Digital and in-app transactions can reach unbanked audiences with convenient, fast and low-overhead services
04 March 2017
Dubai – The Foreign Exchange and Remittance Group (FERG), comprising businesses engaged in the money exchange and remittance industry, believes the rise of fintech in the GCC can help the remittance sector serve wider audiences faster through digital-first channels. The announcement comes as the Fintech industry booms globally and is also strengthening its presence in regional markets, albeit at a slower pace.
In 2016, the global fintech space breached the 1,000-company threshold and raised USD 105 billion in total funding to hit a total worth of USD 870 billion in value.
FERG’s market analysis indicates that the innovations being fostered by agile fintech startups can help address key areas that hamper conventional money transfer operations.
“We’re looking at fintech advantages to help address connectivity between exchange houses and the banking system. While many of our members have achieved very close integration with international banks, some corridors where customers request direct account credits can still take multiple days. Transactions have to be processed by remittance houses and forwarded to banks, which can result in delays. We understand that remittances are very time sensitive, and are looking forward to technological solutions to the issue. We see fintech playing a role here,” says FERG Joint Treasurer Harish Pawani.
Peer to peer money transfers could do away with the traditional role of the bank in the financial chain, and move credits seamlessly between phone apps – creating avenues for instant money transfers. Such apps could also cater to blue-collar worker audiences that often don’t meet the minimum criteria for bank accounts.
“Fintech could help remittance brands empower the unbanked population, such as the GCC’s blue-collar labour cadres who usually don’t have access to banking services. Moving to in-app transactions could extend them some of the same facilities that banked customers take for granted,” Pawani adds.
Fintech could also enable brick and mortar remittance houses to move to an online presence, which would reduce the costs of expanding their physical presence. At present exchange houses offer retail rates for regular consumers and graduate to favourable bulk rates for power remitters and corporate clients. Lowering costs of physical expansion could enable a competitive universal rate for all clients. Opening online channels could also reduce queues and transaction times at outlets.
“Digital channels are the equivalent of opening a branch online. Apart from efficiency gains, it also lowers investment overheads for exchange houses. These cost savings can then be passed on customers in the form of lower transfer fees and more competitive exchange rates,” Pawani notes.
Fintech-enabled digital channels and apps can also enable a host of automated functionality – such as being able to set exchange rate thresholds to make a transfer. Rather than power remitters constantly monitoring exchange rates manually, they can schedule transfers back home when the exchange rate hits a predetermined mark.
“We see fintech eventually enabling a range of convenient automations for clients. They could time remittances to trigger at a certain exchange rate, or on a given day every month. Digital channels can also result in full fee transparency and a streamlining of the financial value chain,” he explains.
However, FERG doesn’t see an immediate substitute to conventional exchange houses, with some 90% of the industry still operating a bricks and mortar model. Strict regulations, licensing needs and anti-money laundering standards mean that fintech startups are more likely to collaborate with exchange houses to handle transactions than try to set up their own networks. FERG member exchange houses are also developing their own fintech initiatives to deliver faster and better customer experiences.
“Existing financial institutions and conventional remittance houses are considering building their own technology layer to cater to the online market, or are working alongside fintech technology. This will help lend fintech the scale, credibility and consumer trust needed to succeed, and will help conventional institutions become more agile and customer-centric,” concludes Pawani.
The Foreign Exchange and Remittance Group [FERG] is a non-profit organization formed based on the initiative of the Central Bank of UAE. The FERG comprises of companies engaged in the business of money exchange and remittances from large sized companies with over 100 branches, to single branch outlets to come on a common platform and work towards mutual benefit. The initiative to form the Foreign Exchange & Remittance Group (FERG) started in the year 2003, wherein, some of the large and leading exchange companies decided to come together and hold regular meetings to discuss current market situations, opportunities and threats facing the exchange industry. This initiative gained momentum with the Central Bank Governor calling a meeting of all leading exchange companies in January 2004 to discuss the challenges facing this Industry. One of the important outcomes of the meeting with the Governor was the initiation of the Steering Committee, comprising of 10 leading exchange companies, who relentlessly worked towards bringing in most of the exchange companies to a common platform.
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