Migrant Workers and their Dependents: Defining the Future of Mobile Payments

Nearly 200 million migrant workers currently use remittance services to send money to a recipient base of around 800 million people.  On average, they send back $2,000 – 5,000 annually – approximately 20 – 30% of their earnings.  The World Bank estimated the total market to be close to $600 billion in 2008.  This is up 63% in 5 years and expected to continue growing in the years to come.

India, China, Mexico and the Philippines are the four largest recipient countries, while the US, Saudi Arabia and Western Europe are the largest originating countries. 

For individuals in developing countries, access to remittance funds has the potential to bring profound change to their lives, and to the social and economic growth of their communities. For recipient countries, such funds have huge economic and social benefits on a national scale.  Ensuring secure and efficient transfer of funds is therefore paramount, not only for the individuals involved, but also for national economies and international development.

However, two challenges in particular restrict the market from reaching its full potential; access and cost.  The vast majority of migrant workers and recipients do not have access to the banking sector and rely on alternative, cash-based remittance channels, such as commercial remittance establishments (e.g. Western Union and MoneyGram) and check-cashing stores.  These are costly to operate and therefore charge high fixed commission costs per remittance, particularly for smaller transactions.  Average transaction costs are estimated to 15%, increasing to 25% for remittances below $100.

The ubiquity and low-cost nature of mobile technology has the potential to revolutionise the remittance market.  According to the UN, more than 3.3 billion people now have access to mobile phones.  The majority of these are enabled with the functionality required for mobile money transfers.  Moreover, mobile money transfers eliminate the operating costs associated with today’s cash-based systems and significantly reduces the transaction costs.

With improved access and lower costs, the UN estimates that such use of mobile technology would encourage lower-value remittances and increase the value of remittances to more than $1 trillion in the next 5 years.  This would clearly be tremendously beneficial for economic development.

Hence, not only is this market incredibly attractive to mobile operators, financial institutions and other entrepreneurs, it would also make mobile phones the primary financial channel for more than 1 billion people in emerging economies.  Without access to alternative financial channels, these people and their societies are likely to be early adopters to other mobile financial services.  Therefore, to see the future of mobile payments, we should look to migrant workers and their dependents in emerging economies.