Remittance, otherwise known as the transfer of money from immigrant workers to their home countries, is a difficult business for the involved customers, regulators and banks. The transfers are difficult for customers, due to the lack of access and vendor-choice, difficult for regulators when establishing a universal cross-border standard and difficult for banks in transferring funds to non-bank customers.
Aside from individual problems, remittance is also facing an overall efficiency problem, regardless of its expanding size. On a global level, the remittance business is now worth $159 billion per year and is estimated to continue growing 5% annually.
In over 30 countries worldwide, transferring money back to home countries also accounts for over 10% of total GDP.
It is undoubtedly a large business for banks, but it is estimated that around 40% of total remittances does not go through the banking system, with private and less reliable services picking up the bulk of informal business.
The message coming from Sibos is that although the business has grown in stature, global remittance services are an area of the finance sector that requires further transformation from regulators and banks. The World Bank and Bank of International Settlements (BIS) are two international organisations that are currently teaming up to optimise the remittance space. The organizations have been undertaking a joint report to identify universally applicable principles for improving safety and efficiency of remittance, which will be completed by 2006.
"Remittance is nothing more than a payment and in developing countries it is far from being optimal," says Massimo Cirasino, senior financial sector specialist, financial sector operations and policy group, The World Bank. "In developing countries that have taken an active approach to remittance, banks have received improves results. At a national level, improved efficiency of remittances could mean an additional 1% to GDP and increase competition in the banking space."
The report has also undertaken a task force mandate that is universally applicable to international standards with the focus of identifying the main characteristics of sending and receiving remittances. "Currently, the global remittance market is very much a hodgepodge of different systems and protocols," says Marc Hollanders, head of the committee on payment and settlement services (CPSS) secretariat at the BIS. "There is no such thing as an international standard and it will take more time to develop one."
On the regional banking side, India's ICICI Bank has been one of the innovators in the remittance space and a supporter of greater implementation of remittance services. The bank currently holds 15% of the $20 billion Indian remittance market and has built alliances with global banking organizations such as DBS and Wells Fargo to cater to the transferring needs of non-resident Indians (NRIs) and expatriate workers.
According to Madhabi Puri Buch, senior general manager, head-product technology/group, ICICI Bank, it has been successful in the remittance market due to its three-pronged approach of building alliances, using alternative channels and expanding its distribution reach.
However, speaking from a receiving bank perspective, she admits much can be done to transform its remittance business and optimize the process. "There were many challenges in setting up the remittance business and we saw that customers felt exceedingly helpless as there was few offerings," says Buch. "The volume will continue to grow and as far as challenges go, we've seen heightened compliance and know your customer requirements (KYC) requirements."
Enhanced and cost effective technological standards are also at the top ICICI's wish list, but according to other remittance panelists, they are simply too expansive, complicated and slow to open. Although volumes are remittance transfer will only grow on a global level, lack of international standards and interest by banks to outlay funds for remittance systems means that transformation will occur at a slower pace.
