Electronic Payments International

8 y June 2011 www.vrl-financial-news.com

Strategy: CroSS-border paymentS

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‘A lot of the money people send across borders is actually for paying relatives’ bills back home,” says Steve Barha, CIO

at Canadian bill payments network opera-tor TIO Networks.

“But sending $100 to a relative via West-ern Union does not mean the money will be used to pay a bill.”

The convenience of being able to pay bills directly is an important facility for people who want to manage money effectively.

“In today’s challenging economic cli-mate, migrants want to control what hap-pens to their hard-earned cash when they send it home,” says Brenda Amarant, vice-president of marketing at Fairfield, a New Jersey-based bill payments provider Softgate Systems.

“Paying a relative’s bills direct to a utility company means the sender can be sure the money isn’t being squandered.”

With person-to-person (P2P) remittances, there is also the risk of theft.

“Our customers tell us: ‘I sent money home to my mother. She is housebound, so my cousin went to the agent’s office to get the cash, and some of it disappeared on his journey to her,’” says Lisa Shields, CEO of hyperWALLET Systems.

Currently, neither of the two largest remit-

tance companies – Western Union and Mon-eyGram – offer cross-border bill payments. Both firms offer US-only bill payments at their US branches, although Western Union also runs local bill pay services in Argentina, Canada, Panama and Peru.

“MoneyGram and Western Union are planning to develop cross-border bill pay services, leveraging their global remittance networks as well as their domestic bill pay services and existing relationships with bill-ers in different markets,” says Beth Robert-son, director of payments at US consultancy Javelin Strategy and Research.

niche serviceCross-border bill pay is currently a niche service, dominated by specialists such as Softgate, TIO, BillPay2India, Foreign Cur-rency Direct, GlobalWebPay and iSend.

While BillPay2India, Foreign Currency Direct and GlobalWebPay cater for online users, Softgate, TIO and iSend deal with cash-preferred (people who only use cash, due to lack of bank accounts) customers.

Softgate has 10,000 merchants directly connected to its network, which offer its US domestic bill payment, cross-border bill payment and international airtime top-up services.

“We offer cross-border airtime top-up to 350 mobile carriers in 60 countries and cross-border bill pay to 10 billers in Jamaica, Mexico and Guatemala,” Amarant says.

Softgate provides its services at clerk-operated point-of-sale terminals as well as

at 1,000 automated cash-based bill payment kiosks operated by TIO. iSend provides the foreign utility billers for Softgate and TIO Networks.

“We are seeing good volumes in cross-border bill pay, although not as high as our volumes for cross-border airtime top-up,” says Amarant.

“But cross-border bill payment is defi-nitely growing.”

Amarant says it takes a while for consum-ers to learn about cross-border bill payment services and then to get to trust them.

“Consumer education and marketing are very important,” she says.

Yasuko Fumuro, vice-president of pub-lic relations at Microfinance International Corp (MFIC), agrees. Washington, DC-based MFIC used to offer cross-border bill payment at its Alante Financial branches, enabling migrants to cash cheques, take out loans and pay US bills.

“We discontinued our cross-border bill pay service from the US to Mexico and to Guatemala as we didn’t see a strong demand,” Fumuro says.

“But if we had put more effort into mar-keting, I think these services would have been successful.

“There is definitely a huge demand for cross-border bill payments among migrants and we want to start offering a service again. A survey we conducted in 2010 among El Salvadoran migrants found they have a great need to pay their children’s school fees back home.

Huge potential for bill paymentsThe cross-border bill payments market is in its infancy, yet there is big demand among migrants to pay bills in their home countries. While there are regulatory and technological challenges, the key to success depends on effective customer education and marketing, as well as partnerships, says robin arnfield

n key faCtS

TransferTo cross-border top-up transaction dataaverage amount sent per transaction:

number of transactions per month per user:

average monthly revenue per user: $24returning user rate: 70%average service penetration rate after 12 months:

Unique users: 2.5 millionSource: TransferTo

$83

12%

n CroSS-border paymentS

top immigration countries, 2010

Source: UN International Migration 2009

Russian FederationGermany

Saudi ArabiaCanada

UKSpain

0 10 20$m

30 40 50

France

US

June 2011 y 9

Strategy: CroSS-border paymentSElectronic Payments International

www.vrl-financial-news.com

“We haven’t worked out how to offer cross-border tuition fee payments yet.”

iSendConnecticut-based bill aggregator iSend has seen a 15 percent growth month-on-month for the past year in cross-border bill pay, says president and CEO Steve LaBella.

“We provide cross-border bill pay services from the US, UK and Canada to 10 coun-tries, and international mobile airtime top-up to 30 countries,” he says.

“We either have direct relationships with a foreign biller or with a processor that works with that biller.

“We aggregate payments for a particular biller and send the funds via wire transfer. If they have a US bank account, we use the domestic ACH network to transfer money to that account.

“The customer data file for each bill is sent separately from the funds transfer.”

iSend focuses on Latin American and the Caribbean but is now branching out into Africa and the Middle East.

“We recently added Egypt and Nigeria,” says LaBella.

“The more billers and countries we add, the more we can attract a wider demograph-ic of customers. The challenge is that differ-ent countries have different regulations and individual billers in each country have their own requirements.

“Our role is to smooth out these com-plexities for clients such as TIO or Softgate who are providing our service to their cus-tomers.”

tIoIn late 2010, TIO started offering cross-bor-der bill payments to Mexico, Guatemala and Jamaica from its 1,000 bill payment kiosks in partnership with Softgate and iSend.

“Our kiosks are already used to process cash-based bill payments in the US, so con-sumers trust the kiosks to settle the funds for US bill payments,” says Barha.

“This means they will also trust us to settle bill payments for them in their home country.”

TIO charges a flat fee of $4.95 for for-eign bill payments and discloses the foreign exchange conversion rate prior to the trans-action being set up.

“We aim to be as transparent as possible, so the customer will trust us,” says Barha.

TIO’s domestic US bill pay service is also available at the 22,000 point-of-sale termi-nals that are connected to its network, as well as at 35,000 merchant locations con-nected to its partners’ networks.

“We have the functionality to offer cross-border bill pay at the cash register but we

have not seen the demand yet for this from the third-party processors we work with for POS terminal-based domestic bill pay,” says Barha.

the UkLondon-based GlobalWebPay operates a P2P online remittance service that also offers the ability to pay bills abroad.

“When we launched GlobalWebPay in December 2010, we thought the mix of transactions would be 90 percent P2P transfers and 10 percent cross-border bill payments,” says GlobalWebPay director Patrick Mason.

“In fact, the mix is 50 percent P2P trans-fers and 50 percent bill payments.”

Typical bill pay transactions include peo-ple in the UK paying mortgages and prop-erty taxes on their Spanish holiday home, or expats who want to pay bills back in the UK.

Buckinghamshire-based Foreign Cur-rency Direct operates the currencies.co.uk web site, where UK residents can set up standing orders to pay bills or tuition fees in Europe.

“We offer a regular payment plan and customers can send payments through this plan as often or as rarely as they like,” says Foreign Currency Direct chief currency analyst Stephen Hughes. “In May, we saw £600,000 [$982,000] transferred via our regular payment service.

“We have 2,500 users of the [regular pay-ment] service and the average amount trans-ferred per transaction is £500-£700.”

GlobalWebPay and Foreign Currency Direct see their low charges as a selling point.

Foreign Currency Direct has no fees apart from a two percent foreign exchange spread.

“We accumulate all the transfers to a par-ticular country and then get the best FX rate for customers,” says Hughes.

GlobalWebPay charges a flat fee of £4.75

per transaction. Mason says GlobalWeb-Pay is able to keep charges low as it holds local currency accounts with correspondent banks around the world, and nets off its end-of-day balances between accounts used for sending and receiving payments.

“This enables GlobalWebPay remittances and bill payments to be treated as local pay-ments in the destination country,” Mason says.

regulationOne of the challenges for firms wanting to offer cross-border bill pay is regulatory compliance.

“Many US states stipulate that, if a retail-er offers a remittance or cross-border bill pay service to foreign countries, they need a money transmitter license,” says Softgate’s Amarant.

“Unlike cross-border airtime top-up, cross-border bill payments come under KYC [know your customer] and AML [anti-mon-ey laundering] regulatory laws,” says Neil St Germain, senior vice-president at US con-sultancy Speer and Associates.

“Because international airtime top-up is a low-value transaction, it isn’t so closely regulated. There is no KYC requirement, for example.”

“As part of TIO’s regulatory compliance programme, we set a ceiling for transaction amounts,” says Barha.

“Also, we set limits on the number of transactions a terminal can do each day, both in terms of total transactions and in terms of individual customers.

“We check the velocity of transactions to see how many payments are going to specific accounts and to see if there is any sudden spike of transactions at a particular terminal. 4

“When we launched globalWebpay in december 2010, we thought the mix of transactions would be 90% p2p transfers and 10% cross-border bill payments. In fact, the mix is 50% p2p transfers and 50% bill payments”GlobalWebPay director Patrick Mason

Beth Robertson, Javelin Strategy & Research

Electronic Payments International

10 y June 2011 www.vrl-financial-news.com

Strategy: CroSS-border paymentS

“We also check whether funds are going to a suspicious destination.”

“If a client wants to send over £500 via GlobalWebPay they must give us a copy of their photo ID, so we can do a full KYC check,” says GlobalWebPay’s Mason.

“They can either post us a photocopy or email us a scanned copy. We have software to tell if the scanned document is legitimate or a forgery.”

GlobalWebPay only sends money to coun-tries where the banks are well regulated and operate KYC checks.

“This means we only deal with banks in more developed regions such as Europe, Scandinavia, North America and Austral-ia,” Mason says.

billpay2IndiaTimesofMoney, a digital payment service provider owned by Indian media firm Times Group, offers non-resident Indians (NRIs) a service enabling them to pay bills at home via the BillPay2India website.

BillPay2India is a sister service to Times-ofMoney’s Remit2India online remittance portal.

According to its website, BillPay2India enables NRIs based in the US to pay their landline telephone, electricity, gas, mobile phone, satellite TV, municipal taxes, insur-ance and credit card bills online.

A total of 114 billers are available on the platform.

TimesofMoney plans to roll out Bill-Pay2India to NRIs living outside the US.

Users are able to view bills from registered billers online before making a payment. BillPay2India charges $3 per bill payment. Funds transfer and processing services are provided by Citigroup.

business caseWhile firms such as iSend and Softgate are making progress in cross-border bill pay, other firms have held back, citing the lack of a compelling business case.

hyperWALLET’s Shields says her firm

receives a lot of requests for cross-border bill pay services from people wanting the certainty that remittances are actually being used for paying bills.

“Although there is a big market for cross-border bill pay, it would be a challenge for us to offer this service,” says Shields.

“We offer a service provided by Transfer-To that enables Filipinos in Canada to top-up mobile phones in the Philippines, as this is a natural fit with our Canada-Philippines remittance service. But we don’t offer cross-border bill pay.”

The problem is there is no easy ‘plug-in’ router to link up the bill payer in the send-ing country and the biller in the destination country, says Shields. However, it is much easier to set up cross-border airtime top-up.

“You bulk-buy airtime from a mobile carrier in the destination country and then resell it at a premium to customers in other countries,” Shields says.

“Airtime is very cheap in many develop-ing countries, so, if the cost of a month’s airtime in the Philippines is, say, C$3 [$3.1], we can resell it for C$5 in Canada.

“But you can’t bulk-buy electricity in the destination country and then sell it to migrants.”

Eric Barbier, CEO of TransferTo, a subsid-iary of payments terminal vendor Ingenico, says one barrier to setting up cross-border

bill pay services is that utilities in develop-ing countries are generally state-owned enti-ties.

“This makes them difficult to deal with,” Barbier says. “But mobile carriers are usu-ally privately-held, so they are entrepreneur-ial and better able to work with a foreign partner.

“We have seen cross-border airtime top-up transaction volumes more than double every year for the last three years. In 2011, transaction volumes are set to double again.”

Hannes van Rensburg, CEO at South African m-payments platform provider Fun-damo, insists cross-border bill payments is a commoditised business, where consumers expect low levels of charges.

“There isn’t a lot of money in bill aggre-gation,” says van Rensburg.

“I can’t see a business case for cross-border bill pay,” agrees hyperWALLET’s Shields.

However, van Rensburg sees potential for mobile phones to be used for international bill pay, due to their ubiquity.

“At some point, the infrastructure will exist for cross-border mobile bill pay,” he says.

“Currently, there is a lack of bilateral agreements to facilitate the routing of pay-ments from a mobile phone to a biller’s account.

“I think Visa and MasterCard will play a major role in driving mobile cross-border bill payments.

“Only the card schemes have the power and the brand names to make this hap-pen.”

Speer and Associates’ St Germain notes that 80 percent of the population in Latin America, both banked and unbanked, have mobile phones.

“Given that utility bill payments in Latin America tend to be low value, it makes sense to offer both domestic and cross-border bill payments on mobile phones in the region,” St Germain says. <

4 n CroSS-border paymentS

top recipients of migrant remittance

Source: UN International Migration 2009

ChinaMexico

The PhilippinesNigeria

RomaniaEgypt

0 5 10 15 20

$bn

25 30 35 40

Bangladesh

India

n CroSS-border paymentS

average costs, fee only, to send $5

Source: World Bank, Migration and Remittances Notebook, 2011

Saudi Arabia to the Philippines

UK to Nigeria

US to Mexico

France to Morocco

0 5

$

10 15 20 25 30

South Africa to Mozambique

Spain to Ecuador