What is a remittance?
noun - a sum of money sent, especially by mail, in payment for goods or services or as a gift.
However, for the migrant workers who financially support family back home, it just means “Monetary Transfer”.
If you talk to any migrant worker, they will tell you that although they want to to be able to take care of their family member’s basic needs such as food, clothing, housing, utilities, medical and education, they would much rather avoid buying the non-essential luxury items—alcohol, partying or any other discretionary purchases.
Furthermore, If you look deeper into the dynamics of families' buying needs, the majority of the items bought are micro values, especially when converted into local currency from US dollars or Euros. For example, US$20 would convert into $2,300 Jamaican, enough money for a week's worth of food for a person in Jamaica.
One major issue with traditional international money remittance is that sending small values (less than $20) through conventional channels is not cost efficient. In fact, in most cases, it is impossible. Saving for higher amounts to remit back home can take a few weeks, if not months, for most migrant workers who generally work minimum paying jobs. Once the money reaches the family, the sender loses control over how the remitted money is used.
This need of the migrant community to be able to pay for goods and services for their families back home, combined with technological advances leading to direct connectivity that reaches recipients through their mobile phones, has resulted in various innovative remittance services.
One of the most successful use cases is transfer of prepaid mobile airtime, which has primarily been driven by Mobile Operators (MNO) with multiple OpCos such as Digicel, Tigo, Orange, Telefonica, America Movil and MTN. It is estimated that migrant workers are transferring approximately $1 billion annually in the form of airtime across international boundaries to their family members back home.
The beauty of this business model is that the value is transferred instantaneously, without any fee to the sender or the recipient. Despite that, everyone in the value chain makes money. If we assume that approximately 5% of the household expenses in developing nations are for airtime to keep them connected to phone, SMS and even data service, then on the basis of published remittance volumes, this use case has the potential to develop into approximately a $25 billion market.
In the last 5 years, businesses such as money remitters, long distance calling card companies, online portals, prepaid debit card companies, and more that serve immigrant diasporas have started to offer mobile airtime transfer to their customers. Since the distribution channel is already in place, we expect to see lot more use cases. It will be interesting to observe how the transfer of goods and services affects the conventional money remittance market in the long term.