Considerations for Mobile Network Operators(MNO) in International Remittance

International remittance has become a new, substantial and growing market worldwide in today’s world. According to World Bank, the global transaction value has reached up to $615 billion. Also, 75% of the remittance flow is from high-income countries to emerging markets. Whereas unofficial remittances are estimated to be at least 50 percent larger than recorded flows.

Hence it opens a door for a business opportunity that many mobile network operators (MNOs) are keen to explore. Nowadays, some MNOs are already active in international remittance services or are seeking to launch soon. In the survey, 20% of these mobile money services have started offering international remittances.

International remittance service structure

Sending Agent-The conventional international remittance services use an agent of an MTO. It can be forex bureaux, post offices, bank branches, and approved retail outlets. MMOs act as sending agents for international remittances by providing a menu item on their customers’ handset.

Intermediation service-An organisation which provides connectivity between sending and receiving organisations. In simple words, their service includes clearance and settlement between correspondent banks in both countries. Currently, many MTOs are providing an end-to-end service with agents in both sending and receiving countries. Others offer a hub that connects independent agents in both countries. Some international banks also offer this service. Many MTOs specialise in specific remittance corridors.

Receiving Agent-Conventional international remittance services use the same agents for sending and receiving funds. MMOs act as receiving agents for international remittances by transferring the funds directly to a customers’ mobile money account. The Mobile Money Operator(MMO) can decide whether to partner with one or more MTOs or provide the service in-house.

Key Regulatory Considerations

An MMO that seeks to provide international remittances must investigate the domestic regulatory environment. The regulation should be well-versed by domestic mobile money services and international remittances. Most of the Financial Action Task Force (FATF) recommendations apply to governments and legislators. On the other hand, these recommendations apply directly to MTOs, thus associating the participating MMOs. The main regulations, which are in addition to any specific domestic controls, are:

• For international remittances, MMOs must establish procedures to ensure they know their customers.
• Due diligence requires appropriate actions by domestic mobile money services.
• The MMO and their international remittance partners are subjected to similar due diligence.
• The MMO is required to be licensed by, or registered with, the domestic regulatory authorities.
• MMO must keep a record of all the authorised or registered agents.
• MMOs in higher-risk countries must carry out enhanced due diligence checks for both registrations and transactions.

Foreign Exchange Considerations

According to a published exchange rate, foreign exchange, or forex, is the process by which money in one currency is exchanged for a similar value in another. Forex traders buy and sell a currency at different rates, and the difference between the rates is the “spread”. Here the financial institutions like banks and MTOs seek to earn profit from exchanging currencies by exploiting the spread and charging commission.

Therefore, the buying and selling prices and spread are not fixed by any central authority but reflect the transaction value. Sometimes forex traders who deal in millions of dollars every day will benefit from a small spread, whilst retail customers pay a much larger spread. The exchange rate of the service for the customer can be improved by agreeing on a small spread with the forex provider.

The MMO may negotiate a share of the revenue from the spread with their forex provider unless local regulation prevents this. Other forms of revenue depend upon whether they are acting as sending or receiving MTO agents.

A common approach towards International Remittances

A complex and well-established international remittance market into which many MNOs are considering entry. Few MNOs are currently active in some parts of the world, and many are planning to launch services.

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