a. Private sector Day
People on the move and inclusive financial services in a globalized economy
- Videomessage from Louise Arbour, United Nations Secretary-General’s Special Representative for International Migration
- Daniela Morari, State Secretary, Ministry of Foreign Affairs and European Integration, Republic of Moldova
- Tony Fernandes, AirAsia Group CEO and AirAsia X Co-Group CEO
- Alfred Hannig, Executive Director, Alliance for Financial Inclusion
Bela Hovy, Chief, Migration Section, Population Division, UN Department for Economic and Social Affairs (DESA)
Though often maligned, migrants represent a positive economic force for hosting countries and financial markets. Not only do they bring their skills and assets, but, with an average age of 39, migrants are often at the height of their productive years, and they come ready to work. In 2017, they contributed 9 percent of global GDP. These 258 million migrants (of which 47 percent are women and 10 percent are refugees) support another 800 million people back home through remittances and local investment. What they lack is safe and easy access to financial services that would facilitate the movement of money and leverage their impact.
Despite these numbers and the great wealth they represent, there remains an inadequate understanding (and data) on migration corridors and migrant profiles. Perhaps as a consequence, facilitating regulation is muddled and inefficient, and corrective legislation is languishing. As a result, every migrant dollar lost to inefficient policies is a dollar not saved by a recipient nor invested in an emerging market. These problems are compounded by the migrant experience that is haphazard at best.
While the Global Compact for Migration (GCM) is working to make the migrant experience safe, orderly and regular, more must be done to make it effective. Public discourse must eschew xenophobia and discrimination to focus on credible facts. Innovative strategies must be developed for facilitating remittances and reducing their cost. And opportunities for the investment of remittances must be developed.
Creating inclusive financial services begins with an understanding of the hurdles faced by those who are excluded. Sending money home is of critical importance and remittances are often the first financial service used by migrants, making it extremely important that they be easy to access and inexpensive to use. Likewise, appropriate financial services are often missing on the receiving end, where remittance families need the tools to save and to contribute to the economic development of the home country through investment.
Private sector and governments can help overcome impediments faced by migrants, particularly through:
- Sponsor policies that value migrants as a positive force;
- Enact measures that promote safety for migrants generally, but also specifically in the areas of financial and consumer protection;
- Provide access to efficient identification system;
- Support legislation that meets AML/CFT and KYC standards but does not create overly burdensome requirements for people with limited financial literacy; and
- Develop appropriate products that address the unique needs of migrants and their families.
Remittance market in Asia-Pacific: overview
RemitSCOPE: Remittance markets and opportunities – Asia and the Pacific
Pedro De Vasconcelos, Senior Technical Advisor and Manager of the Financing Facility for Remittances, IFAD
Leon Isaacs, CEO, Developing Markets Associates Ltd. (DMA)
The Asia-Pacific market is massive. Encompassing over 50 countries and 6,000 transaction corridors, the region is geographically big, ethnically and politically diverse, and difficult to understand. Although Asia-Pacific is the biggest remittance recipient in the world, receiving billions of dollars in remittances through hundreds of millions of transactions, good data has been lacking. As a result, it has been difficult to fashion effective business strategies and public policies. Nevertheless, as it becomes better understood, the region represents exciting opportunities for the private sector to tap into un(der)served markets.
Recognizing that the lack of data has hampered efforts to unlock the potential of remittances for the region, IFAD is researching, collecting, and publishing useful data in the form of RemitSCOPE Asia-Pacific. RemitSCOPE brings together information on the diverse market, providing regional, sub-regional and country-level data, as well as market analysis. These data are mainly aimed at providing policy makers and the private sector the facts they need to shape better policies and make better business decisions.
For example, an MTO needs to understand the remittance sender, the receiver, the operating environment in each location, and the best way to market to these actors. Such research needs to be carried out in many corridors before deciding to go on the market. Having such information compiled in one place can make it easier to enter new markets, because the basic research has been completed. Just as importantly, it can help to harmonize diverse practices and regulations across countries, and it can help ensure that the strategies of the private sector match the needs of remittance families.
RemitSCOPE provides public and private sectors easy-to-access data on Asia-Pacific remittance markets. Through open sharing of information among players and well-organized data sets, it offers a better understanding of the region. As a result, better products and better policies can be put in place to grow the remittance markets and increase financial inclusion.
- MTOs are the main operator for sending; banks for receiving
- Cash is still dominant
- Average costs (6.9 percent per $200) are falling but there is a long way to go
Remittance market in Asia-Pacific: trends and future outlook
- Prajit Nanu, Co-Founder and CEO, Instarem
- Yogesh Sangle, Head of Asia-Pacific, South Asia and Middle East, MoneyGram
- Molly Shea, SVP and General Manager, APAC, Western Union
- Catherine Wines, Co-Founder and Director, WorldRemit
Moderator: Ceu Pereira, Senior Financial Sector Specialist, World Bank Group
The Asia-Pacific remittance market is in high growth. With 15 percent of global remittance flows and more than 690 million mobile accounts, the region has moved from a majority remittance receiving region to a sending region. As a result, Asia-Pacific is becoming the site with the most new start-ups and innovative technologies.
The panel discussed important trends in the Asia-Pacific remittance market.
Migration: this phenomenon will continue as long as there are people seeking a better life for themselves and their loved ones. Nevertheless, Asia-Pacific has moved from a majority receiving to a sending environment.
Mobile technology: mobile technology has changed the world, and it will continue to change the remittance market. Even very poor people without bank accounts own cell phones; and mobile technologies will help bring financial inclusion to them, because these devices allow for very small transfers to greater numbers of people. Furthermore, mobile technology puts spending power directly in the hands of more women. Of course, the entire financial eco-system will need to evolve: an e-wallet will be worthless unless there are vendors to accept electronic payments.
Cash: despite changes in technology, cash remains the primary form of payment (90 percent of remittances received), and it will likely remain dominant for the near future. Clients are slow to change, have a distrust of electronic payments, and find some digital transactions more expensive than cash. However, as clients become more sophisticated, they are demanding more access, more convenience, and more real-time services; and younger generations will not know of a world without digital services. As long as costs are competitive, the use of digital money will likely increase.
Regulation: unfortunately, regulation is not keeping pace with the high demand for technology, and it will continue to be one of the challenges for new comers to the market. Inconsistent regulation keeps out new entrants (especially in the area of licensing non-bank financial institutions), whose competition could help drive down costs. But new players are not only competitors. Restrictive regulation also keeps out potential partners who could bring necessary innovation that could benefit existing businesses, as well as remitters.
In order to capitalize on Asia-Pacific market trends:
Public sector could:
- Educate the public on the safety and security of digital money in order to facilitate its availability and use;
- Create new legislative categories for non-bank FSPs
- Allow fintechs to provide services that banks do not; and
- Streamline the licensing process.
- oCollaborate and create partnerships among private industry to leverage expertise in new technologies; and
- Be agile and keep up with changing technologies; users will choose what is easiest and what they trust. Take advantage of the popularity of using mobile phones – particularly among migrants without a bank account – to develop appropriate products and expand access.
Harnessing the power of people on the move : diaspora and impact investment in Asia-Pacific
- Lee Sorensen, Economic growth, Private Sector Development, Impact funds Expert
- Ron Bevacqua, Co-Founder & Managing Director, ACCESS Advisory
- Frédéric Ponsot, Remittances and Financial Inclusion Specialist, IFAD
- Leigh Moran, Director on the Strategy, Communication and Impact Team, Calvert Impact Capital
Moderator: Liesl Riddle, Associate Professor, School of Business and International Affairs, George Washington University
Beyond sending money to family, migrants desire to invest in their home country. Unfortunately, they often lack the knowledge and the means for doing so. Investment can be intimidating and confusing under even the best of circumstances, and migrants need tools and direction to feel that their funds are being used appropriately and effectively. Investments range from a few dollars to significant funds. However, investors need to be made aware of their options and be given training for how best to invest their money. This situation represents an opportunity for service providers.
Convincing some migrants to invest can be challenging. With limited time (migrants often work 6 days a week) and limited funds, it can be difficult to show the value of savings and investment. The best strategies for reaching migrants is starting with those who are returning home.
Generally speaking, there are four models for diaspora investment among several:
- Diaspora bonds are issued by a country to its own diaspora in order to tap into their wealth and finance public investment;
- Venture capital investments funding agricultural value chains match the search of impact and return on the long run for better-off migrants and in particular those originating from rural areas;
- Crowdfunding allows diaspora to fund small businesses directly with low individual investment amount;
- Hybrid models, including matching grant of donor organizations, allow diaspora to co-invest in SMEs while promoting jobs and local development.
Financial education is key to making investment a priority for migrants and to orient them towards existing and affordable options in relation to their income and goals. Public and private actors should stress the value of putting money toward longer-term projects to accompany changes in financial mindsets and behaviors in favor of savings and long term plans which require a sustained support and communication on the long run.
FSPs should consider migrant-specific needs when developing products. While all customers want services that are convenient and easy to use, migrants in particular may need special considerations such as investments linked to remittances and the ability to contribute small amounts.
However, the migrant community is not homogenous. Poorer migrants have different needs than wealthier ones, as do women from and men, and older from younger migrants. When developing and marketing products, FSPs should market to each segment appropriately. Existing products may need to be modified to meet specific needs.
Emerging money transfer business models : unlocking opportunities
- Mohd Khairil Abdullah, CEO, Axiata Digital Services
- Prasanna Rao, Head of Sales, Valyou
- Sudhesh Giriyan, COO, Xpress Money
- Aireen Omar, Deputy Group CEO – Digital, Transformation, Corporate Services, AirAsia Group
Moderator: Hugo Cuevas-Mohr, Director, International Money Transfer Conferences (IMTC)
Innovative technologies are being developed across the remittance market. From cash-based money transfers to mobile and distributed ledger capabilities, these solutions are bringing together players normally not affiliated with one another. Both local and international players are coming together to share strategies, leverage strengths, and learn what does and doesn’t work in the digital space.
Migrants depend on remittance services, but their needs extend beyond money transfers. Companies should consider the entire migrant experience, from needs people have when they first leave home (such as training and personal identification), to the needs they have when earning and using money (direct deposit of wages, e-wallet), to the needs they have once they find success (investment vehicles and insurance product). In addition, financial service providers (FSPs) must keep in mind that they are not only competing with other formal institutions but also with the unregulated market that can often offer lower costs and more convenience.
Customer satisfaction will determine whether users adopt new technologies. Convenience is key, and companies should look to develop products and services that are local (or mobile), self-directed, and simple to understand and use. Human-centred design, taking into account what the user wants, will produce more appropriate and successful products.
Remittances alone are not high value, and companies will need to look at more comprehensive services, such as linking products (savings, investment, micro insurance). But innovators can also thrive by targeting deficiencies in the market—especially parts of the market chain where there is market failure or underserved customers.
Customers’ needs change over time. Companies can better meet the unique needs of customers by addressing the entire migrant experience.
Speed, easy to use and low costs are prime expectations of customers. Companies will need to enhance these in order to differentiate their services from their competitors, both formal and unregulated.
Cash remains the dominant form of money. However, improved technologies and a younger demographic may help push users to digital options. Companies will want to exploit these trends.
Digital economy: remittance services for broader market segments
- Roar Bjaerum, SVP Head of Financial Services, Telenor
- Michael Kent, CEO, Azimo
- Elmer (Jojo) M. Malolos, CEO, Wing Cambodia
- Carlo Corazza, Senior Payment Systems and Remittances Specialist, World Bank Group
Moderator: Leon Isaacs, CEO, Developing Markets Associates (DMA)
Digital technologies are expanding throughout the world, particularly in Asia-Pacific. Innovation is opening new avenues for remittance transfers and pushing digital money into a largely cash-based world. These changes encourage greater financial inclusion, but they come with unique challenges as well.
Although new technologies are showing tremendous potential, old hindrances remain. Cross-border transactions are not allowed for non-bank financial institutions (NBFI) in many Asia-Pacific countries. Legislation typically lags behind innovation and can sometimes be too great a barrier to new market players.
While e-money services promise low costs, the start-up expense of building networks or setting up new channels can be significant, and these costs are typically passed on to the customer. As a consequence, higher prices can dissuade people from using electronic remittances and other digital services.
Customers still prefer to cash out remittances, which can drive up costs and require the presence of agents, point-of-sale (POS) equipment, or additional brick and mortar locations. In addition, customer uptake of new digital applications can be difficult, as users lack financial literacy and often distrust what they do not understand. Physical cash and in-person transactions, even with unregulated vendors, still “feel” safer to many people.
There are many promising innovations, although the proven technology-driven use cases yet remain scarce. Blockchain offers distributed and decentralized ledgers that provide greater transparency and security; but FSPs are still unsure on how best to use this technology. Mobile wallet reduces the need to carry money; but there will need to be more participating employers and vendors to drive digital uptake and make transactions truly cashless. Consumer-to-Business (C2B) models allow customers to specify a need and various companies to compete to fulfill that need; but greater financial literacy will be required before these models become widespread.
Many technological solutions already exist, so MTOs and other FSPs should look to partner with digital innovators rather than develop their own solutions. Doing so will lower the barriers to entry, leverage the strengths of the partners, and lower the cost to the consumer.
Business and government have a key role in pushing electronic money. Employers can pay workers electronically, vendors can accept and incentivize digital payments, and governments can support electronic accounts for all citizens. These steps would also help improve financial literacy.
In turn, the public sector can encourage innovation. Legislation can allow non-bank FSPs to participate in the market, open up cross-border transactions, and balance risks and opportunities by ensuring new laws are compatible with new technologies. Governments can ultimately educate the public on the safety and convenience of digital money.
Diaspora investment: scope of market opportunities in Asia-Pacific
- Eric Guichard, CEO, Homestrings
- Josephine G. Cervero, First Vice President, Trust Banking group, Land Bank of the Philippines
- Mayumi Ozaki, Public Management, Financial Sector and Trade Division, South Asia Department, Asian Development Bank (ADB)
- Bibiana Vásquez, Monitoring and Evaluation and Remittances Specialist, IFAD
Moderator: Mauro Martini, Remittances and Development Officer, IFAD
Although there is great potential for diaspora investment, it is currently inefficiently leveraged. It can be improved by focusing on better preparing the target client audience and by expanding the range and quality of products offered.
The primary impediment to migrant investment is knowledge. Migrants often do not possess the financial literacy needed to make appropriate investment choices. This lack of understanding promotes a general mistrust in financial vehicles, making it difficult to link migrants to investment instruments. That said, migrants are willing to invest in meaningful opportunities, if given adequate guarantees. For example, they want to know that the money is funding important programs, such as roads and schools, even if it be in countries other than their home.
A secondary impediment is the products themselves, towards which institutions often adopt a monolithic approach and provide few investment options. Linking individuals to products requires a more nuanced strategy, with instruments that reflect the client profile. For example, women tend to be more conservative when investing, but also more disciplined about saving. Migrant workers generally tend to be low skilled and financially literate, while only a limited of affluent diaspora members have the ability to understand financial products issued by mutual funds. Nepalese diaspora bonds were unsuccessful partly because they required too much sophistication on the part of the user. Organizations must take these differences into account, focusing on the client needs rather than just institutional strategies.
Governments can help address these issues with better migrant and migrant family education. In particular, they can promote savings and investment—especially toward retirement. Bangladesh has found success through the Migrant Family Motivation Initiative (MFMI), which works with migrant families one on one. The public and private sector can work together to promote a better regulatory environment across national boundaries for diaspora investment.
Both public and private sector can take advantage of remittances as a source of investment.
- Financial literacy is key: the public sector should promote education generally, and private sector should develop products that require minimal understanding
- Understanding the migrant experience is crucial: public sector can educate migrants before they emigrate, and private sector can recognize that migrants are a heterogeneous group with varying skill levels and needs.
De-risking in the remittance marketplace: issues and alternatives
- Dianne Nguyen, Director, Australian Remittance and Currency Providers Association
- Robert Bell, Chairman, KlickEx
- Ceu Pereira, Senior Financial Sector Specialist, World Bank Group
- George Inocencio, First Vice President and Head of Remittance Marketing Department, Development Bank of the Philippines
Moderator: Louis de Koker, Professor of Law, La Trobe Law School, Australia
De-risking is a practice by which financial institutions terminate or restrict business relationships with clients in order to avoid risk, rather than to manage it. It is particularly common with accounts that banks consider “high risk,” which are typically ones that are deemed low profit, or might carry reputational concerns, or might face increased AML/CFT scrutiny. Tellingly, a 2014 survey by the World Bank Group showed that actual AML/CFT sanctions and violations were not among the primary reasons that accounts were closed. Unfortunately, de-risking policies have been increasing; and they are locking out “good” players and thus contributing to financial exclusion.
Remittance services in particular have been negatively impacted by de-risking policies. RSPs have had to resort to unconventional methods to carry on business—sometimes moving large amounts of currency in cash. At the same time, migrants have had to find alternative remittance corridors—sometimes finding them outside the formal economic system. So while de-risking tends to have a negative impact on remittance providers and users, there is little evidence that it actually reduces risk.
Although de-risking is a serious threat to the remittance market, there are steps that the public and private sector can take to limit the damage.
Promote communication. Financial institutions should work with non-bank players to address concerns before closing accounts. At a minimum, the institution should be able to give thorough justification for why an account was closed or denied.
Assess actual risk and legislate accordingly. The public sector needs to better understand the remittance market. By collecting and analyzing data on transfers, the true threat posed by remittances could be better understood; and policy makers might better tailor legislation to address the issue. Alongside these efforts, licensing of FSPs should be streamlined, while making oversight a bigger priority.
Implement technological solutions. Digital IDs, distributed technologies, bitcoin and other cryptocurrencies, and blockchain services (a transparent method of moving monies electronically that is not reliant on any single entity) – will likely be key to addressing the issue. In order to facilitate technological advancement, the public sector should support FinTech companies through streamlining licensing and creating an enabling regulatory environment.
Ultimately, a cultural shift will also be necessary. Access to banking services must be seen as a human right, and finding a way to differentiate between benign remittances and illicit channeling of monies is the next step.
Mitigating de-risking practices will involve:
- Promoting dialogue between respondents and correspondents;
- Modifying AML/CFT measures so they are scaled to actual risk; and determining actual risk based on transparent national assessments;
- Streamlining the certification process for MTOs while also improving oversight; and
- Leveraging fintech to improve identification methods (e-KYC and electronic identification) and bypass correspondent banking (through blockchain and distributed ledger technologies).
Innovations and inclusive remittance business models and products that meet the clients’ needs
- Sofia Freyder, Payments Expert
- Eugene Nigro, Vice-president of Global Business Development, Remitly
- Michele Grosso, CEO and Founder, Democrance Insurance
Moderator: Juanita Woodward, Principal Consultant CTD Connecting the Dots, InfoCorp Technologies, Singapore University of Social Sciences
Few companies innovate for the sake of their customers; they innovate in order to profit off new technology and so as not to lose ground to competitors. Luckily, innovation can also lead to better financial inclusion. The last 3 decades have seen incredible advances in technology from the business sector that have led to a plethora of new products and services.
In particular, companies are looking at additional services along with money transfers. These include budgeting tools, deposit and savings accounts, micro-lending, insurance, and prepaid cards. Other innovations, less noticeable to the customer, decrease costs and increase security. These include tools such as blockchain, which manages transactions and settlements transparently and securely, and artificial intelligence (AI), which collects and analyzes data to assist in meeting compliance requirements and understanding customer trends.
The panel discussed several innovations and how they are changing the market.
Real-time transfers are the gold standard, but they are still unavailable in many parts of the world. Business can begin with domestic payments and then move to international payments, but it is difficult to develop one product that works across different cultures, environments, and countries.
Pre-paid cards and e-wallets are becoming more prevalent (69 percent of people globally have an account), and yet they may not quite be the revolution they first seem. Customers use these tools widely, but they use them to acquire cash more easily. Many locations are not set up to accept electronic payments, so customers default to the status quo of cash. Likewise, those vendors that do accept cards do so reluctantly because of the costs associated with their use. That said, mobile wallets do seem to empower women, who now have more direct access to money through a mobile device and can make their own decisions.
Insurance is out of the reach of most lower-income people–less than 1 percent have access to insurance; and yet migrants face risks that most workers do not. Furthermore, they have families back home who are dependent on their remittances, the loss of which would be devastating. As such, migrants are uniquely situated to use insurance products. Micro-insurance makes insurance affordable to lower income peoples.
Although many companies want to rush a new product to market, only those products that are designed with the customer in mind can truly succeed. Whether this is “human-centered design” or simply good product development, thorough research on the environment, focus groups, and good testing are critical to ensure the right product for the right audience.
Promoting savings and investment of remittances: amplifying the impact of remittances beyond household consumption
- Jonathan Capal, Director, Developing Markets Associates Ltd. (DMA), Asia-Pacific
- Jean Drouffe, CEO, AXA Insurance Singapore
- Mai Anonuevo, Executive Director, Atikha Overseas Workers and Communities Initiative
- Robin Gravesteijn, Data Management Specialist, United Nations Capital Development Fund (UNCDF)
Moderator: Ron Bevacqua, Co-Founder and Managing Director, ACCESS Advisory
Institutions often give little regard to remittances. They are viewed as a minor product that promotes financial inclusion, but rarely goes beyond that. In fact, remittances can be a gateway to greater financial services, which not only benefit the client but can help the institution become more profitable.
Migrants and their families represent a distinct and potentially lucrative target market. But institutions have been slow to recognize that remittances are the first stage of a full suite of targeted products and services. By starting at remittances, institutions can link migrant clients and their families to savings, insurance, and investment products.
While the needs of migrants are not homogenous, generally speaking, they want certain traits in their financial products and services.
Convenience. It can be daunting to send and receive money, especially when one must travel great distances. Digital remittances using mobile phones are becoming more prevalent for un(der)served peoples. Especially important is having services that are linked, like remittance and savings accounts, making it easy to move money among accounts.
Simplicity. Financial literacy is often low among migrants; and thus they crave products that are easily understood and managed. Likewise, many products (like in traditional insurance) tend to be complex and expensive for institutions to manage, so simplicity would also benefit the provider. Technology has helped with bringing down costs and making some products more accessible.
Control. Like anyone, migrants want to manage their own resources and have some level of control over the money that is being sent. For some, control means having investment tools that also benefit the home community.
Trust. Because financial literacy tends to be low, migrants want assurance that their money is handled appropriately and safely.
FSPs have largely overlooked the potential that remittance services offer to open up new markets. By linking remittances to other services such as payments, savings, and investments, FSPs can tap into migrant communities and develop entirely new customer base. However, doing so will require FSPs to understand the unique needs of the migrant community so that appropriate products can be developed.