New Services for International Transfers International money transfers enable migrant workers to support their families, especially to pay for education and major household expenses. International Airtime Transfers provides migrant workers with a solution enabling small value transfers, a cost-effective, high-value gift and ideal complement to money remittances. As a technology company, we are proud to contribute to supporting families and education in emerging economies, and more globally to make life better and easier for millions of people. Éric Barbier, CEO, TransferTo, an Ingenico company. This White paper has been produced by Ingenico Corporate Communication and Thierry Spanjaard, Smart Insights October 2011
Executive Summary The beginning of this century saw more migrant workers than ever in human history. Fortunately, there are also more efficient communication means than before. Migrant workers send money home to sustain their families. They also send airtime to friends and relatives as a small gift or to help them make phone calls and keep in touch. The secure transactions industry has developed a series of solutions to answer the needs of these migrants. Prepaid solutions have been developed to serve a variety of purposes such as airtime top-up, as well as other services like gift cards, internet services, music, etc. These prepaid solutions provide advantages for end users; and also simplify and increase profitability for all the players across the value chain, from merchants to operators. Airtime transfer answers a major need for migrant workers: Sending airtime is a way to send small amounts of value, providing an ideal cost-effective complement to classic money remittances... The secure transactions industry has developed an efficient business model based on a centralized platform to manage international airtime transfers. Even if the needs for airtime transfers and money transfers are somewhat different, the experience of mobile money transfer on domestic markets combined with the experience of international airtime transfers allows us to foresee the establishment of affordable and efficient means for international mobile money transfers. The World Bank has established that a reduction in fees for international money transfers automatically triggers a GDP increase in receiving countries. Technology and the establishment of new international money transfer services allows for such improvements. 2
Table of Contents Executive Summary 2 Table of Contents 3 Introduction: Behavioral changes in the beginning of the XXI st century 4 1. Mobile Communications Growth 4 2. International Migrations 5 2.1. MARKET SIZE OF INTERNATIONAL REMITTANCES 5 2.2. NEED FOR SOLUTIONS FOR AIRTIME TRANSFER 5 2.3. NEED FOR SOLUTIONS FOR MONEY TRANSFERS 6 2.4. DIFFERENCES BETWEEN MONEY TRANSFER AND AIRTIME TRANSFER 6 3. Prepaid Solutions 7 3.1. FOR AIRTIME TOP-UP 7 3.2. FOR OTHER SERVICES 7 3.3. PREPAID SOLUTIONS FOR MOBILE NETWORK OPERATORS 7 3.4. PREPAID SOLUTIONS FOR RETAILERS 8 3.5. SECURITY ASPECTS OF PREPAID SOLUTIONS 8 4. Airtime Transfer Business Models 9 4.1. OPERATOR GROUP APPROACH 9 4.2. ONE-TO-ONE CONNECTIONS BETWEEN OPERATORS 9 4.3. NEED FOR A SINGLE INTERMEDIATION HUB BETWEEN OPERATORS 9 5. Airtime Transfer Implementation 10 5.1. FOR MOBILE NETWORK OPERATORS 10 5.2. FOR RETAILERS 10 5.3. FOR END-USERS 10 6. Money Transfer 12 6.1. CLASSICAL SOLUTIONS 12 6.2. NEED FOR EFFICIENT AND SECURE SOLUTIONS FOR MONEY TRANSFER 12 6.3. DOMESTIC MONEY TRANSFER SYSTEMS 12 6.4. INTERNATIONAL MOBILE MONEY BUSINESS MODEL 13 Conclusion 14 Table of Acronyms 15 3
INTRODUCTION Behavioral changes in the beginning of the XXI st century In human history, transport and communication has never been as easy as it has been since the beginning of the XXIst century. The result of population growth in developing economies and population stagnation in developed economies has triggered an important flow of both unskilled and skilled migrant workers. It is now estimated that over 215 million people are living and working in a country other than their own. 4 Combined, migrant workers send over US$ 300 billion (EUR 220 billion) back home each year. In some emerging countries, migrant workers inward remittances represent a significant share of the GDP. Remittances, the money sent home by migrants, are three times the size of official development assistance and they provide an important lifeline for millions of poor households. At the same time standards of living are improving globally, leading to easier access to communication means in order to keep in touch with relatives and friends. The same communication means are used to simplify money transfers. 1. Mobile Communications Growth Mobile phones are a recent phenomenon. But never has a technology spread so quickly through the world population. At the end of 2010, more than 5 billion people in the world had mobile subscriptions. According to the GSMA, the 6 billion subscriber mark will be passed in the first half of 2012. Mobile penetration is soon expected to exceed the world population. Also, as mobile communication grow and reach a larger part of the population, prepaid connections account for a growing part of the user base. Globally, 70% of worldwide mobile phone users are on a prepaid plan. For instance, prepaid connections accounted for 94% of total mobile customers in Africa in 2008, and over 80% in Latin America and the Middle East. In Asia Pacific, prepaid accounted for over 70% of total mobile customers in Asia Pacific. (Source: Informa Telecom & Media).
2. International Migrations 2.1. MARKET SIZE OF INTERNATIONAL REMITTANCES The total value of remittances has been increasing steadily over the past decade and the World Bank estimates that remittances totaled US$ 414 billion (EUR 303 billion) in 2009, of which US$ 316 billion (EUR 231 billion) went into developing countries, involving some 192 million migrants or 3.0% of world population. For some individual recipient countries, remittances can be as high as a third of GDP. Remittances also now account for about a third of total global external finance; moreover, the flow of remittances seems to be significantly more stable than other forms of external finance. (Source: World Bank). Remittances are sent by migrant workers to their relatives at home. Migrant workers have to resort to various solutions to send money home. Official means to transfer money include: bank or post money transfers, and using money transfer specialists such as Western Union or MoneyGram. All these solutions are costly for migrant workers, especially for small amounts, given the fees charged. Bank transfers require not only the sender but also the receiver to be banked. In most emerging countries, the banked population is generally lower than 10%. The cost of remittances through bank, post or money transfer specialists is often high due to a combination of reasons: complexity of networks, limited infrastructure in receiving countries, regulatory obstacles, and limited competition due to the lack of transparency of fee plans. For instance, remittance fees are often made up of fixed and variable components for the sender, a commission on the exchange rate, and often an additional fee paid by the receiver. Remittances are sent between a few major corridors around the world. For instance, major remittance corridors include: USA to Mexico, UK to Kenya, France to Algeria, Saudi Arabia to the Philippines, South Africa to Zimbabwe, etc. 2.2. NEED FOR SOLUTIONS FOR AIRTIME TRANSFER Airtime transfers allow a sender to top-up the prepaid mobile phone account of another person. The population of migrant workers express a strong need for international airtime transfers. In emerging economies, a large majority of mobile phone users are on prepaid plans. For instance, prepaid accounts for 100% of users in Nigeria, 98% in the Philippines, and 97% in Algeria (Source: Harvard University). The development of wireless telephony in emerging markets had a huge socio-economic impact on the populations everyday life: back 20 years ago a worker in Lagos wasn t able to keep in touch with relatives living in rural areas: his mobile phone, and more important his prepaid airtime credits now allow him to do so. A mechanic in Manila doesn t need to spend a day in town time is money to check spare parts availability with his suppliers: he can now just make a phone call provided his prepaid account shows sufficient airtime balance. Airtime represents a key position in emerging country household expenses, making it not only a major necessity but also a highly valued gift. In most emerging countries, outside large metropolitan areas, missing or poor fixed telephony network infrastructure did not allow for mobile network operators to distribute their prepaid airtime top-ups through wired payment terminals, forcing them to adopt a distribution model based on physical prepaid top-up cards. As this model has lead mobile network operators to face considerable security and logistical challenges (theft, storage, transport), they innovated by progressively migrating to selling airtime using direct top-up depending on the regions or country also called electronic recharge, e-load, Pinless Top-Up, etop-up, recharge electronique enabling airtime distribution via mobile phones. Where physical prepaid top-up cards were associated to a few predefined face values, direct top-up offers the key advantage of enabling top-ups for variable face value amounts, including very small amounts, in some cases for amounts as low as US$ 0.20 (EUR 0.15). Where prepaid top-ups and prepaid airtime transfers to third parties were only possible from a retail location or a prepaid card, direct top-up did not only enable mobile phone based airtime selling through the so called umbrella operators, it also allowed for prepaid users to share airtime with other prepaid users relatives, friends using the same mobile network operator, simply via SMS or USSD. Phone-to-Phone prepaid Airtime transfers are now a very common practice in emerging markets for most mobile phone users, millions of on-net airtime share transactions being performed daily in these countries. In recent years, migrant workers originating from emerging markets have shown an increasing demand and real need for a solution offering cost effective small value transfers (i.e. below 30 USD) as a complement to their regular money remittances: where the transfer fees charged by classic money remittance operators do not offer an economically viable solution, International Airtime transfers 5
leverage both the infrastructure offered by the mobile network operators new Airtime distribution models in receiving countries and the low cost, high value factor of prepaid Airtime for the recipient. Mobile network operators, retailers and financial institutions in developed markets have identified and now help address their migrant customer s needs for accessing convenient, secure and real time International Airtime Transfer Services. 2.3. NEED FOR SOLUTIONS FOR MONEY TRANSFERS Traditional means for money transfers include bank and post transfers as well as money transfer specialists. These organizations are known among migrant communities as having huge fee schedules, especially for small amounts. However, it is a well-known fact that the informal channels for money transfer (black market and grey market) represent a market that is comparable in value to the official money transfer market. The informal methods include physical transport of cash and settlement between people paying for different expenses in different locations. The informal channels tend to be more unsecure in nature, and also command high direct and indirect fees due to the multiplication of intermediaries. Mobile network operators are best suited to propose a solution for international money transfers. Many mobile network operators belong to larger companies having a presence in several countries. These companies are present at both ends of major remittance corridors. As mobile network operators have set up large consumer-facing organizations in several countries, they are in a position to leverage their retail network to deliver money transfer services along major remittance corridors. 2.4. DIFFERENCES BETWEEN MONEY TRANSFER AND AIRTIME TRANSFER Money transfers and airtime transfers are actually responses to different needs from migrant workers. In many cases, money transfers are limited to one or few recipients, and represent large amounts, relative to the income of the migrant worker. Generally, a migrant worker sends remittances to one or a very limited number of people, typically, his wife, parents, children and very close relatives. Remittances often represent the largest part of the income of the recipient. Airtime transfers constitute an answer to a totally different need. Airtime is mainly used as a gift, or a way to ensure that the money sent is used for its intended purpose. To some extent Airtime transfers are used to keep in touch with relatives and friends, or to request a phone call. For instance, airtime is sent as gift to family and friends on many occasions (religious celebrations, birthday, weddings...). Airtime transfer generally represents small amounts, although, a small amount in the sending country can deliver a large amount of airtime in the receiving country. As traditional means to transfer remittances are expensive, these means are not suitable for small amounts and multiple recipients. For this reason, specific processes are set up for airtime transfers. 6
3. Prepaid Solutions 3.1. FOR AIRTIME TOP-UP The first solution developed for airtime top-up (domestic and single-operator) was scratch cards: a secret number was printed on a plastic card, protected by an opaque layer of scratch material. When the scratch material was removed by the end user, he could use the secret number to call an IVR service, use online, or send an SMS, to reload his mobile phone account. Since then scratch cards have been replaced by paper vouchers, with the same process. These physical reload media require complex distribution networks, with wholesalers, intermediaries, and retailers, each of them having to stock vouchers and cash, and having to prepay for the recharge vouchers. Also, the complexity of this distribution network generates huge costs in commissions at each step. Having physical vouchers creates issues such as theft and counterfeiting, which affect the entire value chain. Globally, it is estimated that 60 million people draw part of their income from airtime reselling. The industry, with Ingenico Prepaid Solutions as a prominent player, has now developed electronic vouchers that can easily be printed using a payment terminal. This way the end user can instantly obtain the code he needs to recharge his mobile phone account. Retailers can offer a wider range of recharge amounts, for a wider selection of network operators, as the retailer does not need to keep an inventory for all types of recharge vouchers. Also, retailers no longer have to prepay an inventory of recharge vouchers; they just need to establish a contractual relationship with the mobile network operators. This switch from plastic or cardboard to electronic means of recharge has also simplified the distribution network. 3.2. FOR OTHER SERVICES The business model being used for mobile top-ups is now being replicated for other prepaid services such as gift cards, payment for internet services, etc. Products such as internet access, music vouchers and utilities can also be offered in the same way. Retailers establish a contractual relationship with the service provider, and are enabled to deliver recharges to their customers in the form of a receipt with a code that can be used by the end-user to access the service. In this case too, the main advantage is a The advantage of prepaid solutions for mobile network operators is the fact that they no longer have to order physical recharge vouchers from plastic card or cardboard printers. Physical vouchers were seen as having value and therefore had to be handled like money, meaning high risk shorter and simpler distribution process, reducing costs and risks for the whole value chain. Furthermore, with electronic recharges, retailers are able to offer a huge selection of services, without having to own and display physical vouchers. Gift cards are also managed along the same lines. They can either be linked to a retailer (or a retailer group) or be multi-brand, and allow the gift card holder to shop with a wider choice of retailers, thus from a wider selection of goods and services. 3.3. PREPAID SOLUTIONS FOR MOBILE NETWORK OPERATORS of fraud and theft, and the associated cost for the operator to organize secure transportation and handling. Now with electronic vouchers, mobile network operators and prepaid services providers no longer risk missing a sale because of distribution issues. 7
3.4. PREPAID SOLUTIONS FOR RETAILERS For retailers, having electronic vouchers means they have the ability to offer the right recharge value and option to satisfy the customer needs and demands. Not only are retailers able to offer a wide array of services, for instance, recharges for all mobile network operators in their area, but also for different face values and options (SMS, calls, data access, etc.). This way, retailers are able to optimize their countertop space, and to increase their service offering. Also, since they aren t carrying an inventory of recharge vouchers, they don t need specific security measures to take care of the vouchers. Most importantly, thanks to electronic recharge vouchers, retailers no longer have to prepay for physical vouchers. 3.5. SECURITY ASPECTS OF PREPAID SOLUTIONS All prepaid voucher solutions are based on the operation of the service by a platform provider, who owns both the technical and legal relationship between mobile network operators and retailers. The platform operator has to be an established organization, and to be able to bring guarantees, both from a technical and financial standpoint to ensure that paid services will actually be rendered. Ingenico Prepaid Solutions provides a reliable answer to these requirements. 8
12345 Q W E R T Y U I O P A S D F G H J K L Z X C V B N M $ 12345 4. Airtime Transfer Business Models 4.1. OPERATOR GROUP APPROACH Major international mobile network operator groups, such as Telefonica, Orange, and others, may appear as being in a position to propose international airtime transfers. They operate networks both in developed economies and in emerging countries, and benefit from a distribution infrastructure in the places where they operate. However, an international airtime transfer scheme operated by a mobile network operator group limits the operation to customers of this mobile network operator group both on the sender and recipient side. For this reason, even large operator groups have not directly set up any large and successful international airtime transfer scheme. 4.2. ONE-TO-ONE CONNECTIONS BETWEEN OPERATORS To propose international airtime transfers, some operators have considered establishing one-to-one relations between operators or retail networks in sending countries and mobile network operators in receiving countries. However, this attempt has not succeeded due to the need to offer senders the opportunity to send airtime valid for several mobile network operators. The complexity of technical environments on both the sender (mobile network operators and retailers) and receiver sides (mobile network operators) makes establishing one-to-one relationships almost impossible. Also, there is the need to establish contracts between all parties, making the problem even more complex. 4.3. NEED FOR A SINGLE INTERMEDIATION HUB BETWEEN OPERATORS For these reasons, third parties, such as TransferTo, an Ingenico company, have developed intermediation platforms to manage the technical and contractual operation between mobile network operators, retailers and financial institutions on the sender side, and mobile network operators on the receiver side. The single intermediation platform handles: n Contract management: a global airtime remittance hub provides both sending partners and receiving mobile network operators with both a single contractual interface, and global access. Sending partners or receiving partner operators are not required to enter into bilateral contractual relations with the multiple operators they d need to partner with to efficiently cover all migrations corridors relevant to their respective markets. n Traffic processing: the single intermediation platform handles the traffic generated by the sale and consumption of airtime in a seamless fashion. n Cash flow management: the single intermediation platform is responsible for managing the financial flows associated with the international airtime transfer business. 12345 12345 Mobile operator Mobile operator Payment channels Top-up 9
5. Airtime Transfer Implementation 5.1. FOR MOBILE NETWORK OPERATORS In a context where n retail channels want to sell airtime for p operators, a one-to-one scheme means the establishment of np technical, contractual and financial relationships. A scheme involving a single intermediation platform means only n+p relationships, thus allowing building a simpler, safer, cheaper and, altogether more efficient process For a mobile operator on the sender side, this means establishing just one contract, and managing the financial flows with the intermediation platform. For a mobile operator on the recipient side, this also means establishing just one contract, one relationship with the customer care system, and one financial flow interaction. 5.2. FOR RETAILERS For retailers, selling international airtime top-up is, at first, an additional source of revenue. Typically, the best retailers for this service are shops catering to clientele from an ethnic group, as they are eager to bring as many services as possible to their customers. The customers want to be able to send airtime, to their family, friends, business partners and acquaintances in a variety of countries. In each country, there are typically two to five mobile network operators, which would make relationships between different operators and retailers totally impractical. 10 5.3. FOR END-USERS End users demand flexibility and ease of use to send airtime to their friends and relatives at home. Airtime transfer platform operators, such as TransferTo, propose several means for end users to carry out such airtime transfers. Phone-to-phone transfers With phone-to-phone transfers, users are able to send airtime to a phone number they choose using their mobile phone account with their mobile network operator. Airtime Send top-up request & number User replies with chosen amount Transaction and amount confirmed transfer is provided as a value added service by the mobile network operator. To achieve this, several solutions are offered, such as an application on the sender s smartphone, a SIM ToolKit (STK) application running from the SIM card, a mobile app or even a simple SMS or USSD exchange. The application is defined by the intermediation platform operator, who controls the technical interface on the sender side, as well as the associated financial flow. SMS notification confirms top-up Recipient notified
POS-to-phone transfer With the POS-to-phone transfer, users are able to send airtime from a POS terminal at a retailer outlet. In this case, the retailer is the actual customer of the intermediation platform. The retailer accepts cash or another payment mean from the sender, and gives the sender a code printed through the POS terminal as proof of transaction. The sender sends this code, typically via a SMS, to the receiver, who will be able to use it in his own country with his mobile operator. The intermediation platform operator has a contract with the retailer on one side, and with the mobile network operators on the other side. The intermediation platform operator manages the financial flows associated with the transaction. Over-the-counter purchase Top-up request Request processing Top-up 12345 Mobile operator Sender Web-to-phone transfer A sender can directly use a web interface to send airtime. In this case, the sender is directly connected to the end user interface of the intermediation platform. The sender uses the intermediation platform to pay for airtime using a bank card, prepaid card, prepaid voucher, or another payment Sender evoucher wallet, credit card payment Airtime retailers Authorized web merchant Top-up request The intermediation platform operator The intermediation platform operator airtime means. The platform then sends the sender a message with the code that will allow the receiver to recharge his mobile phone account. In this case, the intermediation platform just needs to accept typical payment methods and have established contracts with mobile network operators in the receiving countries. Request processing Mobile operator Top-up airtime 12345 11
6. Money Transfer 6.1. CLASSICAL SOLUTIONS Money transfer is an established need for migrant workers. So far, most migrant workers are left with classical solutions including post offices, banks, and money transfer specialists such as Western Union. These solutions are costly, and require the sender and often the recipient, to go through some cumbersome red tape. Fees on international money transfers often represent a significant chuck of the amount transferred. For instance, sending US$ 200 (EUR 145) from Tanzania to Kenya, Rwanda or Angola costs US$ 47.24 (EUR 34.56), and sending US$ 200 from Australia to Papua New Guinea costs US$ 40.84 (EUR 29.88). (Source: World Bank). The World Bank, in an attempt to foster better transparency within this market, and drive prices down publishes a database of remittance fees and costs along major corridors. The World Bank has established that the average cost of remittance implies that nearly 2% of the receiving country's GDP is shelled out as fees paid for sending money home. If the fees were to be halved, the country would gain both in terms of a reduction of fees for the sender and an increase in GDP of about 1%. The G8 meeting in L Aquila in 2009 set a goal of reducing the cost of remittances by five percentage points in five years. Alternately, migrant workers also use informal means such as intermediaries, physical transport of cash, or settlement between people living in different countries. These methods are both unsafe and expensive, as the sender never has a guarantee that the money will actually be delivered to the right person. 6.2. NEED FOR EFFICIENT AND SECURE SOLUTIONS FOR MONEY TRANSFER Migrant workers demand better solutions for international money transfers. These solutions need to be safe, reliable and less costly than the current available means. Better 6.3. DOMESTIC MONEY TRANSFER SYSTEMS Within domestic markets, mobile network operators have added domestic money transfer to their service offering. As mobile phones are highly prevalent among the population, even in emerging economies, and mobile network operators have set up retailer networks, they are best positioned to offer money transfers thanks to their proximity to end users. The first operator to popularize domestic money transfers was Safaricom, in Kenya, in 2007. Several Filipino operators such as Smart and Globe were quick to follow. Now, most major operator networks (Orange, Airtel, Vodafone, Yu, among others) offer domestic money transfers. solutions for international money transfers are to be proposed by reliable intermediaries. To use these services, the sender typically goes to the merchant, hands over cash, and gets his mobile money account credited. The operation is managed with an exchange of SMS, or STK application. The sender can then send the money to the receiver with a simple SMS. Using the SMS code, the receiver goes to a merchant to get his money in cash. This system is generally limited to a single mobile network operator, who manages the float generated by money on the end-users and merchants accounts. For the mobile network operator, the mobile money service has proved to be an efficient way to prevent churn and become a sizeable source of income. 12
6.4. INTERNATIONAL MOBILE MONEY BUSINESS MODEL Some mobile network operators who offer mobile money services have looked for ways to expand their business model on an international scale. For instance, Safaricom, Kenya, partners with Vodafone, UK to propose international money transfer services. Such a move provides an efficient, but limited answer to the needs of migrant workers, as service is limited to one operator in the sending country and one operator in the receiving country. Also, classical players team up with technology companies. For instance, MoneyGram International has set up a partnership with Ingenico to provide money transfer services for the SEPA Europe region. The services will be made available through Ingenico s French subsidiary, Ingenico Prepaid Services. Money transfer services are available in points of sales, such as telephone shops, tobacconists and newspaper and magazine shops, and allow to transfer money to 192 countries and territories, with MoneyGram International network of more than 244,000 locations worldwide. As of today, the third parties offering international airtime transfers are also positioned to provide international money transfers. These organizations have the ability to deal with multiple mobile network operators in both the sending and receiving countries, and with large retailer networks. They already have procedures in place for financial flows and are able to manage the associated float. 13
CONCLUSION Migrant workers represent a huge market both for airtime and money transfer. Domestic money transfers, for different methods of payment such as cash, paper vouchers and dematerialized vouchers, are present in numerous countries where they serve as an alternative to classical bank or postal systems. Airtime transfer is a structured and established activity. The best business model is based on a single platform, which manages the relationships with mobile network operators at both end of the chain, as well as accounts for users and retailers. International mobile money transfers are still in need of an efficient modern solution that will combine the expertise of major players both in the domestic money transfer and international airtime transfer segments. The ongoing evolution of the economic environment will undoubtedly lead to such solutions for international money transfers. 14
Table of Acronyms G8 Group of Eight is a forum, created in 1975, for the governments of six major economies: France, Germany, Italy, Japan, the United Kingdom, and the United States. GSMA Association of mobile operators and related companies devoted to supporting the standardizing, deployment and promotion of the GSM mobile telephone system. IVR SEPA SIM SMS STK Interactive Voice Response is a technology that allows a computer to interact with humans through the use of voice and handset keypad inputs. Single Euro Payment Area: initiative, including 32 European countries, aiming at improving the efficiency of cross border payments and turning the fragmented national markets for Euro payments into a single domestic one. Subscriber Identity Module: removable part carrying user identification on a mobile phone. Short Message Service is a text messaging service component of phone, web, or mobile communication systems. SIM Application Toolkit (commonly referred to as STK) is a standard of the GSM system, which enables the Subscriber Identity Module (SIM) to initiate actions that can be used for various value-added services. 15
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