Money transfers can be a crucial lifeline for millions of people around the world. Used domestically, money transfers can help make bill payments or pay the mortgage.
Used internationally, money transfers can help a stranded traveler, pay bills on a holiday home by an expat, or send money to family back home to cover basic living needs
(money transfers sent from a foreign born resident in a country to another country are called “remittances”). Transferring money internationally can be done in a variety
of ways including bank-to-bank transfers, using money transfer operators like Western Union or Moneygram, and through mobile money operators.
Mobile money transfer is a relatively new method of sending money domestically and abroad. For the last several years, mobile money transfers have been seen by many as a
solution to sending money to cash based economies or “unbanked” people living in impoverished or rural areas. Unbanked simply refers to people who do not have a bank account
and/or have no access to a local bank. The presumed benefits of mobile money transfers for this demographic includes lower transaction fees, and faster service, among others.
Why are banks, mobile network operators and money transfer companies so interested in global remittances to underbanked people? According to the World Bank,
in 2011 there were $351 billion dollars in international money transfers made to developing countries. In 2009, McKinsey & Co. released a study in which it
claimed that by 2012 there would be 1.7 billion people in the world with no bank accounts but who have mobile phones. Also, a recent study by Juniper Research
reports that money transfers through mobile phones will reach up to $340 million by 2016. The opportunity to make millions and potentially billions of dollars
in this relatively underserved market is captivating.
Although, many companies have jumped at the chance to begin their conquest in this international mobile money transfer market, some have had quite a shaky start.
One of the reasons is creating an international mobile money provider involves working with multiple parties. At the very least, it involves a bank and a mobile
network operator - both bring expertise in their field and knowledge in regulations in their respective industries. Additionally, they need to secure a wide net
of payment centers and agents in the more rural areas or areas with no banking infrastructure to disperse funds. Structuring a partnership, learning how to manage
and mitigate risk, as well as facing operational and marketing challenges have resulted in troubled beginnings.
The fact that many people in developing nations have no bank account but do have mobile phones presents both an opportunity and a challenge for companies seeking to
enter the mobile money transfer space. Both the senders and receivers of mobile money transfers are drawn to the simplicity of the process. In many cases, both parties
do not want complicated sign-up processes and yet both parties want security. For this reason, tough security measures need to be in place. For example, mobile software
needs to be designed or outsourced so that money cannot be illegally stolen or transferred in case a customer’s phone is stolen or lost with a money transfer app still working.
Although, there are many hurdles to overcome, the benefits of mobile money transfers can be considerable for both the mobile money transfer companies and the people
they are trying to serve, millions of whom are dependent on international money transfer for their economic survival.