Video: Mobile Payments and Remittances – Understanding the impact and the opportunities

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the evolution of mobile payments and remittances and how they are going to impact the industry.

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Ababacar Seck, Managing Director of Africa, RemitONE

Panellists:

• Sukhi Srivatsan, Head of Sales, AZA Finance
• Edward Chidavarume, General Manager of Business Development, CashPesa
• Muhammad M. Jagana, CEO, Kuringo
• Clinton Leask, Business Development Lead, Pay@

Time Stamps

00:00 Introductions

06:32 Why does financial inclusion matter?

11:15 Who delivers financial services in the market at the moment?

14:35 What obstacles and legal infrastructure regulations are agents, MTOs and banks facing to catch up with mobile operators in Africa?

24:32 What roles do technology and mobile payments play in financial inclusion? What are the main challenges?

35:02 How will interoperability between Telcos benefit the end users?

42:22 What role do central banks and governments play in financial inclusion?

47:12 How can we improve the user experience and make it seamless for the unbanked population in Africa?

53:54 What progress should we expect to see in the years to come? What advancements need to happen?

Why does financial inclusion matter? 

Sukhi: Financial inclusion matters today because it is our greater responsibility to ensure everyone has equal opportunity, whether you are a business or an individual, to access affordable and timely financial services and products. Especially if you look at the world of mobile payments and remittances. We need to empower communities, give them access to basic needs, like food and shelter, but also increase the economic output of the country and level the playing field between developed in frontier markets.

Muhammad: Financial inclusion is one of the fastest ways to change lives, by empowering the unbanked or the underbanked; especially women and young entrepreneurs who find it very challenging sometimes to have access to financial bank accounts. I think digitalisation of the financial system makes it much easier for people, especially in Africa. As we all know today, mobile phone penetration is huge in Africa, and the majority of people know how to use things like WhatsApp, so it makes it easier for them to use their phone and to be included in the financial system.

Who delivers financial services in the market at the moment?

Muhammad: Today, companies like Kuringo and other fintechs are expanding their reach to the unbanked and providing financial inclusion services, simply by offering them an app – they do not need to have a complicated banking system or anything else for them to be able to access the payment systems. But generally, it’s the fintech companies and mobile money operators that are disrupting this market.

Sukhi: I think one important point to highlight here is a provider like RemitONE is looking to bring everything together and do a one-to-many integration. So, through the RemitONE platform, an MTO could connect and push all the remittances with one integration, but in many markets. So, there are fintechs that are really growing in each of these separate markets, but the hardship and the obstacles in each market are so unique. So, I think providers like RemitONE really look at that aspect.

What obstacles and legal infrastructure regulations are agents, MTOs and banks facing to catch up with mobile operators in Africa?

Clinton: I think the biggest challenge is that it’s always difficult for underserved incumbents. So, whether it is mobile apps and mobile operators in Central Africa, or whether it is tier one banks, like we have in South Africa, changing things without regulation or unforeseen market changes is very difficult to do. The way compliance is shaping up these days, those burdens are growing. It is getting more onerous to comply with various things around AML, CFT, FATF, particularly for onboarding and monitoring end customers, especially as new entrants and smaller players catch up – you must comply with these from the get-go.

Muhammad: These are the challenges that can create obstacles because only the big guys are there already. They have a bigger balance sheet and a bigger team. But the good thing is, especially in Africa, there is a lot of ‘plug and play’ technology coming in. If you look at it in terms of, how do I partner with somebody who specializes in providing a platform, who specializes in providing tech, who specializes in something else, and you focus on the user experience, it will help you grow your footprint.

Edward: We’ve also seen the regulator shift into a more risk-based approach when it comes to KYC on customers, which now gives the fintech players the opportunity to come up with solutions that enable them to onboard customers easily with a risk-based approach. You can have API integrations for verifying documents that you get from the customers digitally which makes onboarding easier and cheaper.

What roles do technology and mobile payments play in financial inclusion? What are the main challenges?

Edward: We are now shifting from the brick-and-mortar. The brick-and-mortar banks were the ones dominating the financial services market. But now we’re looking at the mobile app and the way that it’s increasing in Africa – by 2025 it has been expected that at least 80% of the population in Africa will have mobile phones. So, now with the technology and the mobile penetration building within Sub-Saharan Africa, it becomes easier with technology for us to offer financial solutions to these markets where you can offer mobile money solutions.

Clinton: Mobile payments are the future. There is no other way to do this and to solve what needs to be done in Africa in terms of financial inclusion. The devices aren’t a problem anymore, unlike a few years ago. It is really about ensuring that the cost of data is being tackled effectively by regulators across all countries to promote the usage of mobile payments.

Sukhi: One example is if a fintech is starting out and wants to build a mobile app. Initially, there needs to be a focus on building one thing and doing it well and gaining user attraction. And then once that is underway, and you have that retention of users, it is important to start to diversify the products and services you offer. So, not just being able to receive money, and me being able to send it to you in a P2P manner, but also, can I do other things with this wallet? Can I go and can I buy a coffee? Can I go to the merchant? And can I pay for my scarf? So, lots of different things, lots of different use cases. But, the initial steps are to start small, build focus, and then eventually build up and add more products and services. So, you can diversify and create an entire user experience within your product and within your service.

How will interoperability between Telcos benefit the end users?

Muhammad: Today, if you do not have interoperability, a certain segment of society or a certain community will be left out. The cost of doing business or the cost of providing the last mile of the financial inclusion journey to them is expensive. So, to reduce the cost of transactions, interoperability is a must. Lowering costs of transactions, increasing volumes and expanding footprints can lead to people being able to pay for basic things in life that they need. It allows farmers to sell their produce, and they don’t have to travel miles to a bank to cash their cooperative checks. I think the interoperability we’ve seen in the UK, with the open banking system, has really allowed fintechs to explode, much more than any other European or US system. So, it is essential in Africa for governments to look at interoperability as a key to open access to finance, allowing the underbanked to have access to financial inclusion, and allowing the unbanked to come on board.

Edward: It is such a key thing for end consumers. We’ve seen it in South Africa, for the mobile operators it has created a boom in terms of customers because people are now able to upgrade and do things much easier. So, there is a strong benefit for interoperability, not only for the consumers but for the Telcos as well. They will see a rise in transactions for sure.

Sukhi: So, there is a lot of hesitation when it comes to this from many of the Telcos or the bigger players. They’re asking: is my business going to be taken away? Am I going to lose revenue over this? But thinking a bit longer term, you will get more user traction and it will create a better user experience. More importantly, it increases the frequency of a user using your product.

What role do central banks and governments play in financial inclusion?

Clinton: Financial inclusion is quite a broad term and means many things to many people and industries. But, central banks and governments are key in driving financial inclusion. It comes from clear and transparent regulation that needs to be put in place with participation from their side and the industry. So, whatever they are putting into place, they need to ensure firstly, that it is going to be cost-effective for everyone. Secondly, they have to drive competition and innovation. So, we must ensure that there is a level playing field, in terms of how people can tackle it and how industries can get involved. We touched on interoperability quite a bit. We know it goes hand-in-hand with reducing costs and accelerating competition, but also making the offering bigger for everyone.

Muhammad: In addition to this, the role central banks can play is to push for government payments to be digitalised. In the Gambia, they started talking about pensions and a scheme to be paid digitally. I think this will also help push financial inclusion and would allow people to be onboarded much easier.

How can we improve the user experience and make it seamless for the unbanked population in Africa?

Edward: When it comes to user experience, the first interaction that you have with the customer is onboarding. I believe when it comes to the information that the customer must share with a service provider, it is confidential information, and there must be some level of trust. So, the customer must feel comfortable sharing that information and there must be some form of transparency on the product that makes the client comfortable. Also, the experience must be as easy to use for the customer as possible.

Sukhi: You need to make onboarding seamless. Users should be able to start using the platform quickly, whether they are individuals or businesses. For that, you need to balance both security and compliance along with a positive user experience, which a lot of fintechs have done really well. Compliance also plays an important role. So, we cannot forget about what it means to stay compliant with the regulators, what it means to stay compliant with all the financial authority bodies, and how you incorporate that as you grow from one stage to the next as a company.

Ababacar: We know that our population maintains very specific services and all the players who experience growth have very simple to use platforms and, as a result, are successful. People use their mobile phones to connect to others and to sell and pay. Now we also see QR codes that some operators are offering and all of this is very easy to use.

What progress should we expect to see in the years to come? What advancements need to happen?

Sukhi: This is a very exciting question because we can talk about some very creative ways of what the future is going to look like. Obviously, there is a lot of scope and there is plenty of opportunity. But it is going to require a lot of collaboration as we just covered. How can governments help? How can central banks help? How can the regulator help? And how can the fintechs and everybody else work together in this ecosystem? I also think traditional digital currencies and cryptocurrencies are something we all need to be aware of – the adoption is already starting to happen. We see it in many of the markets, but we still have a long way to go. And I am personally very excited about the opportunity here.

Edward: I think the one to watch out for is what the central banks are going to do with the CBDC. The whole ambition is that they are the custodians of these individual wallets and there will be an impact downstream for everyone in terms of MTOs, mobile operators and banks because it is shortcutting everyone out of the flow. So, that will be an interesting one to see.

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Video: Better Together – The money transfer ecosystem

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the money transfer ecosystem, partnerships and collaboration

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Selim Mohamdi, Business Development Manager, RemitONE

Panellists:

• Wayne Gould, Head of Direct Sales and Financial Services, Trust Payments
• Priscilla D. Friedman, COO, CrossTech
• Muhammad M. Jagana, CEO, Kuringo

Time Stamps

00:00 Introductions

03:55 How significant is the remittance industry and who are the traditional and new players in the ecosystem?

07:55 How does partnering with payment gateways assist money transfer operations?

12:31 Can you provide some examples of other successful partnerships, and why they work?

16:57 What are the developing trends within our ecosystem and what is RaaS?

19:55 What do you see as the future of payment gateways? And what can we expect to see in this space?

27:40 How can MTOs leverage partnerships to expand their networks without necessarily having a presence in that country?

29:55 What are the critical questions to ask when evaluating a payment vendor or a technology partner?

How significant is the remittance industry and who are the traditional and new players in the ecosystem? 

Priscilla: The remittance industry has transformed rapidly in the last five years, and is becoming very digital. With this new transformation and globalisation, specifically during the pandemic, many money remittance service providers must focus on digital remittances to enhance their business and provide faster transactions to clients, and agents must also provide services digitally to their clients.

But the industry has become much more than just remittances. With new services such as B2C fuelled by the gig economy and B2B fuelled by e-commerce, those markets are 10 to 20 times larger than remittances. Money transfer providers are using their technology and experience to grow into segments. The traditional players in the markets are MoneyGram and Western Union, and some of the new players are Wise, Azimo and Currency Direct. As I navigate this industry, I learn every day, that new FinTechs are coming into the market with new solutions involving money transfer, digital banks, and many more.

So many different types of partnerships exist in the remittance ecosystem. How does partnering with payment gateways assist money transfer operations?

Wayne: I think the first key thing here is that the payment gateway provider needs to be able to cover all of the payment touch points. For these merchants who did not have payment methods like a simple POS machine to collect payments, they really struggled. Now on the other side of this, we collaborate very well with our merchants, enabling them to collect payments not just face to face, but also helping them digitalise their entire platform.

In addition to all of this, the right payment partner would also allow you to process funds in different currencies, as well as settle them in a multi-currency account. This is a very crucial SLM, simply because with remittances, the competition is quite rife now and margins can be quite low. So, to partner with a payment gateway, who could provide not just the technology, but also a solution that is very cost-effective, is a match made in heaven.

Can you provide some examples of other successful partnerships, and why they work?

Muhammad: Partnership is how we built our entire company. We believe that today, with technology, you do not need to build, you just need to plug and play. What we have done over the last 12 months, as a start-up, was to focus on how to expand our footprint. How do we plug in technology easily? How do we go to market where we are not? It is either you raise a multibillion-dollar fund, or you go and partner with people. Today we have seen instances where technology has made it more accessible for customers and to deliver a vast distribution network. As a result, it is uncomplicated and straightforward because we don’t have to worry about building the technology; we partner with it.

What are the developing trends within our ecosystem and what is RaaS?

Priscilla: So, innovation is improving, as we have been discussing. Digitalisation, the rise in mobile-based platform channels and cross-border transactions, and the decrease in remittance transfer time and cost drives the growth of the market.

RaaS (Remittance as a Service) is a go-to solution for many MSBs, Fintechs and small businesses and is a solution that we recommend to clients in our consulting division. So, we have the solutions that are focused on technology providers, we have some that are focused on licensing and reporting, and we also have some that are providing banking as well. Right now, we are seeing a new trend where we see a one-stop solution. But one point that is important to say is that some clients may already have some part of the solution developed. So, it is good to partner with companies that can marginalise what your need is, instead of just giving everything.

What do you see as the future of payment gateways? And what can we expect to see in this space?

Wayne: Payment gateways will always form and will always be an integral part of card payments because that is what is bridging the gap between our MSBs and their customers who want to pay. In terms of keeping up with trends, crypto is something that is picking up a lot of pace in a lot of areas and blockchain-based pay-outs, are something that is being pioneered by Ripple now. These are things that we’ll be seeing for payment methods of the future when it comes to things like payouts. In the days to come, as businesses start to evolve, requirements start to evolve. It is very critical that payment gateway or technology providers within the payment space can adapt and rise to the demands of our customers and our merchants.

How can MTOs leverage partnerships to expand their networks without necessarily having a presence in that country?

Muhammad: What we have seen, especially with our experience over the last year, is that technology has brought down the cost of integration and there is a lot of interoperability. Now, people have realised that you do not have to be a big standalone and everybody seems to be building their own small, quiet part of the jigsaw puzzle. When there is somebody who has already built a network and aggregator, this is your way in. So, you can just plug into their platform. Our clients from Europe, for example, can easily send money from a wallet or mobile phone account to your bank account, and we can also easily be in about three or four countries just by switching on a plug somewhere.

What are the critical questions to ask when evaluating a payment vendor or a technology partner?

Wayne: I think the first one is do they understand your business? I think that’s very important because everyone wants to help everybody but help needs to come in the right way. To work with a payment provider that understands the ins and outs of the business is very, very crucial. And things like, what certification or who regulates them as an acquirer, or as a technology provider is also very important.

When it comes to things like the technology, and asking them the types of platforms they work with, for the pay-ins and pay-outs, as well as what kind of security features that come with the gateway. Does it offer fraud screening? If it does, what does it run? What does it check for? And so on. These are some questions that could be interesting for an MSB to ask their provider. Another feature, which is quite important, is how soon can they settle their funds? Obviously, with remittances, we understand that funds coming in is as important as funds going out. So quicker settlements are imperative when it comes to this industry.

Priscilla: One of the things that I always ask Fintechs or MSBs who are looking for solutions is how many transactions are you looking to transact to your start-up? Are you a midsize business? That is very important because different payment providers have different tools, and they are also looking for a specific target. In addition, from a payment provider view, one of the questions that I also ask is module customisation, do you have modules for different clients? How flexible are the payment provider solutions in providing modules that are specific to that client’s needs?

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Video: Compliance and AML for Money Transfers – Everything you need to know

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around compliance and AML for the money transfer industry.

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Oussama Kseibati, Associate Sales Director, RemitONE

Panellists:

• Richard Spink, Sales Director, GBG
• Gabrielle O. Micheals, Senior Compliance Officer, Nairagram
• Imad Chishti, Director of Payments & Compliance, Evantagesoft
• Ibrahim Muhammad, Payments Consultant, Finxplor Consulting Services

What are the main challenges facing MTOs regarding compliance and regulation? 

Gabrielle: Well, it has to be adaptability. We all understand that countries have different guides, let’s say in the UK you have FCA and in the US BSA. Sometimes when you have certain partnerships with other MTOs in this jurisdiction, it doesn’t keep up because there is that difference. The risk when it comes to businesses is knowing what you want to do. For instance, how can we work to create an effective program and how can we implement this program in a way where it protects us, our service, customers and clients. What I always would put in first is, why do you want to have a risk assessment on your operations. You need to know the first thing that you want to achieve, and that is to detect and prevent your system or your company from money launderers in any way as they always find ways of looking after our abilities, and then using that, to aid our own needs.

What is digital ID? Why is digital ID necessary? How does it impact KYC and AML?

Richard: It’s different now from what it will be. In practical terms, digital identity at the moment is an idea which has been delivered in a few countries, but it’s not global. We’re certainly not at that point where it’s making any difference whatsoever to AML and KYC processes. At the moment in terms of the landscape for digital ID, the processes are delivered in slightly different ways in different countries. Digital ID at the moment essentially means confirming proof of ID proof and address.

At GBG we ran a survey on this a year ago, in which we found for most people that means something like presenting a driving license or a passport. In 10 years we can expect the process to be the same but using a mobile phone number, and email address and a biometric and the biometric that was typically used in that process at the moment is a Face.

Particularly looking around AML Compliance, what are we seeing in Pakistan and the Middle East region?

Imad: We are seeing two major aspects that are creating an impact. One is that ever since this pandemic started, there is a drastic change in customer behaviour. From Pakistan’s perspective, the regulatory estimates that the formal and informal remittance channels are somewhere between $40 to $60 billion. This huge gap between the two channels is what MTOs, regulators and banks have been trying desperately for the past many years to somehow move informal remittances towards formal channels by offering incentives.

The second thing that we are seeing happening is that with the rise of fintech, banks are being challenged significantly. In our understanding MTOs ability to improvise and innovate is much faster than any conventional traditional bank possibly due to the kind of environment that banks are in. The key difference is that banks are compliance and risk driven. So, they will not act upon anything unless they have full assurance from their compliance and risk that everything is by book. As opposed to MTOs and fintechs’ who are very customer-driven.

What is being done to help the clients face literacy in terms of the technological side?

Imad: We feel that changing our customer behaviour goes hand in hand with the motivation, why would customers want to use something new or something different than what they have been using in the past. We have been using different incentives, some incentives are being offered in partnership with the government so there are a lot of lucrative subsidies that the government is providing not just to MTOs but also the customer.

Are E-wallets big in Asia or is that something that’s catching on?

Imad: Two things have revolutionized the financial industry. One is the rise of E-wallets. And the second is biometric verification. So now the whole population adult option is biometric verified, and there are roughly 45 million registered mobile accounts in Pakistan right now from a population of 120 million with an adult population of 70 to 80 million. You can see that compared with 15 or 16 million bank customers mobile wallet density is much wider. 

How can regulators balance evoking trust for consumers whilst avoiding stiffening innovation in the industry?

Gabrielle: Well, regulators are awakening key innovations in the industry, and also carrying improvements. We can see some cases where a new regulation comes out it gives new ideas and birth to new technological innovation that comes forward. People are beginning to try different things.

Would you say stakeholders like the Central Bank in the remittance industry have also invested heavily into tech as MTOs and Fintechs have?

Gabrielle: I won’t say they have all adopted the whole culture of being completely Technological. If banks have I don’t think we’ll have many issues and it’s just a case of plugging your API. I think everybody it’s still in the process.

Oussama: I think that’s one thing I look forward to in the future, while things become more centralized and people become open to APIs, it would be just easier to connect everyone. And again, pass information through. So rather than you need to report to the authority every month, your system will simply push that information through overnight. It removes that human error or a part of it. Again, they only have access to that part of the system that they need the information on to see velocity checks and things like that. It’s a positive thing to at least hear that, particularly in your region they understand that technology is the way to go. 

What are the individual different tools within IDV? 

Richard: Identity verification Traditionally meant physically, or physically looking at a proof of ID in a proof of address document. Lots of businesses will still do that whole face-to-face verification. COVID has changed that landscape. If you think about IDV it’s the process of checking, providing proof of address, and digitising that has delivered two core pieces of technology. Confirming someone lives at their address has traditionally been the quickest way to run this process.

However, it only works if the source of data confirming that someone lives at their address is good, if the data isn’t any good there’s not much point in trying to use that data. All the new technology is around proving identity by using an identity document but also proven to look at as part of that process

Imad: We are developing some data-driven decision tools for making real-time AML decisions, and we are making some tools for real-time customer profiling aggregation of data. We are interestingly working on face verification, and voice biometrics, this is especially important for countries like Pakistan where the infrastructure is not good, the more you go outside urban areas infrastructure is dependent on telecom services.

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Open Banking and Payment Innovation

One of the latest trends to hit the money transfer industry in the UK and Europe is Open Banking. Based on the use of Application Programming Interface (API) technology – and initiated by PSD2 in 2016, the Open Banking movement allows banks to make their customers’ financial data shareable and enables third parties to access real-time financial information.

As a trend considered by many to be revolutionary in the money transfer industry, it’s important to analyse the advantages of account-to-account payments; the opportunities Open Banking can hold for banks, third parties and consumers; and finally, the challenges facing the use of Open Banking technology.

Fundamentals of Open Banking

Put simply, Open Banking is a framework that allows institutions to share financial data safely and securely with consumers and third-parties. Using APIs, licensed third-parties can gather financial information, integrate this data or even push payments directly from customers’ bank accounts to third party systems including mobile apps and online portals  

Account Information Service Providers (AISPs) can fetch read-only financial data which allows them to compile customers’ financial information, make recommendations, provide intuitive services and more. In comparison, Payment Initiation Service Providers (PISPs) can make direct bank transfers – or ‘Account to Account’ (A2A) payments – from bank accounts.

Key features

With recent surveys suggesting that over 86% of financial institutions are aiming to use open APIs to enable Open Banking in the near future [1], it’s no surprise that Open Banking offers a range of benefits to third-parties and consumers alike. For example, A2A payments have notable improvements to UX, including the removal of conversion barriers; these improvements result in a more efficient transaction journey, allowing consumers to make payments through their own banking app without the need for inputting card data.

Direct payments initiated by PISPs also have a higher transaction acceptance rate (95% in comparison to up to 14% failure rate for card transactions [2].

However, aside from these beneficial features, a key advantage of Open Banking for all involved is the reduced fees in comparison to card payments. A2A payments don’t involve transaction fees or operational costs, saving users up to 80% on fees in comparison to card payments [3].

Another benefit offered by Open Banking that seemed to excel in its rollout is that of security. With a significant increase in card fraud as a result of the rise in digital payments and remittances in recent years, the need for a more secure transaction experience was overdue. With Open Banking, this risk appears to have been reduced, with PSD2 and the UK’s Payment Services Regulations (PSRs) keeping Open Banking services in check.

Finally, similar to what we’ve seen with the rise of technology instruments such as E-wallets and Super Apps, Open Banking and Open-Source technology facilitate a wide range of new opportunities across not only the payments industry, but other verticals too. The collaboration between established banks, Fintech companies, third parties and software providers (such as RemitONE) encourages the integration of services to create new and improved propositions [4].

With new open-source technology and fintech enablers like RemitONE, consumers can have more control over their apps, and offer more services to their customers. Making use of RemitONE’s established Open Banking partners also allows Fintech start-ups, money transfer operators (MTOs) and banks to utilise new technologies and offer their customers a safer and better experience.  

Considerations

Open Banking has certainly gained traction over recent years and the benefits seem to be providing innovative solutions for common issues in the payments and remittance industries. However, as with all developments, it’s important to analyse the challenges presented by the introduction of new technology for both the clients and consumers. For example, the main challenge facing Open Banking is security, particularly as A2A payments are more often being utilised by smaller Fintech companies [5].

Final Reflections

It’s clear to see that Open Banking plays host to a range of key benefits for banks, third parties and consumers alike in all industries. It can offer lower fees and enhanced user experience, paving the way for collaboration between traditional and modern players in the payments and remittance industries.

However, the challenge of implementing new technology continues to be a essential part of the digital revolution. In the coming years, it will undoubtably be of interest to see how the Open Banking framework, PSD2 and Open-Source technology will continue to evolve, and where it will take the Payments industry.

References

[1] https://www.finextra.com/blogposting/20777/four-ways-open-banking-can-benefit-financial-institutions

[2] https://recurly.com/blog/benchmarking-minimizing-credit-card-transaction-decline-rates/

[3] https://truelayer.com/openbanking/open-banking-payments-vs-other-payment-methods/

[4] https://www.openbanking.org.uk/wp-content/uploads/Open-Banking-A-Consumer-Perspective.pdf

[5] https://www.comparethecloud.net/articles/opportunities-challenges-open-banking/

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Video: The Rise of Digital Remittances – How to capitalise?

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the future of digital remittances.

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Oussama Kseibati, Associate Sales Director, RemitONE

Panellists:

• Richard Arundel, Chief Evangelist & Co-Founder of Currencycloud
• Assad Alawneh, Owner at Alawneh Exchange
• Luke Flomo, CRO of Vyne Payments
• Walter D’Cruz, CEO of Moneo Solutions

We have seen a drastic change in the payments industry in the last five to six years, especially in E-payments or wallet payments. In your view, what have been the main developments in the industry. Do you think these developments are to stay? And is the growth of digital payments sustainable post-COVID. 

Richard: There’s a lot to unpack in that question. And you’re right, there’s been a load of change over the last five or six years in the payments industry. Firstly, we’ve seen huge advances in core technology. And, in particular, customer trust in this technology. We’ve seen, especially in the MTO and the remittance space, a rapid rise in digital-first MTOs, which has driven more established MTOs to respond by rapidly introducing some conditional initiation funding capabilities. Nearly a third of incumbent remittance companies have now become digital. And the pandemic has obviously accelerated the kind of these digital trends.

I think, on the technology side, more and more of these products and services delivered by technology and accessible by API’s so the menu that remittance companies can choose from has just gotten bigger and easier to read. In terms of mobile banking, as well, mobile apps and mobile banking downloads are going up 50% year on year, and people are preferring this digital method.  

Another area where I’ve seen a huge change in development is customer expectation. There was already a rise pre-pandemic as a digital company, but you add on the impact of COVID and this heightened digital expectation and we’ve seen a huge shift to digital products. And it’s driven these traditionally non-digital companies to think much more digitally. So, there’s this new age of competition.  

What new technological advances are now being utilized in the digital remittance industry, particularly in your area or space? 

Assad: I’d like to talk about the main elements of the technology, which is considered API. I think that the development of the API’s makes significant changes to the industry and to how we connect with partners – we connect with other services and provide the services in a different way. API’s are now a key driver for FinTech and for the payments industry. Without the API’s we wouldn’t be able to provide digital payments or even mobile applications, or payments through the mobile application, sending and receiving the remittances through the API or through the mobile application.

I think as well, this will increase the volume of the transaction because I think FinTech companies, now, their main development they have is the API because they can connect to any other service providers in the industry. Through the API’s, we can even improve the customer journey with the service. So, we have been able to provide payments through them with the application because we are able to connect to payments because if you want to provide a mobile application, for example, to send my resume by application, you need a way to pay for the transaction through your bank account or via the debit card. So again, this is connected through the API’s, and this technology as well. 

Where does open banking fit into all of this? How does it work? What are the benefits for money transfer businesses? 

Luke: The UK open banking framework that’s been created has helped in many respects, and gained access to payments infrastructure. But I think one of the key problems is the fact that the banks today aren’t incentivized to open up their back end in terms of all that information and data, because they’ve spent years and years capturing it. And now essentially, PSD two, as stipulated, they need to now open up all that data for free. And I think one of the big points that we need to work with these organizations from a FinTech perspective across the board is how do we help them to monetize that data to a certain extent, and how do we then consume it in a really accessible way, that means that we can reduce friction for a consumer. 

I think one interesting fact is that about 80% of the UK population have now got a smartphone and about 78% of adults are now digitally banked, and 14 million of them have got a digital-only bank account. So, there’s a real demand for this as a utilization of payment infrastructure. Many of you may be aware that open banking hit the 5 million consumer mark. So, consumers are utilizing this type of technology on a day-to-day basis. It’s now up to us in our costs across the globe to start allowing consumers to utilize this payment method in all the different use cases and scenarios. 

How can employers leverage technology to expand their networks without necessarily having a presence in that country? 

Richard: I think, firstly, if you’re looking at expanding your network, one way to do that is expanding the number of kinds of pay-out corridors or countries you can send money to, which ultimately expands your user base within the country that you’re working in. The second way you can do that is maybe looking at collections as well as payments, for example, we talked earlier about the current rise of e-payments or e-wallets. And thirdly, partnering with companies who can use technology to leverage their licenses and the compliance and their regulation, which enables you to expand on a global basis without necessarily having a presence in the country. 

How can crypto and blockchain assist NGOs in facilitating cross border payments? 

Walter: Firstly, I sat and watched the first panel today, the first session on digitalization and, you know, a lot of that crossed over to what we’ve been talking about today, which leads me to believe that actually it’s not about crypto and blockchain assisting MTOs, it’s about how they’re going to migrate into the digital world. And blockchain is just one technology platform that will support that move. 

However, in today’s world, the cost of compliance is getting higher and higher. And that’s where I see crypto coming into it, in terms of reducing that cost of compliance. In actual fact, the cost of sending money or moving value is going to get cheaper and cheaper, yet the cost of compliance is going up. So that’s where blockchain can assist, it’s not so much in the transfer of value, because it’s a currency right? The value is whatever the market perceives to be. What can you include in that blockchain that will enable better compliance, better transparency, and therefore fewer people or humans touching it, therefore driving your costs up? 

Oussama: I think one of the issues with Bitcoin was people are not using it as all it was built for – as a currency. Now it’s obviously more of an investment. And that’s where we see the volatility of it and of course, what’s happened. If crypto is pegged to a fiat currency, then absolutely. But then we get into the question of regulation; is there enough regulation? Is there going to be more regulation? Is it going to help people bypass some sanctions?  

What are the critical questions when evaluating a payments vendor gateway provider that we should be asking? 

Luke: It really depends on what you’re trying to achieve. In essence, I think most organizations are looking to acquire new consumers, retain existing consumers and make life as simple and as easy as possible for both the consumer and themselves in terms of working practices and UX and UI. So, I think the key thing you should be thinking about or contemplating when looking at a payment gateway and acquiring a vendor or an alternative payment method is where am I operating? Where are my consumers based? And can that organization support me in those specific territories, either with local payment knowledge, insights, data, as well as connectivity? If you’re operating outside of the UK, there are other alternative payment methods to the likes of credit cards, debit cards, and e-wallets, and there are specifically wallets and payment methods in certain territories. 

So we know that regulation is one of the biggest challenges in the industry, what new tech is out there to overcome these challenges? Specifically focusing on fraud as being one of the biggest challenges. 

Assad: I think for the regulator how do you identify the customer, and if you go back to the rational way where the customer will come to you and present his ID and you can see him in front of you face-to-face, and then you can know this customer is the one dealing with you. And when it comes to digital payments and online payments you have to identify the customer digitally. In order to identify your customer online and have the data available, you can verify the ID verification, you can do it online. 

Now, we can do video conferencing, and you can do even voice authentication in order to identify your customer. There are also companies providing the service – again, without the API’s, you will not be able to do this online verification and online customer KYC. Regarding fraud detection, I know they’ve been using big data optimized to analyze the fraud as well. I think artificial intelligence as well as is being used to identify fraud just from legitimate transactions for legitimate customers as well. As I said the video conference can take a live selfie in order to make sure that this person is the same person. So, there’s also technology now helping us to identify customers and again, to be compliant with the regulators and to avoid fraud as well. 

Oussama: In terms of regulation and transaction marginal what’s interesting is it depends on which region you’re in. But what also looks quite interesting are the steps that each region has been taking or will have not been taking. As an example, in Jordan, they don’t request any particular reports, they just request if there have been any suspicious activities. Whereas on the other hand, I know that the FCA in the UK do request a specific report and it has to be at those specific intervals. Furthermore, in Dubai, they’re coming up with lots of new regulations, but they again asked for specific reports in specific formats. 

Additionally, with AusTrack, the regulatory body for Australia that we’ve built into our system, now produces the AusTrack report and posts it straight to their website. I think it’s quite good because they’ve made those APIs available, so they’re trying to make compliance a little bit more attainable. And again, getting that information directly from the MTO themselves by being able to post that. I just think it’s a much neater way and it opened up the market for people because if they’re abiding by these regulations, that’s fine. So that was what was supposed to happen with PSD two, everyone’s supposed to abide by PSD two, and the banking was supposed to open up for everyone, which unfortunately didn’t happen.  

What does the future look like? Will cryptocurrencies replace major hard currencies in international payments? 

Walter: I don’t know what the future looks like. No, it changes every moment. But certainly, in certain corridors, crypto or digital currencies will replace hard currencies for international payments or remittances. Whether it be central bank-issued digital currencies, or the likes of Bitcoin, or some specific tethered or stable coin, a token program, most definitely. 

But, I think it’s inevitable. It’s going digital and you can’t stop that. I think the big challenge is it isn’t going to replace hard cash in the High Street, no chance. Certainly not in the developing countries where cash is still a big, big way of paying and exchanging goods and services. That’s not going to replace cash, but certainly in developed nations like Europe and the UK. 

Richard: I think the underlying technology is really interesting. I also think it depends on time horizons. In the last few years, maybe crypto has been a solution looking for a problem. I think it’s about time now that certain cryptocurrencies or blockchain technology go more mainstream. And you’re going to see more applications for it. And I think there are definitely solutions out there that can use a blockchain-driven solution, whatever crypto or stable coin that might be. 

For more information or to request a free consultation with one of our money transfer specialists, please email marketing@remitone.com

What next?

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Tap into our experts and schedule a free consultation.

Intelligent Design and the Digital Wallet Evolution

The shift to digital payments and money transfers has been evident for the best part of 10 years. This article looks at the increase in digital wallets over recent years, the benefits of wallet functionality, and the role of digital wallets in the road to financial inclusion.

Features and Functionality

Digital wallets are essential vehicles for storing and making payments online or with your mobile phone. Mobile wallets are instrumental in facilitating instant, contactless payments, online payments and can be topped up from bank accounts or with cash, making them a widely favoured payment vehicle when compared to other traditional methods. In addition, a digital wallet eliminates a range of friction points when compared to its physical counterpart; there’s no need to input card details or PIN to make payments. These features also prove vital for users when it comes to money transfers, making wallet-to-wallet transfers faster, safer and cheaper than ever before [1].

Mobile Wallet Popularity

At the end of 2020, over 2.8 billion mobile wallets were in use, with cosmic popularity across Asia, Africa, and the Middle East [2]. Moreover, when it comes to digital money transfers, mobile wallets are now used 50% of the time, surpassing other methods such as PayPal, credit cards and traditional bank transfers [3].

It’s clear that mobile wallets have gained enormous popularity worldwide in the payments and e-commerce world, and this trend is only set to continue, with an expected user increase of 74% over the next five years. In particular, in Europe and the Americas, digital payments are being dominated by mobile devices.

The payments industry mobile wallet evolution is driving a significant change in the fintech and money transfer realms.

The Merging of Industries

Mobile wallet payments usage is causing a seismic shift in consumer behaviour, especially in money transfers. Alongside the change towards digital remittances, a vital part of the mobile wallet evolution centres around creating a new marketplace in which these industries – retail, airtime, utility bill payments and remittances – are brought together. 

The merging of industries through mobile wallets also brings about further benefits. It makes it possible for these industries to tap into other verticals, creating more opportunities for transactional growth for supply-chain members and offering much more power and choice to the consumers.

As consumer demands continue to grow, the need for industries to unite becomes even more apparent, and with it comes a need for a ubiquitous wallet. We’re predicting this trend to snowball in the coming years, expanding the marketplace and thus fulfilling the needs of these industries and making money transfers more seamless and cost-effective.

The wallet will itself serve as a front end or gateway to these industries, literally putting the various services of these industries in the palm of the user/consumer.

Wallets for Financial Inclusion

The growing demand for money transfers and the shift to a digital world that we’ve been exploring brings us one step closer to financial inclusion.

The features and functionality of wallets offer great potential for breaking into unbanked regions, allowing users to access the financial system without the need for a traditional bank account. In fact, studies have shown that smartphone penetration now outpaces bank accounts [2]. It seems that wallets could be a solution for many users who prefer to remit money or make payments through an alternative to traditional money transfer methods.

While we’ve seen that 2.8 billion mobile wallets are currently in use worldwide, a staggering 1.7 billion adults remain unbanked despite two-thirds owning a mobile phone. The wallet is a replacement for a bank account for this 1.7 billion. This presents an enormous opportunity to Fintech players to put their wallets – with a range of backend services, including money transfers – in the hands of the unbanked via the mobile phone.

With the growing demand for digital money transfers, the increasing use of mobile devices, and the uniting of verticals, it’s clear that the payments and remittance industries are entering a new stage of their evolution. As consumer demands focus on more convenient payment methods, we can cautiously infer that mobile wallets will be critical on the journey to offering fairer transactions and overall financial inclusion.

What next?

Now that you’ve read our article, we want to help you get the most out of it and plan for 2022.

So tap into our experts and schedule a free consultation.

References

[1] https://imeremit.com.np/blog/cross-border-remittance-and-benefits-of-digital-wallet 

[2] https://wp-boku-2020.s3.eu-west-2.amazonaws.com/media/2021/09/18175330/2021-Mobile-Wallets-Report.pdf?utm_campaign=Mobile+Wallets+Report+2021+Download&utm_medium=email&utm_source=autopilot 

[3] https://securecdn.pymnts.com/wp-content/uploads/2021/09/PYMNTS-Cross-Border-Remittances-Report-September-2021.pdf 

Video: The International Money Transfer Market – Challenges, trends and opportunities

Continuing our recent discussions exploring the evolution of the remittance sector, RemitONE hosted their IPR EMEA event on 2-3 March 2022. The 90-minute panel session centred around the enormous rate of change over the last few years in the money transfer market, resulting in new technology, higher customer expectations and endless opportunities for MTOs.

The panel consisted of experts from both RemitONE and our friends and partners in other global companies. In case you missed the discussion, here is a summary of the key insights.

Webinar moderator:

• Aamer Abedi, RemitONE

Panellists:

• Elizabeth Rossiello, CEO & Founder of AZA Finance
• Hasan Fardan Al Fardan, CEO at Al Fardan Exchange
• Leon Isaacs, CEO & Founder of DMA Global
• Alex Orechoff, Financial Services Vertical Growth at Worldpay from FIS

The World Bank reported remittance flows grew by 7% in 21, and declined by only 1.7% in 2020. This is despite the severe global recession caused by COVID-19. What factors do you think have contributed to this growth?

Leon: The first point in the question is about the resilience of remittances. The people who are sending remittances need to send money and to support them both with consumption and investment needs. And that need doesn’t just disappear. In fact, it probably increased during COVID times, as families back home, found it even harder. So it really meant that people who were sending money were even more committed to finding ways to do it.

One of the key things is the changing ways in which money was able to move. So the shift to digital has clearly had quite an impact. And now every company that makes any pronouncement on remittances, is always talking about their digital strategy, how that’s making a change in what they’re doing. And I think this focus has really helped to actually bring more some more people to the market.

Hasan: I very much echo and agree with a lot of the sentiments obviously, you know, the market that we predominantly serve is the second-largest market in the world. And obviously, the organisations that had a higher degree of digital preparedness, I know people talk about transformation, it’s a big buzzword. But ultimately, it needs to translate to some degree of digital preparedness – companies that were definitely much better prepared, and benefited from drastically converting traditional cash business into a digital business.

The biggest risk with a sector is the lack of regulatory oversight, and you don’t have the benefit of robust KYC, AML, and general compliance framework, so something that we’re definitely addressing at the industry level.

Alex: What Leon was mentioning as well, is that a lot of what has happened, thanks to COVID is that people have been introduced to new digital options, and that has forced companies to really innovate quickly and offer a lot of different avenues that people were not necessarily curious about before. It hasn’t been the best onboarding experience for people, because we’ve been just trying to get everything online for our partners as quickly as possible. And it’s not necessarily the most efficient.

Elizabeth: We process for over 28 of the largest remittance companies out of and across the African continent. And already six years ago, one of our fastest-growing operators launched a corridor into Nigeria, digital-only, and it was the fastest-growing product they’d ever launched. Before that, they were a cash-only agent collection remittance company, mainly out of North America.

So for me, I don’t know why we even use the word digital, because it’s what is remittance without digital at this point? And what are financial services without digital? So, you know, we don’t even think, to work with companies that don’t have a digital offering. It’s like saying, “what is digital banking?”, everything is digital these days. And we need to go beyond that. It’s not just how to get things digitised, it’s how to streamline operations and optimise in a world that’s so fast-moving.

From a technology solutions perspective, there is literally a 100% shift to digital. But is it still fair to say that there is still a lot of emphasis on cash? How do we reconcile the two comments here?

Elizabeth: Well, first of all, even cash networks use digital verification networks. I mean, nobody picks up cash with a paper slip anymore. Nobody goes really into the bank with a printed out terminal, you’re getting a mobile code on your phone, and then you’re going to the cash agent network. And the cash agent network is dominated by mobile treasury and float operations that are digitised. And if they’re not, they’re not going to work.

So I think the companies that aren’t thinking about that, from a user perspective, from a mobile perspective, are missing out. And again, it’s not just the app, it’s also the cash management, the operations, the treasury management.

What is it like in the UAE? Do you have some data to share about this channel cannibalisation from cash to digital? Is it supporting what others are saying?

Hasan: Now there’s a very large uptake and a very large migration from traditional cash to digital and the rate of growth is very aggressive. However, cash is still very much dominant, from numbers that I have seen still around 70-80% of the market is still operating on a cash basis and it’s not necessarily because of the lack of availability of digital solutions or digital touchpoints. As an organisation and I think as an industry as well we hear a lot of emphasis on digitally-driven financial inclusion, but digital inclusion doesn’t mean that you exclude the cash customers as well.

So the future is definitely digital and the migration is definitely much higher and it will continue to accelerate in the coming years, but I still see it being relevant in the medium term.

Aamer: So you have regulatory pressures, of course, for example in the UK and Europe there is a lot of pressure to go digital. So if you’re a cash-based business the regulator just makes the landscape really hard for you to operate. The companies that collect cash from the agent shops etc are dominated by a single player which doesn’t make it conducive for other participants to participate in a fair manner.

Based on the research data that you have access to, is there a market out there where the consumers are refusing to go digital and want to carry on using cash? I know there are a few regions that showed a lot of reluctance.

Leon: I think that it depends on which region of the world as to how fast it gets there and I also think it depends on your time horizon. Some parts of the world have been going 10 years or more using various digital services and the benefits to the users are normally so self-evident you do wonder why people don’t change, but there are a lot of cultural and historical factors.

Also, we have to remember a lot of people in the world have come from countries where they haven’t necessarily had significant amounts of money themselves and also, they haven’t trusted governments or local banks – they think governments may have influence over banks or banks have collapsed and so. There’s still a generation out there that has deep mistrust in anything that’s not physically in their hands or in somebody else’s.

When cash is still king for domestic payments, it is very difficult to then accelerate international payments to make a real dent. So what we need to do is continue to encourage domestic adoption and then the international will flow much more easily.

Alex: What it pulls down to are habits and trust. Anything you have to change a habit is a point of friction, it’s not something that you want to do or you feel comfortable doing, even if all the logic says that you should be doing this new habit. It’s just human nature. So if you’re using cash most of the time chances are you’re going to prefer to do cash in this transaction, and you have to have a really good catalyst to push you off that previous habit in preference.

Aamer: So basically, the panel of experts here feels that the statement ‘cash is king’ is an overstatement. The rate of transitioning that’s happening right now from cash to digital is happening at a pace we hadn’t imagined, it’s so rapid. One of the big three players, I think close to 30/35% of their total remittance volume is digital. Contrast this to 3 years ago when I was in one of the conferences, digital was over 5%. So over a period of three years, one of the big three players’ digital remittances have increased from 5 to 30% which is significant.

From a payments industry perspective, what do you think is coming next?

Alex: One thing is how do we make a frictionless experience for customers and how do we enable that? How do we enable people to grow quickly into the corridors that they want to be in? And how do you ensure that you can have a real-time treasury in the future? Because that’s obviously one of the biggest challenges that a lot of remittance companies have today.

We’ll definitely see greater use of cryptocurrency and CBDCs, but thankfully that’s a ‘future us’ problem – I would say that’s more of a 5/10-year pursuit, depending on where the various central banks are going, in which case we are going to have to think about what are the other things we offer to expand our breadth of products and to add more value to our various customers on the side of paying in but also on the side of paying out.

Can you just define ‘Super App’ and then we can discuss what we mean by this all-encompassing mobile app?

Aamer: There’s a new buzzword we’re hearing ‘Super Apps’. I was in Saudi Arabia a few months ago and I was using one of these taxi services like Uber, Kareem, Bolt. One of them was offering something interesting – they were offering on the app the ability for someone to order a nurse and they would send a nurse within 24 hours to do a Covid test or a PCR test etc. and this is all happening from that one ‘Super App’ if you will, and that’s the buzzword here in our industry.

A lot of these new companies from neighbouring verticals/peripheral industries have an established customer base and they are always thinking of generating revenue from new sources and remittance becomes the obvious choice. It’s a case of APIs. The API these days, from technology vendors especially, are so sophisticated that it’s just a case of plug-and-play. So if you have an existing app you can simply plug into RemitONE’s API and take advantage of the services they have through the API so there’s not much work to do.

Alex: That’s where you’ll see that as a key thing and it also happens to be because you trust the brand that is all-encompassing on that ‘Super App’ – we trust Kareem because it gets us from point A to B and therefore anyone they’re selecting is probably going to be trusted as a result. So that’s the big benefit of the ‘Super App’ that you mentioned there.

Elizabeth: We’ve had digital ‘Super App’s for over 8 years over the African continent and AZA launched the first ‘Super App’ which went from just mobile money wallets to offering health services, government payments and even some banking services. It even had a white label for banks to use as well and what we saw was a real success for services that were adjacent to its core business, but services that were too far off like the medical services ended up being replaced by companies focusing on that.

So for companies that are coming from the traditional brick and mortar space, they’re facing even more of a challenge for them to launch something so agile. What we also recommend for customers that want a white label is to work with companies that know what they’re doing like RemitONE. They have a great product it’s a white label product but maybe think about devoting a team to just doing that.

What obstacles or challenges do you see along the horizon what do MTOs or exchange houses in the money transfer space need to prepare for now?

Leon: One of the obstacles is if you’re not doing a fully digital solution now then either you’re too late or you need to do something immediately – you’re probably too late, but if you’re not doing anything that’s probably the biggest thing.

I think we also have big problems still with de-risking. I know we’ve probably been talking about this at conferences since at least 2012 if not before and I think it just rears its head in a different form.

It’s one thing of course to say that we want to go digital but actually doing the transition is a challenge in itself. As a very successful organisation in the Middle East, what are your thoughts on this? What are the typical challenges an MTO would face as it transitions?

Hasan: You have to start from the perspective of the UX and I echo some of the comments from my colleagues here, provided you can deliver a seamless customer journey generally that really is the basis of transitioning your customer base. I would say players have different degrees of success, of how well they can execute that. You are seeing an environment of offline margin, you are seeing an environment of increasing compliance costs so really only the highly compliant and highly competitive and highly agile businesses will continue to succeed.

Who do you see winning the ‘Super App’ versus Marketplace battle when it comes to accessing financial services?

Alex: It’s going to depend on what other aspects of the market we’re talking about, so there are going to be situations where the ‘Super App’ is going to be preferred – either because that is the place where there’s the brand and the trust. Or that that’s where they’re getting other services that they prefer to use because it’s all of them in one place. It’s easier to just accept that I’m going to have a higher price or that I trust I’m going to have a better price for my remittance through the ‘Super App’.

Elizabeth: I think the marketplace where you’re going online is not something that the younger segments are using so we’re not seeing that inherent in the youth population, so I think customer segments are pretty split depending on age and just digital nativeness.

Leon: I think it ultimately comes down to who owns the customer and if you’ve got the right product. I would tend to lead towards a ‘Super App’ having more to offer than a Marketplace by definition, unless you actually own the customer accessing that Marketplace then you’re going to be challenged.

For more information or to request a free consultation with one of our money transfer specialists, please email marketing@remitone.com

Predictions for the Money Transfer Industry in 2022

Recent years have certainly reshaped the world of money transfers. The pandemic presented new challenges and the industry responded with innovative solutions. In 2020, we saw a great demand for mobile and online payments, driven by Covid-imposed restrictions worldwide – an astonishing 62% of banking customers considered switching from physical to digital platforms in 2020 alone [1]. It’s clear that this pace of change is showing no sign of stopping, so let’s explore the new trends and our predictions for 2022.

Cash v Digital: The Consequence of an Age-Old Question

An answer commonly sought in the money transfer space is whether the competition between cash and digital money transfer finally has a winner. Although it’s clear that cash isn’t going anywhere yet [2], digital remittances are continuing to rise, even outside the peak of the pandemic.

Customers and Money transfer Operators (MTOs) alike value convenience, security and cost-effectiveness; all of which can be easily offered by mobile and online payment systems. For example, eKYC, digital AML, payment gateway and other 3^rd party API solutions solve regulatory issues and give instant access to remitter, beneficiary and payment information. In addition, they also allow for changes to exchange rates while offering transparency to supply chain members and automating manual tasks.

As more MTOs enter the mobile money transfer space [3] – and the number of people with access to mobile devices increases [4] – digital money transfers will continue to evolve and thrive. This evolution has already made the role of technology solutions providers in this space mandatory. As a consequence, we predict we’ll be seeing these providers become a permanent part of the supply chain landscape.

Rise of Money Transfer Machines

Over the past 2 years, the money transfer industry has witnessed an array of technology features – that normally would have taken years to develop – reach the market within just a matter of months. Features such as Artificial Intelligence (AI), Big Data, Blockchain, Digital Wallets, Machine Learning (ML) and Open Banking are all entering the money transfer space. As a result, the role of technology solutions providers is becoming a mainstay in the landscape, and we can expect 2022 to be the year where these features are implemented.

The Uptake of Blockchain Technology

Most recently, there has been an increased use of blockchain-based technology for cross-border payments. The decentralised nature of blockchain not only speeds up transactions and reduces costs, but also has inherent security features which are tough to breach [5]. In addition, blockchain technology has an innate value that can eliminate the need for pre-funding in money transfers. Consequently, it can eliminate the biggest stumbling blocks for fintech start-ups in the money transfer space.

Open Banking

Another feature we’re currently seeing increasingly utilised in Europe is Open Banking. With the ability to connect banks, technical providers, aggregators and other 3^rd parties, Open Banking has allowed for a more seamless, transparent, secure and cost-effective experience for individuals.

Open Banking-powered money transfers appear to be improving the entire customer experience, reducing transaction costs and processing speeds in comparison to more traditional methods of payment. With the growing demand for improvement we’re currently seeing, it comes as no surprise that this is one trend we’re expecting to thrive.

Mobile Wallets

We’re also expecting that the definition of a mobile wallet will change in 2022. Whether it’s a send or receive market, the wallet functionality will add a host of services, including utility bill payments, airtime top-ups, micro-loans and wallet settlements. The digital wallet is en route to becoming a universal mobile bank account, through which all daily transactions of varying types will occur, regardless of where the individual is based.

What can we expect now?

Companies from neighbouring verticals such as hospitality, travel and telecoms are considering diversifying their product and service portfolios. Telcos, for example, are exploring ways to offer their own proprietary wallet with a variety of features, including money transfers, to customers. Taxi businesses are a further example of companies that are opening up remittance channels, so their drivers who are paid into wallets can send money directly from the wallet to their loved ones.

As a result, we can expect new alliances between previously disconnected verticals to take root. We can expect a rise in more Fintechs using a plug-and-play model to deliver a new breed of services involving money transfers. And finally, we can expect more aggregators to facilitate open-loop payments with instant delivery times.

To conclude, the main thing we’re predicting this year is diversification. From Open Banking and digital payment solutions to the coming together of firms from different verticals, we’re predicting more opportunities for Telcos, retail shops, MTOs, aggregators to deliver value to the customer through the digital wallet. The customer – the individual with a digital wallet – has never been in a better position to avail a variety of fully transparent services at cost-effective rates.

References

[1] https://newsroom.mastercard.com/eu/documents/mastercard-evolution-of-banking-2020-infographic/

[2] [3] https://www.remitone.com/ipr-report-2021/

[4] https://www.statista.com/statistics/330695/number-of-smartphone-users-worldwide/

[5] https://www.ibm.com/uk-en/topics/blockchain-security

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Online Event: Innovation in Payments and Remittances 2022 – Europe, Middle East and Africa

Video: The Digital Payments Boom – How to profit?

Continuing our recent discussions exploring some of the challenges and opportunities being faced by the remittance sector in these uncertain times, RemitONE hosted a webinar on the 24th of June 2021 regarding the digital payments boom that has come as a result of the COVID-19 pandemic and the rise of open banking. The panel was made up of experts from both RemitONE and our friends and partners in other global companies. In case you missed the webinar, here is a summary of the key insights.

Webinar moderator:

Ziad Mannan, Head of Engineering at RemitONE

Panellists:

• Walter D’Cruz, Director at Moneo Solutions and CEO at Livil Ltd
• Nadeem Qureshi, Chief Technology Officer at USI Money
• Mahmood Kamran, Managing Director at EToro
• Damien Cahill, Chief Operating Officer at Vyne

We’ve seen a lot of drastic changes in the payments industry in the last five to six years, particularly in the area of repayments or wallet payments. What have been the main developments in this industry?

Walter: There are certainly a lot more choices out there that have sprung up over the last five or six years, whether that’s faster payments, open banking or blockchain. One major development that I’ve noticed personally is in compliance. Although it can be a bit of a logistical headache, it is fundamentally important to all of our businesses. Because without compliance, there is no business. Technology, meanwhile, is being led by the fintech industry so it’s important that everyone else in the sector pays attention to what they are up to so they don’t get left behind.

Mahmood: The past five years have been great for the payments industry by and large, particularly in the past two years as COVID acted as a catalyst that forced payments to become digital, even in markets that were dragging their feet. Digital adoption rates have gone up by 200% and eToro saw 800% growth as businesses began moving to contactless payments. The pandemic fundamentally changed the way customers behave, the way we perceive threats and risk and how we adapt to operational challenges.

What is open banking and how does it work?

Damien: What open banking essentially does is remove all of the potential failure or friction points in open accounts and open payments. Because, at the end of the day, a card is nothing but a passport to a bank account, and all the stuff in between is border control. The Payment Service Directive 2 (PSD2), is a pretty wide-ranging piece of legislation, a piece of which essentially asks the banks to open their doors to tech companies and let them stack account information providers and payment initiation providers. It’s fairer because the cost is reduced, the controls applied by card providers are removed, the success rate is higher and most fraud aspects are removed because there are no 16 digits out there in the ether. It’s a bank-level transaction with biometric authentication that is married to the bank’s data and app. So it’s more or less 100% secure.

In what ways can instant payments become a factor for competitiveness and differentiation?

Nadeem: The objective at the moment is to achieve a real-time settlement environment. The fintech industry is moving so fast that you have to stay ahead by retaining your existing clients. One of the things driving this push is customer expectation as everyone wants access to their funds and in this regard PSD2, has created a legacy issue that we’ll probably continue to see develop over the next five years. Overall, however, not only do instant payments reduce risk, but they enhance things like reporting and onboarding too. In the supply chain, meanwhile, there is ample opportunity for new players to enter the space. For institutions though, any competitiveness is going to mean evaluating tech and reassessing functionalities such as the onboarding experience. It’s a growing trend that we’re only just seeing the impact of.

What are the implications that instant payments by open banking will have on the existing money transfer infrastructure?

Nadeem: In terms of positive implications, using open banking APIs would allow us to create a more level playing field with the older established banks. Open banking allows us to use secure channels effectively and gives the consumer a better understanding of their finances and a greater degree of flexibility. It also not only leads to new client acquisition but ensures we retain existing clients through cross-selling opportunities, forcing us to increase scalability and digitalisation. Every day we see innovations and PSD2 has opened unimaginable doors for us. Over the next few years, we will really start to see these functionalities being utilised. You may see the decline of cash and cards and people won’t want to even carry a physical card anymore, just a phone. It’s the one thing you don’t want to forget when you go out.

Can MSBs build more profitable client relationships by leveraging instant payments and open banking?

Walter: The formula hasn’t really changed. Instant payments are instant payments, the cost base is going to be the same across the base, as is the SLA. Personally, I foresee the growth of subscription-type models as there’s no other way you can build profitability in a market that has shrinking margins and increasing compliance costs. Subscription models are incredibly efficient, as if you’re paying someone each month, you’re more committed to using it as opposed to downloading competitor apps. The cost of customer acquisition isn’t decreasing either. You have to be innovative in how you bring customers in ahead of regulation and competitors. You can’t afford to sit back.

How are instant payments being positioned in the Middle East and Africa? Are they being positioned as the new normal, or premium services and what can MSPs do to set their offerings apart from those of the others?

Mahmood: What was once the premium is now the new normal. So now, with each transaction you’re always asking yourself “why does it need to take 3 to 5 days, why can’t it be instant?” This is always at the back of our minds. If a bank is not ready, such as in developing countries that are still working on legacy systems, they will be taken over by the new technology providers with the means to bring them into the modern age. We’ve seen this in the middle east as well. Banks need to catch up to this regime. The Singapore and Malaysian banks have adopted fast payment systems similar to what we see in the UK but the central banks in the middle east really need to start catching up.

When you’re looking at a payment gateway or provider, what are the critical questions to ask when evaluating a provider?

Nadeem: The key areas are reliability, settlement times and transactional cost. It’s best to go through recommendations too. Sometimes we don’t pay attention to the various card types and settlement fees but these are big issues if you’re a high turnover business. For example, you may realise your 0.2% became 0.4% because you didn’t factor in X, Y and Z. Look at the term of the contract for flexibility too. In such a fast-growing industry I would not want to tie myself up in a 2-year contract. Big innovations are happening. We also need to look at the merchant experience, the types of ports, the efficiency and the support. It’s these small areas that we sometimes tend to miss that are actually often the most important.

How does fraud play a challenge to instant payment – does faster payment mean faster fraud?

Damien: I don’t think it means faster fraud. Quite the opposite actually. Fraudsters will always try to penetrate systems, that’s what they do. But with the strong customer authentication that’s been brought in now, it’s no longer acceptable for the consumer to just have 16 digits and the expiry date, they’ve got to have two out of three prescribed things – something you are, something you have and something you know. For example, OTP (one-time passcodes). If you look at the way Vyne is set up, the transaction initiates through biometric ID into the banking app. It would be very difficult to defraud that system because your face or thumbprint is more secure than having 16 digits flying around. The way fraudsters work with card payments is they execute phishing attacks to get you to verify your card details. They’ll obtain tens of thousands of details and then run velocity check transactions with one pound to a charity if it goes through, then they start spending money with a remittance company or a retailer. You can’t phish attack those bank account things because it’s a closed loop. You can’t phish attack thumbprints or face ID.

What about the impact on profits? What will we see if we throw digital currency and blockchain into the mix?

Walter: I think you’ll see an increase in profits and the cost of compliance will definitely go down. As long you’ve got an efficient office and a way to connect to your partners then you’re always going to be ahead of the game as opposed to being stuck with a legacy system that takes forever to change or route to a different payment channel.

Mahmood: Cryptocurrency is going to continue to evolve as a method of payment. Visa recently launched their product which is based on USDC, a stable coin. They’re planning on doing the same for GBP and Eurostable coin and they’re looking for partners to initiate this. This becomes a settlement currency and represents the evolution of what digital currency will look like in the future. It’s interesting, 6 years ago I thought this was all a scam, now I’m saying it’s the future. It’s evolution.

What’s next, what’s coming up, what should we expect to see in this space in the next few years?

Mahmood: I believe you will see increased use of digital wallets and the way digital wallets are used. The behavioural change will happen. In fact, it’s happening now. A key player in this landscape, mainly for UK and Europe, is strong customer authentication, particularly biometric authentication. Strong customer authentication will be implemented as every cardholder and every merchant has to comply with this rule, and you’ll see that this makes a big change in the way by which digital payments will happen in the next twelve months. I also see cross border payments becoming more popular.

Walter: I want to talk a bit more about embedded finance services in markets like Africa, where the app will have the ability to get some micro-financing to finance lives on a smaller level. That’s definitely going to be driven by blockchain. I also think there’s going to be a lot of consolidation. Everyone is into it right now, and if you look at it historically, this isn’t a “fad” or a “trend” anymore – it’s a fact of life. In terms of crypto, you’ll see stable coins being a part of the central bank digital currency world. So settlement and liquidity for cross border payments will be instant. You’ll also see cryptos take different roles in terms of regulation. I don’t expect global consistency anytime soon though. That’s going to take a lot of time and a lot of trial and error.

Nadeem: There are the things we’re predicting, and things we’d like to see and there’s a lot of excitement and worry (on a technical level) when it comes to how we’re going to achieve these things. Personally, I think we’ll see great strides being made in the onboarding experience. Whether it’s by using open banking APIs or some other innovative tool, in terms of consumer experience, logging in and making a transaction will be extremely fluid. A lot of changes are going to happen but nobody can really predict how things will be in twelve months, at least not 100%. The generic product will be the same but the execution might be completely different.

Damien: A lot of things. Everyone said 2020 was the year for open banking. But it wasn’t. 2021 is the year of merchant adoption and 2022 will be the same but with more of an uptick of consumers getting involved in cryptocurrency and open banking, the adoption rates for which have been massive. It’s easy to see why too – they make the world of payments far easier for consumers and merchants alike – for operation and efficiency on the merchant’s side and for organising digital life for the consumers. It makes your business measurably better. Honestly, my message is adapt or die, crypto is the new technology, like it or not, it’s here to stay. There’s no stopping innovation.

Our thanks to Damien, Mahmood, Walter and Nadeem for their words and their time.

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Now that you’ve read our article we want to help you get the most out of it and deep dive into the trends and predictions shared.

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