Migrant remittance is one of the most important sources of income for many developing countries – the World Bank estimated that the annual worldwide value of remittances in 2006 totalled $268bn. But sending and receiving such payments can be costly and not particularly secure. Enabling money to be transferred internationally from person to person using mobile technology could greatly assist the flow of funds from migrant workers to their families in developing countries.
International mobile telecoms group Vodafone is one of the first mobile telco operators to tap into this potential. In October 2005, it established a pilot project, M-PESA, in Kenya through its local affiliate Safaricom. In February this year, the pilot phase ended and M-PESA was launched as a mobile payment solution aimed at mobile customers who do not have a bank account. Users can put money into their Safaricom account by depositing cash at a local agent, send money to other mobile phone users by SMS even if they are not Safaricom subscribers, withdraw cash at a local agent and buy Safaricom airtime for themselves or other subscribers.
But Vodafone’s ambition in the mobile remittances space does not stop at Kenya. “It became obvious to us that there was a business case for not only person-to-person mobile payments in a single currency, but also for international payments,” says Nick Hughes, head of international mobile payments solutions at Vodafone. “However, once you step outside a single currency, you need a different set of core competencies, specifically around foreign exchange and the compliance issues relating to international fund transfers.”
Citi had been “interested observers” of the Kenya project, says Mr Hughes, and a brainstorming session with the bank made it clear that both parties could provide complementary skills to work on international remittance.
Therefore, at the same time that the M-PESA service went live, Vodafone and Citi’s Global Transaction Services announced a worldwide mobile financial remittance venture. Under the venture, the parties are piloting a Vodafone-branded, mobile-based international money transfer service that will target the global remittance market worldwide.
Remittance venture
The product will allow the remitter and the beneficiary to choose how money is sent and received from a range of options. The sender can initiate the transfer using either a mobile phone or a secure internet website to give instructions on where to send the funds. The funds will be able to be received in a bank or through the receiver’s mobile phone in the form of a voucher and secure PIN that will enable the receiver to redeem the cash at a wide range of outlets, typically the airtime distribution points operated by the in-country mobile network service provider. For these latter services, the beneficiary of funds does not need to have a bank account, will have a wide range of locations from which to collect the funds and only has to be in possession of a mobile phone that can receive an SMS on any mobile network.
The initiative combines Vodafone’s global reach, brand recognition and operational mobile money transfer service with Citi’s worldwide network, international payments capabilities and existing global remittance solution.
| Naveed Sultan, head of Global Transaction Services in Europe, Middle East and Africa at Citi, says it was important to start the venture with a project based on the two organisations’ mutual strengths. “While UK to Kenya may not be the largest remittance corridor, Vodafone is strong in Kenya and Citi has a proven outbound remittance strategy in the UK, which made starting with the UK to Kenya channel a strategic decision. The pilot in Kenya will help us to learn more about remittance behaviour and thus streamline the proposition to take to more markets, such as the higher volume channels that run between the UK and eastern European and Asian markets, such as Poland and India.” |
Channel testing
Mr Hughes agrees that it is important to focus on one channel initially. “We have ring fenced the UK to Kenya channel to test various aspects of the service, such as compliance and the user experience, so we can better understand the business case and gather responses from both the sender and receiver side of the service,” he says. “Once we have learned the lessons from this pilot, we can move on to other remittance channels.”
One of the factors in deciding to collaborate with Citi, says Mr Hughes, is Citi’s ability to reach into many markets very quickly. “Citi is very good at moving funds across the globe and can reach into multiple markets. It can take us into many different territories globally.”
As a mobile network operator, Vodafone is unique in that it has coverage in mature markets and increasingly in emerging markets, says Mr Hughes. The emerging markets in India, Turkey and Africa are important to Vodafone and can be linked with the operator’s mature markets in a way that very few other mobile operators can offer, he says.
What Vodafone cannot achieve, however, is the necessary FX and compliance elements of the business. Citi’s expertise in these areas enables the solution to be truly global. Moreover, the service requires Vodafone to work with local banks for cash handling solutions, something that “does not faze Citi” and in fact plays to one of Citi’s strengths: its existing relationships with financial institutions around the globe.
Mr Sultan says that Citi aims to play a dominant role in the remittance business and has a multiple channel strategy that involves working with banks, employers, money service providers and mobile players. “Vodafone was a provider of choice because they are a truly global mobile operator that has already demonstrated leadership in mobile payments. They have the same ambitions and we speak the same language, making them an ideal ally for us.”
For Mr Hughes, international remittances are one of the very few mobile payments products that have global applications. “For us, international remittances could be a real value-add to our service. The alliance with Citi will let us test an innovative product and assess business opportunities in this space,” he says.
