that’s about to change as more people are getting access to the internet and digital technology, which will push online remittance services to hit the forecast double-digit growth in the next 3-5 years.
In fact, over the past few years, Australian has seen a host of technology-powered online remittance providers including WorldRemit and TransferWise – two of the pure online providers that are aggressively expanding their global presence. World Remit, a UK-founded pure online remittance provider, has opened its Australian operation in 2012. It has also set up offices in the Philippines and Hong Kong as part of its Asian expansion over the past two years.
Michael Liu, Regional Director for Asia Pacific at World Remit, says that being a pure online remittance provider gives the company and its clients a distinct advantage over their rivals with physical distribution networks. “The core premise of our online service is to make the money transfer process quicker, easier and more secure,” explained Liu.
Migration powers multi-billion remittance industry
In its Migration and Remittance Factbook 2016, the World Bank estimates that more than 247 million people live outside their countries of birth. And this number is expected to rise as international migration continues to grow.
The same report paints a growing global remittance business, which mirrors the growth in migrant workers seeking employment outside of their home countries. Whether they have migrated permanently or are working as contract workers, these millions of people have created a multi-billion-dollar remittance industry.
In Australia, the mobility of the migrant population has fuelled the growth of the big remittance companies including Western Union and MoneyGram as well as the network of small and medium-sized MTOs. MoneyGram, which ranks number 2 after Western Union, has been aggressively expanding for the past five years. To date, MoneyGram has over 500 retail outlets including the 7-11 network of convenience stores.
MoneyGram boasts one of the largest physical distribution channels in the remittance industry, which allows the company to reach a wide range of clients. Given the appetite for expansion of the dominant players like Western Union and MoneyGram, the pure online providers may not have an easy win over their more traditional rivals. This is because even those with the physical distribution network like MoneyGram are also now moving into online remittance.
Mobile Money: Will it mean the end of face-to-face remittance?
While online remittance services are eating up on the traditional face-to-face network, another stream of technology-based money transfer is also gathering momentum. It is called mobile money.
With billions of people across the globe owning mobile phones, smart phones and other mobile devices, industry observers say it is just a matter of time before mobile money (mobile payment) become the preferred way of receiving and sending money.
We are already seeing some form of mobile money transactions, particularly in remote areas where there is a lack of banking facilities and financial institutions. For example, some countries in Africa, South East Asia and South Pacific are already using mobile money for grocery shopping, paying medical bills and other day-to-day transactions.
The human face of the global remittance industry
According to a World Bank report. millions of people benefit from remittance money sent by migrant workers around the globe. The bank estimates that in 2015, around $601 billion were remitted by migrant workers to their home countries. The true size of remittances, including unrecorded flows through formal and informal channels, is believed to be significantly larger.
This article was written by Eva Diaz, co-founder and Managing Director of Profile Booster.