Money Transfer Operator Woes
Before we delve into what value transfer is, let us take have a 100,000 feet view. So much is happening in the world of remittances and money transfer. Most of these activities would give any money transfer operator sleepless nights. Money Service Business (MSBs) having their bank accounts closed. Margins on remittances are declining. Competition is increasing. Pre-Funding costs are going up. Consumers are demanding real-time settlements. Cost of acquiring new customers is going up. Bigger, well-funded players are now entering the money transfer arena. Internet advertising PPC (Pay Per Click) rates are now climbing up due to a crowded supplier base. Regulators are becoming more strict and vigilant. Fines are being slapped with higher Dollar values, etc.
Money Transfer Operators often ask themselves “Is there no end to this train of bad news?”
Maybe there is: Value Remittances.
I often ask money transfer companies, what value do you provide to your customers, the answers are mostly generic, in some cases scripted, and mostly ones that consumers, frankly don’t give a shit about. That is the bitter truth.
When you really analyze and look at it from the outside, everyone is selling vanilla ice-cream. So where is the distinction? Where is the differentiator? Where is the value?
When push comes to shove, and those who never quit, start thinking outside the box.
They place themselves in the shoes of the remitter and the beneficiary and ask questions that would truly to the following:
- Who are we?
- Where do we stand in the remittance transfer space?
- What are we doing wrong?
- What are we doing right?
- What are we not doing, that we should be doing?
- How do we go about this?
What Does My Scorecard Say?
You have to ask yourselves many such questions to get a bearing of where you are, and what your project course would look like. These questions (see below) are taken out from a 320+ Questions database that I used for my clients, when reassessing their business model. It is a brutal exercise to say the least.
- What can I do for you (the customer), so that you become loyal customers?
- How can I decrease costs without affecting the quality of service?
- How can I increase profit-margins without increasing costs?
- What are my value propositions for retaining clients?
- What advantage do I have over others when it comes to money transfer?
- As a new client, why would they choose me?
- How can I compete in a crowded marketplace?
- How can I stop losing customers?
- How can I stop customer churn?
- Why would I want my son / daughter / friend / father / etc. to use XYZ Service to send money to me?
- Where do I place myself if all the money transfer companies were to stand shoulder to shoulder? Am I even being noticed?
- Who is my customer?
- How deep of a persona profile do I have on my customers?
- When was the last time I surveyed them?
- Is price the only differentiator?
- Is speed the only differentiator?
- Do my customers really care for my brand?
Elementary understanding of yourself, your customers and your business is the starting point. The answers to these questions will eventually be your business plan.
Your rebirth for short.
So What Are Value Transfer Remittances?
While there are many, I would like to discuss one that is near and dear to me, which I feel many money transfer operators are ignoring.
When a remitter sends $1,000 back home for family maintenance (home remittances), they have a very good idea of how the money ought to be used.
For example, the spending pattern might be like this:
- US$ 450 for groceries
- US$ 100 for utility bills
- US$ 150 for tuition/school fees
- US$ 50 for fuel
- US$ 200 for allowance
- US$ 50 loan repayment
The reality is when the money arrives back home, there is gross financial mismanagement. What was supposed to be appropriated towards groceries, is now US$ 600, Utility Bill was US$140 for the month, Fuel was US$ 80, etc.
Long story short, misappropriation of funds, causes more pressure on the sender to send more money.
This can be controlled to a larger degree if the sender can directly pay for groceries, tuition/school bill, utilities.
Herein lies the value in remittances.
If a remittance company is able to work with a local on-ground merchant to offer their products online, while the remittance is being made, you facilitate the entire transfer chain.
For purposes of simplicity let us assume when a person sends US$ 1,000 back home, the total revenue for the remittance company is 3%, so this would be an earning of US$ 30.
Now if you have alliances with on-ground partners who can provide groceries and other value-added products/services to you, and provide you (the remittance company) with a discount, the equation changes dramatically. Let us assume you are about to secure a 10% discount on groceries, then the same example as above would look like as follows:
- US$ 450 for groceries, net income of US$ 45 (discount given by grocer)
- US$ 650 for the remainder amount of remittances, net income of US$ 19.50 (at 3.0%)
- Total income earned: US$ 64.50
Not only have you reduced the cost of remittance by a 1/3rd (US$ 30 prior and now US$ 19.50), plus you have managed to earn income on the money that was allocated towards groceries.
Whilst the 10% may be out of range for groceries, it is nonetheless a very viable number. Realistically you can expect a 5% cash-back from most grocers.
People who are sending money, are not just buying groceries with their money, they are buying air conditioners, ironing tables, toasters, kitchen appliances, household furniture, clothing, etc. All these verticals represent a varying degree of cash-back that you can get.
Recent studies on behalf of clients that we have done, that we can very easily work out an arrangement with vendors to average out between 12% to 15% cash back.
Studies have also shown that approximately 40% of the income can be attributed towards these value-add spending.
Building Value Transfer
With declining margins, this is a great way to make money. The idea was not ours. Let me be very clear on it. It came to me when I was compiling a list of companies for the Periodic Table of Remittances when I came across Afri Markets. Just by seeing the snapshot of their main page you can get a sense of what they offer, the value addition in remittance transfers.
There is so much that can be done with this new value transfer in remittance approach. Companies that invest in these value-added services in money transfer today, will take much of the profits from the harvest. What is needed is more on-ground research as to how the money is being spent back home, getting a better persona profile of the family in the beneficiary country, especially their spending/transaction habits and behavior.
Don’t discount the blue-collar migrant workers. They are perhaps the ones most likely to spend money on such value transfers (think of about the 10,000s of workers in Saudi Arabia, UAE, Qatar, Kuwait, etc.).
Start building on this channel today.
I cannot close this without giving credit to my good friend Asif Shahzad, who in South Asia has started this trend of Value Transfer. It can be said with relative ease, that he is amongst the pioneering minds when it comes to the value transfer layer in money transfers. Asif – Thank you!