The shifting fortunes in the money transfer market are pushing traditional agents such as Western Union and MoneyGram to develop mobile solutions, which they are relying on to recapture a share of the local market.
Hit by declining market share following the advent of mobile money services, the two operators have had to change strategy as they move to defend their core business.
“If it’s a remittance transaction, we want to touch it, whether online, by phone or at one of our global agent locations. There will be more opportunities ahead for mobile transfers and more transfers direct to cards,” said Thomas Christophersen, MoneyGram’s head of new product and channel development.
According to data from Financial Service Deepening (FSD), traditional money transfer operators have lost significant market share since the advent of mobile money services such as M-Pesa and Zap.
Their market share in Kenya has fallen to just three per cent of the total transfer market, down from a tenth of the total transfers market in 2007.
FSD says that the proportion of people using the service stood at 17 per cent before mobile money transfer commenced, a figure that has dropped as the telecommunications firms continue to eat into a larger share of the money transfer market.
In 2009 MoneyGram moved to double its agent locations in Kenya while Western Union implemented a lower tariff structure as they both attempted to fend off rising competition from mobile operators by adding PostBank’s branches to its agent network.
Many users cite the high cost of transferring money using operators such as MoneyGram and Western Union as a barrier to access, preferring the lower rates offered by mobile service providers.
World Bank estimates indicate that reducing remittance commission charges by just two to five per cent could increase the flow of formal remittances by 50-70 per cent, which would boost local economies.
Reducing the cost of sending each individual remittance encourages the delivery of lower value remittances, says the World Bank, at values far less than today’s average transfer of $200.
Previous data from Safaricom and Zain indicate that most Kenyans who use the service typically send smaller amounts, ranging between Sh1,000 and Sh2,500 at an average cost of Sh55.
In December, MoneyGram joined forces with SMART Communications, to kick off the pilot phase of its MoneyGram mobile money transfer service that allows delivery funds from any MoneyGram agent location direct to any SMART Money account.
For its part, Western Union has formed partnerships with mobile firms aimed at defending its share of the international remittances market, said to be worth US$300 billion.
The two operators will have to fight off a growing number of mobile service providers who have found that offering financial services through mobile handsets can add to the attractiveness of mobile money services, and help to retain customers to networks.
Rohit Bhatia, CEO of Seamless, a Swedish software company specialized in solutions for Mobile Money, prepaid e-Top Up, and Value Added Services, says the lack of basic services like banking and fixed internet, high growth markets will use the mobile phone as the main service enabler, especially for functional services like remittances, purchases and payments.
“Our research shows a major interest for such functional services in emerging markets, and this will drive innovation. These low ARPU (average revenue per user) markets’ and low income segments will adopt new functional services faster than the global average.
MNOs (mobile network operators) that recognize mobile money as a growth potential and a differentiator will emerge winners,” said Mr. Bhatia.
Players in the financial sector and mobile industry view mobile money as a fast, easy and new way for the un-banked to carry out their everyday money transactions.
“If MNOs can leverage existing airtime distribution networks, keep their proposition to stakeholders simple and yet innovative, expand slowly and steadily, simplify registration and subscription to the service, and above all, select a long-term business partner as their technology vendor, they are sure to be winners in the mobile money space,” said Mr Bhatia.
