Sunday, March 21, 2010

Remittances gone wild?

It's now easy as pie to send money home. Anyone familiar with labor markets in the Arab Gulf knows that there is a heavy reliance on foreign workers. And that many of these workers send a large portion of the pay home to their families. This supports a large formal and informal money transfer system.

There are new, simple, inexpensive ways of transferring money. Will they be adopted here, and if so how rapidly will they transform the way remittances are made?

From Wired:
Just a decade ago, the idea of moving money that quickly and cheaply would have been ridiculous. Checks took ages to clear. Transferring money from one bank account to another could take days, as banks leisurely handed off funds, levying fees nearly every step of the way. Credit cards made it a little easier to pass money to a friend — provided that friend owned a credit card reader and didn’t mind paying a few percentage points in fees or waiting a couple of days for the payment to process.

Ivey got around that problem by using PayPal. Since 1998, PayPal had enabled people to transfer money to each other instantly. For the most part, its powers were confined to eBay, the online auction company that purchased PayPal in 2002. But last summer, PayPal began giving a small group of developers access to its code, allowing them to work with its super-sophisticated transaction framework. Ivey immediately used it to link users’ Twitter accounts to their PayPal accounts, and his new company, Twitpay, took off. Today, the service has almost 15,000 users.

That may not sound like much, but it sends a message: Moving money, once a function managed only by the biggest companies in the world, is now a feature available to any code jockey. Ivey is just one of hundreds of engineers and entrepreneurs who are attacking the payment ecosystem, seeking out ways small and large to tear down the stronghold the banks and credit card companies have built.

You'll notice that the article emphasizes how these innovations will affect the formal money transfer market. I'm more interested in how they may affect the informal but potent hawala system of money transfers between workers in the Arab Gulf and their families in Pakistan, India, etc.



Blogger Abu 'Arqala said...

Not on your technical point, but more on long term trends in remittances.

A recent IMF report has some data which show the dependence of some regional countries to remittances from the GCC. (Page 31).

Page 31.

A slowdown in Gulf remittances could have a major impact. To say nothing of having to re-introduce former expats into the domestic labor pool.

Much of the current "problem" has to do with economic difficulties in the area.

But there are longer term trends as well.

The recent PIN on Article IV Consultation with the UAE suggests a medium to long term shift in demand to more skilled labor - a potentially troubling prospect for countries whose main labor export is unskilled labor.

And there are the political issues with large numbers of semi permanent foreigners that GCC states have been recently vocal about.

6:27 PM  
Blogger Abu 'Arqala said...

On the technical front, there several developments.

Several Gulf banks are offering intra country payments made via one's handset from a bank account.

Something new on the horizon, "pure" mobile phone based transfers. That is the ability to make a cross border transfer from one's phone through a stored value charge. No bank account needed. One vendor had partnered with Western Union.

Then there are systems for notification and withdrawal via SMS messages and bank ATMs as in Bangladesh.

Or this system in Kenya.

Here's one from our "stomping" grounds.

Back to the old technology, some banks have teamed up with money exchange service firms to offer remittance services. BBK in Bahrain for example has partnered with Western Union. Nip into a BBK branch and you can access the WU transfer network.

7:11 PM  
Blogger John B. Chilton said...

Your comments are appreciated.

8:36 PM  
Blogger Acad Ronin said...

35 years ago in Dubai workers used Hawala. You could get money from Dubai to the sub-Continent in under 24 hours and with fees in the 1% +/- 0.5% range, and at market exchange rates. Hawala is fast, safe, cheap, secure, and the Hawalidars, the Hawala dealers, didn't give you grief at either end if you came into their store all dusty and were illiterate. All these new systems sound wonderful; I just hope they work as well as Hawala does. The migrant workers and their families back home need every break they can get.

10:01 PM  
Blogger Abu 'Arqala said...

Here's another tech story.

More tech.

This one from Egypt.

Right now it seems for domestic transfers.

8:34 AM  
Blogger Abu 'Arqala said...

Acad Ronin

The Hawala system has been under attack by various governments (including that of the USA) out of concern that it could be used for terrorist finance or in some cases for money laundering.

The UAE was a particular target of this campaign.

8:44 AM  
Anonymous Anonymous said...

IT IS A VERY NICE SUGGESTION, THANK YOU LOTS! ........................................

5:13 PM  
Blogger Keefieboy said...

But try getting money from a PayPal account into a regular bank account: last time I did it, it took 10 days!

9:43 PM  
Anonymous nisha said...

Really,impress,I like this site,I would like to thanks to the writer,I hope that it will work in the future.

9:23 AM  

Post a Comment

Links to this post:

Create a Link

<< Home