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Mapping Mobile Money: Challenge and Opportunity (The Monito Briefing Issue #9)

Byron Mühlberg, writer at Monito.com
Jun 21, 2021
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Hello! In this week's issue, we're looking at pricing transparency in cross-border payments and exploring whether the future looks bleak or bright for consumers.

Then, we look at the highlights of the World Bank's most recent remittance report to reassess its 2020 predictions, before ending off with Wise's high-profile public debut.

Industry Highlights

Let's take a look at what's been happening over the last two weeks before we get started:

  • TransferMate, a major provider of global B2B payments infrastructure, has kicked off a collaboration with Chinese e-commerce giant Alibaba to facilitate high-speed international money transfers for customers at preferential exchange rates;
  • Consumers and merchants in Thailand and Malaysia can now make and receive instant cross-border QR code payments between the two countries following a new joint agreement by the respective central banks.
  • Despite El Salvador becoming the first country to adopt bitcoin as a parallel legal tender, major remittance providers remain hesitant about facilitating cryptocurrency payments, according to Reuters.

Is FX Pricing Becoming More Transparent?

Long one of the chief concerns looming over cross-border payments has been the cost of transacting and — more specifically — how frequently the full extent of that cost is disguised to consumers.

According to the World Bank’s corridor data, foreign exchange margins (which tend to be the least visible facet of currency exchange pricing) often constitute as much as half of the total cost of a US$500.00 transfer along major corridors, including the US to India and the US to the Philippines. The World Bank names the lack of transparency by which these costs are hidden as one of the “most important factors leading to high remittance prices,” pointing to the example that if the cost of sending remittances were reduced by five percentage points relative to the value transacted, recipients in developing countries would receive some US$16 billion more on an annual basis than they do currently.

If we were to paint a broad picture of pricing transparency in international money transfers, here’s how it might look in 2021:

Banks: These days, a significant part of global cross-border flows are transacted via SWIFT. The percentage of the total cost that banks charge using an FX margin varies considerably from country to country. According to Monito's analysis, for example, banks in the UK tend to levy most (sometimes all) of their fees in the form of FX margins while their transfer fees remain low or nonexistent. On the other hand, Singaporean banks tend to levy a bulk of their international transfer fees (either fixed or commission), which results in higher fees and lower FX margins. Banks in the US, Australia, New Zealand, and South Africa tend to be somewhere in the middle.

IMTOs: While price transparency tends to be better among transfer specialists and fintechs, the FX margin remains commonplace. According to the Monito Score — a composite consumer-oriented scoring system designed to review the services of money transfer companies — the extent to which consumers are made aware of its presence differs considerably by provider. The Monito Score criterion assessing pricing transparency is based on the following four metrics:

  • The ratio of FX margins to fees for the ten most frequent transfers (based on country pairs and USD amount sent) on which a given provider is available on Monito’s search engine results page;
  • Whether the FX margin is categorized as either Hidden, Partial, or Transparent based on its visibility on the provider sending page;
  • Whether or not some fees are only accessible after opening an account or requesting a quote with a provider;
  • Whether or not promotions for first-time users obscure the standard pricing.

These metrics are weighted to form a score out of 10. Of the 28 IMTOs Monito analysed, the average score was 4.3, with some of the big names performing as follows:

Regional providers Remessa Online (which operates in Brazil) and SingX (which operates in Singapore, Hong Kong, and Australia) also achieved 10.0 points. In contrast, the mobile wallet Skrill and ICICI Bank’s remittance service Money2India earned only 1.0 point.

Ultimately, the extent to which pricing transparency is embraced in the industry is crucial for helping consumers to understand what they’re paying. According to a 2020 survey by YouGov and Capital Economics, only 18% of US consumers identified FX margins as even playing a role in the cost of exchanging currency, with the remaining respondents either stating that such transactions are free (20%), subject only to an upfront fee (29%), or that they did not know how they would expect to be charged from a provider (32%).

Zooming out, while the average global cost of sending money US$200.00 overseas remains as high as 6.52%, an encouraging sign is the broader trend appears downward. Furthermore, following new World Bank recommendations on pricing transparency and consumer protection in November 2020, it seems increasingly likely that in future, greater transparency may follow on the heels of low transaction costs.

Revisiting World Bank Pandemic Predictions

As regular readers of our newsletter will know, we frequently keep an eye on how the World Bank’s famous April 2020 prediction of a 20% annual decline in remittances happens to be shaping up in real-time.

A recent report from the World Bank’s Global Knowledge Partnership on Migration and Development (KNOMAD) sheds some light on the subject, revealing that the World Bank had significantly overestimated the impact and that instead of remittances declining by 20%, they ended up declining only by 1.6%.

By region, the most significant remittance changes in 2020 were as follows:

  • Latin America & the Caribbean: Remittances grew by 6.5% in 2020, supported by economic recovery and “moderately improving labor market” in the US;
  • South Asia: Remittances grew by 5.2%;
  • Sub-Saharan Africa: Remittances shrank by 12.5%;
  • East Asia & the Pacific: Remittances shrank by 7.9%;
  • MENA: Remittances grew by 2.3%;
  • Europe & Central Asia: Remittances shrank by 9.7%.

Wise Goes Public

We’d be remiss to finish off this issue without mentioning Wise’s landmark public listing, which became official last week. Here’s what we know so far:

  • On Thursday, June 17, Wise announced its intention to go public on the London Stock Exchange, with Goldman Sachs, Morgan Stanley, and Barclays involved as lead financial advisers;
  • The company seeks to raise secondary capital through a direct listing, sidestepping the Initial Public Offering (IPO) route. In essence, this means that only existing shares will be sold and no new ones created, with no intermediaries or underwriters being involved to guarantee the sale of those shares;
  • Wise has been a profitable company since 2017 and has boasted a 54% revenue compound annual growth rate since 2018;
  • In its registration document, Wise outlined several risks threatening its future growth. According to the company, these include competition, macroeconomic changes, counterparty disputes, reputational challenges, and legal disputes.

“Wise's public listing is an exciting step for the company and the industry at large,” said Laurent Oberholzer, Monito's Co-Founder and Head of Business Development. "Its unusual decision to pursue a direct listing rather than going down the more traditional IPO route bears witness to the company's pioneering and maverick attitude, as well as its commitment to lower prices, more fairness and transparency in the world of finance."

Oberholzer added that Wise's decision to float on the London Stock Exchange, despite numerous alternative venues being available, particularly in the US, is a "major win for the City and the UK more broadly."

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