With a substantial decrease in illegal money transfer networks such as hawala and hundi, coupled with rise in immigration from India and emergence of new technology, the money transfer business in the United States seems set for a major change.
A combination of factors such as innovative partnerships and awareness about remitter demographics are contributing to an unprecedented opportunity both for money transfer companies and consumers.
The international money transfer market grew 9.3 percent in 2004, jumping from $213 billion in 2003 to $233 billion in 2005. An estimated $66 billion left the United States last year for various destinations. Thirty percent of that went to Asia.
“My estimate is that the United States accounted for almost half of the $19.4 billion that India received through legal channels in 2004,” Dan Schatt, author of Global Money Transfers: Getting the Formula Right When High-Tech Meets High Touch, published last month by Celent, a global financial consultancy, told India Abroad.
Gwen Bezard, another Celent analyst, and author of the 2000 report on global money transfers, said that although the growth in money market was not very significant for countries like India, he saw lots of opportunities. “My estimate is that the remittance market in India will grow between 5 and 10 percent annually in the next few years,” he said.
Schatt, a senior analyst at Celent, said that in 2005 remittances to India would go up to over $21 billion, with the United States accounting for $8.6 billion.
Celent notes in its latest report that the Indian-American population is an example of an ethnic group that is largely acclimatized to online mediums and new technology. It estimates that 20 percent of global India-bound remittances are done online.
The global financial group said that there are more than two million Indians in the United States, and the community has one of the highest average income levels correlated to university-level education and acclimatization to new technology.
“Certainly the number of H-1B work authorizations issued for specialized job positions in the United States reflects the affluence of Indians, many working in the technology field and even more attuned to trying new financial products and services,” Celent said.
Although immigration accounts for some of the explosive growth in the industry, Celent said, there are two other primary reasons. “For one, several high-remittance-flow countries have improved their monitoring and reporting of remittance activity and secondly since the terrorist attacks of 9/11 scrutiny of remittance flows into the United States has increased,” Celent said.
The informal transfers like hawala and hundi to India, the 2002 report said, accounted for 71.5 percent of its remittances.
While it is difficult to guess how much illegal remittance goes to India, Schatt said, it has definitely decreased. “I must say it has come down by at least by 25 percent. India has found a way to ensure that these flows are captured.”
Celent said the relatively large growth rates most money transmitters have experienced indicate a shift from unregulated, unlicensed money transmission companies to licensed, regulated ones. For one, the Western Union registered a 23 percent growth rate in international money transfer transactions and revenue growth of 21 percent, with little evidence of any additional market share growth.
But Celent said the genius of the next generation of products and services will get the formula right – better local distribution, superior technology, the right channel targeted at the right market segment. “This is what will breed success in the market place.”
The report also predicts that one would see more bundling of tailored money services by banks and non-traditional entrants, including free money transfers.
“More banks are going to use money transfer services as loss-leaders to generate account openings and cross-sell opportunities,” Schatt said, adding that some U.S. banks such as Citibank do not see remittance as a stand-alone product the way some other institutions do.
Schatt’s assertion is borne out by the fact that Citibank has already stepped up efforts to reach out to the Indian-American community with a range of products and services, including free money transfers.
“What I am trying to do is to get all products and services together for the Indian-American community,” Ajay Banga, Citibank’s executive vice-president, told India Abroad last month in an interview.
The good news for consumers, the Celent report said, is that non-traditional entrants will reduce the price to win additional market share and additional walk-in traffic.
Already a host of companies, including non-bank money transmitters like Western Union, MoneyGram and MoneyDart, have stepped up their presence in the Indian-American sector of the market, a trend that offers consumers a lot of choices.
Western Union this month announced a major reduction in service fees for customers sending money from agent locations in New York, New Jersey, Illinois, California and Pennsylvania, to India and other South Asian countries.
“Western Union’s new pricing plan allows customers to send money more economically while receiving its safe, reliable and fast service,” said Ruchika Kohli, Western Union’s assistant marketing manager for South Asian Region.
Celent said there is a divergence of opinion in the U.S. marketplace over how best to reach the highly fragmented groups of foreign-born households that send money.
One group, identified in the report as the “high-tech” camp, emphasizes technology and price when choosing a money transfer operator.
The “high-touch” camp emphasizes personalized contact and relies primarily on walk-in traffic to their agent locations.
Despite higher levels of exposure to technology and education, Celent said, a majority of remitters still frequent traditional money transfer networks simply because they did not have a good, reliable product till now.
“All this is now going to change. What we are going to see is more use of technologies that can function like networks to get money to people,” Schatt said. “We are going to see increasing use of ATM machines and mobile phones as payment vehicles, adding that people in developing countries like India use cell phones much more actively than we do in the United States.
“In fact, there are lots of things that are better out there compared to the United States. I think the online application that ICICI Bank puts out for Indian expatriates is much better than anything in the United States,” Schatt said. “In this scenario, it is the customers who will benefit.”
