Remittance Business Case

Objective

To define the revenue opportunity and to determine the profitability of entering the remittance business by providing detailed analyses of the global and regional remittance markets.

Contents

PHASE 1

Introduction The Global Remittance Market The UAE/Regional Remittance Market Demographic analysis of the UAE Competition Analysis Estimation of potential revenue upon entering the remittance business

PHASE 2

Identifying and understanding the target audience What differentiates the two segments? Identifying the two different approaches Operational Analysis

PHASE 1

I: A Brief Introduction

What is a “remittance”?

A remittance is the transfer of money by a foreign worker to his or her home country.

Why are remittances important?

Remittances sent by immigrants constitute the second largest financial inflow for many developing countries, exceeding international aid.

The stability of remittance flows despite financial crises and economic downturns makes it a reliable financial resource for developing countries.

Remittances are playing an increasingly large role in the economies of many countries, contributing to economic growth and the livelihood of less preposterous people.

Remittances outflows have proven to be resilient regardless of the prevailing economic situation in a country, thereby ensuring a reliable market and sustained revenue over long periods of time. Remittances are persistent over the years because they are sent by the cumulated flows of migrants over the years, not only by the new migrants of the past year or two.

Migrants continue to send remittances when affected by income shocks because remittances are a small part of migrants’ incomes.

Which section of the population is responsible for the remittance outflow for a given country?

The immigrant section of a country’s population is responsible for the remittance outflow as majority of the immigrant population constitutes the labour force and earns wages. The labour force sends a portion of the total wages earned to its home countries.

Remittance volumes are heavily dependent on migration. As more people leave their countries of origin and settle in other countries, the amount of money transferred back to the native countries increases.

How are remittances sent from one country to another?Remittance flow takes place through three main modes of transfer:

Money Transfer Organizations: These organizations constitute majority of the remittance flow between countries. Since money transfer and remittances are the primary services rendered, money transfer organizations are able to offer extremely competitive charges and rates, making them the most attractive option for remitters.

Banks: Money transfer and remittance are not the primary services that banks offer and therefore they currently do not operate on the same level as MTOs and cater to a small section of the immigrant population. However, banks operate on a level of trust that is not common to the other modes of transfer.

Hawalas: An informal transfer system that functions as a parallel or an alternate remittance system that exists or operates outside of, or parallel to traditional banking or financial channels. Hawalas are illegal as they evade tax fees of remittances. However, they unsure money is sent and received with minimum fuss and are the most convenient form of money transfer as no questions are asked and there is virtually no waiting time. Hawalas offer door-to-door service, something which banks and exchange houses cannot offer to their customers.

II: The Global Remittance Market

Remittance flows over the years

Year Global Remittance Flow (in $ billions) Growth Rate (%)

2009 421

2010 440 4.5

2011 464 5.5

2012 514 10.8

2013 550 7.0

2014 608 10.5

2015 685 12.7

2009 2010 2011 2012 2013 2014 20150

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Global Remittance flow (in $billion)

Global Remittance flow (in $bil-lion)

Data calculated using World Bank Data and a projected 7-8% growth rate in 2012-2014 and estimated global remittance flow of $608 billion in 2014.

As can be seen from the data, remittance flows are expected to grow over the next few years. One of the reasons for the high growth rate over the last few years is the increase in migration of

portions of the native population of many countries to other countries. There are an estimated $214 million migrants in the world today. This figure represents an

increase of 42.7% in the number of migrants in the last 10 years. The number of migrants in 2010 was estimated at $150 million. (Source: The International Organization for Migration)

Migrants today would constitute the fifth most populous country in the world. (Source: The International Organization for Migration).

On the international stage, countries have realized the importance of remittances for the population and the economy of the country and have taken steps to monitor remittance prices

worldwide. In 2008, the G8 planned to monitor prices and take steps to control them whenever necessary.

On April 19th 2013, The World Bank announced the establishment of the Global Knowledge Partnership on Migration and Development (KNOMAD), envisioned to become a global hub of knowledge and policy expertise on migration issues.

“Migration and remittances offer a vital lifeline for millions of people and can play a major role in an economy's take-off. They enable people to partake in the global labor market and create resources that can be leveraged for development and growth. But they are also a source of political contention, and for that very reason deserving of dispassionate analysis,” – Kaushik Basu, Chief Economist and Senior Vice President for Development Economics for the World Bank at the launch of KNOMAD.

Tajikistan, Liberia and Kirgizstan were the countries most dependent on remittances, as remittance flows accounted for 47%, 31% and 29% of the respective GDPs.

Remittance flow to developing countries was estimated at $401 billion out of a total of $514 billion remitted worldwide.

Remittance flows to developing countries are expected to grow at 7-8% annually to reach $467 billion by 2014.

$109 billion was the value of remittance flow to South Asia, out of a total of $514 billion. $49 billion was the value of remittance flow to countries in the MENA region. $83 billion was the value of remittance outflow from expatriates in the GCC region. Low income countries accounted for $28 billion of the total remittance flow in 2012, with middle

income countries accounting for $352 billion. Remittance flow from high income countries was estimated at $134 billion.

The following is the data for the top 10 countries in terms of remittance outflow in 2012.

Rank Country Remittance (in $ billions) Migrants per 1000 of the population

1. India 69 -0.052. China 60 -0.333. Philippines 24 -1.274. Mexico 23 -3.115. Egypt 21 -0.206. Nigeria 21 -0.227. Pakistan 14 -2.008. Bangladesh 14 -1.049. Vietnam 10 -0.3410. Lebanon 7 -12.08

Data accumulated through various World Bank and newspaper reports.The above table attempts to draw a relation between migration and remittance volumes of the top 10 remitting countries in 2012. Net migration rate is the difference between the number of persons entering and leaving a country during the year per 1,000 persons.

A positive migration rate indicates net immigration whereas a negative migration rate indicates a net emigration.

If a country is involved in net immigration, it means it holds a high number of immigrants who will transfer money from the country of current residence to their home country.

If a country is involved in net emigration, it means that it will send out a large portion of the native population and will therefore receive large amounts of money in remittance.

Therefore, countries with a negative net immigration rate, or those countries involved in net emigration stand to receive large amounts of money in remittance.

The data in the above table complies with the above logic, showing us that the top 10 receivers of remittance are all involved in net emigration. India ranks 2 nd on the World Bank’s list of “Top Emigration Countries” as per the year 2010, with 11.4 million emigrants. This shows us that countries that send out a large portion of their population ultimately stand to gain by receiving huge amounts of money in remittance. This influx of money helps bolster their economy and provides a very welcome source of income.

It is important to note that countries involved in net immigration have the opportunity to capitalize on the large amounts of money that are sent out by the immigrant labour force to their home countries.

Countries with a large immigration rate, helped by a broad network of exchange houses, money transfer organizations and banks stand to gain enormous amounts of revenue by focusing on the remittance market.

From this analysis, we can conclude that remittances benefit all parties involved.

The country involved in net emigration benefits because of a high influx of money from immigrants who are based abroad which functions as an aid to their economy.

The country involved in net immigration will benefit by capitalizing on the business opportunity presented by the high outflow of remittance from the immigrants based in their country.

The receivers of the remittance benefit in a very obvious way.

The United Arab Emirates has a net migration rate of 16.82, which makes it the 3 rd highest net immigrator in the world. Expatriates constitute 70% of the population.Source: World Bank Data Report on Migration and Remittances 2012

III: The UAE Remittance Market (and the surrounding region)

Remittance outflows from the UAE and the MENA (Middle East and North Africa region) have been robust during the last few years (as per data from the World Bank and Gulf News).

The following charts highlight the growth in the UAE and MENA region.

Year Remittance Outflow (in $ billions) Growth Rate2009 34 -6.2

2010 41 20.9

2011 43 6.1

2012 49 14.3

2013 52 5.1

2014 55 5.7

2015 58 6.3

2009 2010 2011 2012 2013 2014 2015

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Remittance Outflows in the MENA region

Remittance outflow (in $billion)Growth Rate (%)

$83 billion was the amount of money remitted by expatriates in GCC countries in 2012.

Data accumulated using Gulf News report titled “Global remittance flow grows 10.77% to $514 billion in 2012: World Bank” dated April 20th 2013.The following is the remittance outflow data for the GCC region in 2011.

The GCC region accounted for 15% of the total remittance flow in 2011. The Gulf – South Asia corridor is considered to be the second largest market for remittance flows

after USA – Latin America.

Country Remittance Outflow (in $ billions)Saudi Arabia 27.2UAE 17.4Kuwait 13.7Qatar 7.9Oman 6.6Bahrain 2.1Total 74.9

Saudi Arabia

UAE Kuwait Qatar Oman Bahrain Total0

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Remittance Outflow (in $ billions)

Remittance Outflow (in $ bil-lions)

The following is the remittance outflow data for the UAE from 2009-2015.

Year Remittance Outflow (in $ billions) Growth Rate (%)2009 11.1

2010 15 35

2011 17.4 16

2012 20 14.9

2013 21.02 5.1

2014 22.21 5.7

2015 23.6 6.3

2009 2010 2011 2012 2013 2014 20150

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UAE Remittance Outflow

UAE Remittance Outflow (in $billion)Growth Rate (%)

The remittance outflow for the years 2013 to 2015 have been estimated using the forecasted growth rate for the MENA region.Why has there been a strong remittance outflow from the UAE over the last few years?The main reasons for the robust remittance outflow are-

Immigration : According to the World Bank, the UAE ranks 14th on its list of “Top Immigration Countries” as per 2010, with 3.3 million immigrants. The UAE also ranks 3rd on the World Bank’s list of “Top Immigration Countries – in terms of population”, with 70%. This is a crucial factor in ensuring that remittance outflows are kept healthy throughout a long period of time. As more people migrate to the UAE, more people will need to send money back to their native countries, thus increasing remittance outflows. The net migration rate increased from approximately 500,000 in 2000 to 700,000 in 2004 and finally to 3,076,634 in 2012.

Labour Force: The UAE has an estimated expatriate population of over 7 million, accounting for over 85% of

the total population of the country. According to a recent study, it has been estimated that over 90% of the labour force consists of

the migrant population. It is also one of the fastest growing tourist destinations, with a 10 million annual tourist flow. A higher percentage of foreign workers in the labour market directly amounts to an increase in

the outflow of remittances from the UAE to other countries.

Country % Share in the foreign workforceIndia 38.36Bangladesh 22.08Pakistan 16.22Philippines 5.56

Egypt 3.38Syria 1.72Sri Lanka 1.09China 1.0Jordan 0.86Iran 0.62Lebanon 0.55Sudan 0.40Yemen 0.31Morocco 0.26Tunisia 0.11

Ethnic group NumberIndians 1.75 millionPakistanis 1.25 millionOther Asians 1 millionBangladeshis 500,000Europeans and Africans 500,000

Typically, working class people from the Indian subcontinent make up the bulk of the remittance market. Since majority of the migrant population consists of such people, it is no surprise that remittance outflows have remained strong throughout this decade.

Prices : According to the World Bank, the UAE is one of the cheapest places to transfer money to foreign countries. According to the World Bank, sending remittances from the UAE to Pakistan (an average 4.92 percent of the money transferred) is the cheapest corridor in the world, while the UAE to Sri Lanka (6.35 percent) is the fifth cheapest. To send US$200 from the UAE to India – where a significant chunk of the nation’s earnings are sent – costs an average 5.02 percent, while it can be as cheap as 2-3 percent depending on the bank used.

Analysis of major corridors What is a remittance corridor?A remittance corridor is the remittance market between two countries. It represents the total volume of remittances that flow from one country to another.Which are the top five corridors for the remittance market in the UAE?The top five corridors are –

1. The UAE-India corridor2. The UAE-Philippines corridor3. The UAE-Nepal corridor4. The UAE-Sri Lanka corridor5. The UAE-Pakistan corridor

1. The UAE-India corridor

The UAE-India corridor ranks 5th on the World Bank’s list of “Top Migration Corridors” in 2010 with 2.2 million migrants.

The UAE-India corridor is considered amongst the top three largest remittance corridors worldwide, alongside the United States-Mexico and the Singapore-Philippines corridors.

Indians constitute the largest portion of the population in the country, forming approximately 30% of the total population numbering approximately 2,460,000 people.

About 65% of the Indian population consists of blue collar labourers, totaling approximately 1,599,000 people, which is 19.5% of the total population of the UAE.

26% of the Indian population lives in apartments and villas in large emirates such as Dubai, Abu Dhabi and Sharjah. 15% live in rented rooms in cities and the remaining are housed in labour camps.

The total volume of remittance from UAE to India was estimated at $10.5 billion in 2010. Thus the UAE accounted for 19% of the total remittance inflow to India in 2010.

The UAE remitted a total volume of $15 billion in 2010. Therefore, it can be estimated that remittances from UAE to India will amount to $14

billion out of an estimated total remittance volume of $20 billion in 2013. Approximately 60% of remittances sent to India are sent to Kerala. According to the Indian Embassy, Keralites account for 50% of the population of the Indians

living in the UAE. The nation’s biggest exchange house, “UAE Exchange”, expects a growth of 10% in volume of

remittances from GCC countries to India. Nearly 82% of the transfers made by UAE Exchange have been through bank transfers, which

offer better exchange rates than cash transfer units such as Western Union and Money Gram. This highlights the efficiency and involvement of the Reserve Bank of India in monitoring exchange rates between the money transfer organizations and banks.

Nearly half of the $61 billion remitted by GCC countries in 2012 went to India.

Factors affecting estimated future trends in remittance flows

1. Indian property market: The Indian population consists of a large number of white collar workers and wealthy individuals who invest in property developments in the UAE and abroad. A large number of such people keep a close eye on the property market in India. However, the current situation of the property market in India and the suspected presence of the housing bubble may serve to slow down investments in India from individuals in the UAE. This may have a regulating effect on the volumes of remittances sent from the UAE to India.

2. Construction business: The construction industry has always been a crucial part of the economy of the UAE, especially since there are a number of building projects underway as the UAE continues to develop its infrastructure. Construction projects employ a vast number of Indian blue collar workers. As per the Dubai Chamber, the construction industry is poised to contribute 11.1 % of the country’s GDP in 2015, the demand for blue collar workers from the Indian subcontinent will increase as well. Naturally, this will have a positive effect on the volume of remittances sent back to India. In a recent local study, it was reported that Indian construction workers improve their salaries by 70-300% by working in the Emirates. Thus, this provides another incentive for workers to migrate to the UAE and subsequently transfer money back home.

3. Increase in average ticket sizes: As reported by UAE Exchange, the average ticket size of remittances to India has increased from $635 (AED 2,300) in 2010 to $762 (AED 2,800) in 2012. This is due to an improvement in the economic situation of Indian expatriates in the UAE. An increase in average ticket prices will bring about an increase in the volume of remittances to India in the coming years.

4. Increase in the number of white collar workers and improvement in the economic situation of Indian expatriates: According to a recent study conducted by Merrill Lynch, there are 33,000 Indian expatriate millionaires living in the UAE.

5. The current depreciation of the rupee: The historic fall in the value of the rupee against the dollar will provide a major boost to remittances from the UAE to India. The rupee reached a record low of 58.89 against the dollar in June 2013. Since the Dirham is pegged to the USD, the Rupee has

depreciated against the Dirham as well. This will cause a boost in remittances as remitters will be able to send more rupees for the same amount of dirhams.

2. The UAE-Philippines Corridor

People are the Philippines' biggest export, with 10 million of the country's population of 92 million living outside the country as of 2009.

Remittances help to drive consumer spending in the Philippines, which accounts for more than two thirds of the country's GDP.

More than 700,000 Filipinos live in the UAE, and approximately 450,000 live in Dubai, where they make up around 21.3% of the total population.

60% of expatriate Filipinos are skilled or professional workers, 25% are in the service sector and 15% are household workers.

In 2007, Filipinos sent back approximately $500 million in remittance to Philippines. The population of Filipinos in the UAE declined between 2008 and 2009 due to the financial

crisis. Visa and passport restrictions affected up to 20,000 Filipinos. Filipinos in the UAE are grouped under Overseas Filipino Workers. Agreements between

Filipino and UAE governments have set a minimum wage of $400 per month for OFW’s. There are also a number of state agencies aimed at protecting the rights of Filipino expatriates,

such as the Overseas Workers Welfare Administration (OWWA), which has offices in Abu Dhabi and Dubai.

The UAE-Philippines remittance corridor is the fifth cheapest corridor in the world for ticket sizes of $500.

In January-March 2013, the UAE contributed 4.5% to Philippine’s overall remittance inflow of $5.6 billion, making it the Philippine’s 5th largest partner in remittance flows. Total amount remitted by the UAE to Philippines was around $25.2 million. If this trend continues, the UAE will have remitted approximately $100.8 million to Philippines by the end of 2013.

Factors affecting estimated future trends in remittance flows

1. ILO Convention 189 on Decent Work for Domestic Workers: This convention promises domestic workers clear conditions of employment before they start work, a monthly salary in cash, one day off every week and freedom of association. In June 2011, the UAE voted in favour of this convention at a conference in Geneva but has yet to ratify it. If this convention is approved, the UAE could see a rise in the influx of domestic workers which would in turn increase the flow of remittances from the UAE to the Philippines. This convention, if ratified, would act as a WPS (Wage Processing System) for domestic workers by guaranteeing monthly pay and acceptable working conditions before the term of employment starts.

3. The UAE-Pakistan Corridor

UAE-Pakistan is the cheapest corridor for a ticket size of $200 with an average cost of 4.02%. UAE-Pakistan is the 2nd cheapest corridor for a ticket size of $500 with an average cost of 6.45%. In 2010, Pakistanis sent home $1.8 billion in remittances. In 2011, Pakistanis sent home $2.2 billion in remittances. In 2012, Pakistanis sent home $3 billion in remittances. It is estimated that remittances from UAE to Pakistan will reach $3.8 billion. The UAE contributes 2.086 million in remittances to Pakistan, recording the second largest share

out of a total of a $10.354 billion remittance inflow to Pakistan. Gulf News report, April 11th

2013.

Pakistanis number 1.2 million people in the UAE, making them the second most dominant migrant group in terms of population. Dubai alone holds 400,000 Pakistanis. Most Pakistani immigrants provide unskilled labour.

There are 6,000 Pakistani investment companies in the UAE which value up to AED 6.7 billion.

Factors affecting estimated future trends in remittance flows

1. Interest free loans: According to recent statements made by the Pakistani Ambassador to the UAE, Pakistani expatriates will be given interest free loans upon remitting money to Pakistan. To apply for the loan, the remitter will have to provide official documentation of the amount sent to Pakistan along with passport and visa copies. The remitter will then be issued a loan paid in Pakistani rupees, to be repaid at the end of five years. "There is no limit to the amount of money that can be loaned out as long as it's 10 per cent of the remitted amount," said Mr. Ahmad. "That means it could be based on Dh100 being remitted or Dh2 million. This scheme will act as a direct incentive for Pakistani expatriates to send money to their native land. In fact, that is the sole purpose of this scheme, according to the Ambassador. The National, May 27th 2013. The scheme was reported to be one month away from implementation at the time of publication.

2. Good relations between the two countries: The UAE and Pakistan have always shared extremely good bilateral ties. The two countries have always enjoyed good trade and diplomatic relations. In fact, in May 2013, the Shaikh Khalifa bin Zayed Al Nahyan Road in South Waziristan neared its completion. This highway, built in the Waziristan area of Pakistan has been funded by the UAE government in an effort to provide better infrastructure to the desolate landscape. This is just one example of the friendly relations between the two countries. Due to such ties, immigrants from Pakistan are always willing to come and settle in the UAE. Continuous immigration will provide a sustained growth in the outflow of remittances from the UAE to Pakistan.

3. Extremely low remittance costs: Remittance costs for the UAE-Pakistan corridor are extremely low. As mentioned before, the UAE Pakistan corridor is the cheapest and the 2nd cheapest corridor in the world for ticket sizes of $200 and $500 respectively. As a result of market surveys, we also know that if a Pakistani immigrant wants to transfer money in excess of PKR 10,000 to Pakistan, the transaction cost is zero. Such prices are an obvious incentive for Pakistanis to transfer money back to their home country.

4. Economic and political situation in Pakistan: While it is true that the Pakistani immigrant population of the UAE is strong and increasing, and that remittance prices are extremely cheap, there is a growing sense of wariness amongst the high income Pakistani immigrant population of the UAE as far as remitting money to Pakistan is concerned. The troubled economic and political state of the country is a cause for concern for wealthy Pakistani businessmen, who fear that the large sums of money they transfer may be seized illegally in Pakistan or may get locked in red-tape and bureaucratic procedures. Thus, they are content to keep their money with them and invest it in the UAE market instead. If looked at from a different perspective, the unwillingness of Pakistani immigrants to transfer money home could be the reason for which remittances prices are so low – they are kept at that level to provide incentive for immigrants to transfer money home despite the economic and political situation.

4. The UAE-Sri Lanka and the UAE-Nepal corridors

The population of Sri Lankans in the UAE is estimated at about 300,000 people. The UAE-Sri Lanka corridor is the 5th cheapest corridor for a ticket size of $200 with a 6.36%

average cost. Remittance outflow from the UAE to Sri Lanka totaled approximately $5 billion in 2012. The UAE-Nepal corridor is the 4th cheapest corridor in the world for a ticket size of $500 with an

average charge of 8.66%.

Remittance to Nepal accounts for almost 23% of the GDP, which ranks as the 5 th highest in the world.

There are about 200,000 Nepalese in the UAE, with an estimated 75,000 living in Dubai and 30,000 living in Abu Dhabi.

Nepalese are generally employed in the construction and hospitality sectors. A large number of Nepalese are employed as security guards as well.

Factors affecting estimated future trends

1. Restriction in issuance of Nepali visas: The Nepalese government recently urged the UAE to stop granting visas to women younger than 30 years of age who apply for a domestic worker’s visa, following reports of abuse and sexual harassments from domestic employers. If the UAE responds with a slash in visa issuances, the remittance flow from the UAE to Nepal will be severely affected. Quite a few Nepalese immigrants are employed as domestic workers and sent a major portion of their income back to their families in Nepal. A reduction in the number of domestic workers will lead to a reduction in the flow of remittances. The National, April 14th

2013.2. Influx of Nepalese workers: Despite the previous point about the Nepalese government urging a

reduction in visa issuance, there is a strong influx of over 9,000 Nepalese workers per month. This strong inflow of Nepalese immigrants will strengthen the remittance sending population of the country and consequently, the volume of remittances.

IV: Demographic Analysis

The population of the UAE is estimated at 8.2 million as of 2012. Abu Dhabi is the most populous city with 2.49 million inhabitants. Dubai has approximately 2.14

million inhabitants. Sharjah is the third most populous emirate. Asians constitute 50% of the total population of the UAE, Arabs from surrounding countries take

up 23%, local Emiratis make up 19% and Westerners and other foreigners account for the remaining 8%.

The single most dominant ethnic group in the UAE is the Indian migrant population, which accounts for 30% of the total population of the country and 60% of the South East Asian population.

The second most dominant ethnic group in the UAE is the Pakistani migrant population.

Labour force

The labour force is divided among three sectors in the following manner: 7% - agriculture, 15% - industry and 78% - service.

Approximately 95% of the labour force is foreign. An estimated 2.45 million to 3.02 million people form the blue collar segment of the labour

force. Therefore, they make up 29 – 36% of the entire population of the country. Since blue collar workers and labourers transfer the most amount of money to their home

countries, the target audience that they represent is quite large. The average monthly salary for blue collar workers and labourers as reported by the Ministry of

Labour and the Ministry of Economy is approximately AED 1320 (2008 estimate). Official statistics on the average salary of the population is misleading because they don’t take

into account labourers working in labour camps, which form a significant part of the blue collar population.

Unskilled labors doing elementary jobs earned a median salary of AED 18,000 only in 2008. The bulk of the labor force consists of low-skilled clerks, service workers and craftsmen, who make AED 24,000 a year. By contrast, the skilled workers like professionals and managers earn from

AED 84,000 to 144,000. Unskilled labourers account for the blue collar workforce; therefore, 29-36% of the population

earns AED 18,000 per year. Western and Emirati workers are paid way above the national average, at AED 312,000 and

216,000 respectively, followed by GCC nationals (78,000) and non-GCC Arab workers (72,000). Asian workers are paid the least and work the longest hours.

Therefore, based on the demographic statistics, approximately 27-30% of the UAE population earns above the national average income of approximately AED 39,000.

Not surprisingly, the average salary of Emirati workers is significantly higher than expatriates. The median monthly salary is AED 9185 for Emiratis workers, AED 1326 for south Asian workers, and AED 2956 for expatriate workers from other nationalities.

The average income of UAE residents is AED18,248.60 while the average household income for expatriates is AED15,074.30

Therefore 81% of the total population earns, on an average, AED 15,074 per month. The official statistics detailing the average and median salaries for the entire population of

country, as released by the Ministry of Labour and the Ministry of Economics are misleading because they do not take into account the unskilled labourers living in labour camps, who make up a significant portion of the blue collar population.

Officially, the median salary for the population is AED 39,000 … however, with the inclusion of those in labour camps, this figure falls to AED 17,000.

The median contract salary is even lower, at around AED 10,800 per year.

V: Examining the potential revenue of the remittance business

1. Top-down Revenue Approach: Potential revenue calculated using World Bank data on remittance prices in the UAE to find the weighted average of the prices that exchange houses offer and the projected remittance outflow from the UAE in 2014.

Note: For fair comparison, only data from the top exchange houses and the above analyzed corridors is used. Banks are excluded for the same reason and weighted average of different prices across different modes of remittance (cash to cash, cash to account) is taken.

Ticket sizes of $500 are used as base values for calculation. The average cost of remittance was found to be $9.63 for all corridors. Total UAE remittance outflow is estimated at $20 billion. Market research shows that 60% of remittance flows are routed through exchange houses, which

amounts to a $12 billion flow. Therefore if on $500, the average cost is $9.63 …

The average cost on $12 billion amounts to $231,120,000 which is the total revenue controlled by exchange houses.

If a remittance outflow of $12 billion generates a revenue of $231,120,000 …

Then a remittance outflow of $20 billion generates revenue of $385,200,000 which is the total revenue.Banks and Hawalas capture the remainder which amounts to $154,080,000 which is the total revenue opportunity.Therefore from the Top-down revenue approach, the total revenue pool amounts to $385,200,000 of which $231,120,000 is controlled by exchange houses and $154,080,000 is controlled by banks.

2. Bottom-up Revenue approach: Potential revenue calculated using data obtained from visiting exchange houses and conducting on-site surveys. Alongside price data, various brochures and pamphlets were collected from the exchange houses. General observations about the footfall, types of clients, locations etc were made for impending competitive analysis.

Note: Although price data for all exchange houses is recorded, the F/X markup for “UAE Exchange” can be estimated as it was the only exchange house to provide data on exchange rates offered for all five corridors. Therefore, the revenue pool is estimated based solely on data provided by “UAE Exchange”. Since UAE Exchange controls 50% of the exchange house market, revenue estimated was accordingly adjusted to give the overall market revenue for exchange houses. Again, to keep uniformity between the estimates of the two approaches, the same exchange houses and corridors were visited.

Ticket sizes were estimated at AED 1000, which were then converted to $500. The total revenue obtained by exchange houses on a ticket size of AED 1000 was estimated at

AED 17.69. Total UAE remittance outflow is estimated at $20 billion. Market research shows that 60% of remittance flows are routed through exchange houses, which

amounts to a $12 billion flow. Market research shows that 50% of remittance flows through exchange houses is routed through

“UAE Exchange” which amounts to a $6 billion flow. Therefore, if on AED 1000, the average revenue is estimated (for UAE Exchange) at AED 17.69

…

The revenue made by UAE Exchange on a flow of $6 billion amounts to $106,171,001.

If on a remittance outflow of $6 billion, UAE Exchange makes $106,171,001 …

Then on a remittance flow of $12 billion, the exchange house market makes $212,342,000 which is the total revenue controlled by exchange houses.

If, on a remittance flow of $12 billion the exchange house market makes $212,342,000 …

Then on a remittance outflow of $20 billion, the entire remittance market makes $353,903,333 which is the total revenue.Banks and Hawalas capture the remainder which amounts to $141,561,333 which is the total revenue opportunity.Therefore from the Top-down revenue approach, the total revenue pool amounts to $353,903,333of which $212,342,000 is controlled by exchange houses and $141,561,333 is controlled by banks.As a result of both revenue exercises, the total revenue is estimated between $353,903,333 - 385,200,000 and the total revenue opportunity for banks and Hawalas is estimated between $141,561,333 -$154,080,000.

PHASE 2

I: Identifying and understanding the target audience

Before conducting an analysis of banks and their competition in the remittance sector, it is important to determine who the target audience is and what it wants. Once this is ascertained, a common ground for comparison between banks and exchange houses will be formed.

The target audience that bank can cater to can be divided into two main segments –

1. The White Collar Segment (Income > AED 5000)2. The Blue Collar Segment (Income < AED 5000)

What is the size of the target audience? Total population of the UAE = 8.2 million.30% of the population consists of Indians = 2.46 million … (i)65% of Indians are blue collar workers = 1.59 million or 1.6 million ... (ii)Assuming the entire population of the UAE is involved in the workforce,95% of the work force is foreign = 7.79 million.38% of the foreign workforce is Indian = 2.96 million … (iii)Using (ii) and (iii), the number of blue collar workers is estimated between 1.6 and 2.96 million … (iv)Assuming that Indians make up 35% of the blue collar segment, using (iv)The total number of blue collar workers can be estimated between 2.45 and 3.02 million.

Which factors matter most to the target audience as far remitting money is concerned? Blue collar workers earn typically low wages. Therefore, when they have to transfer money to their native lands, they need to ensure that whatever little money they have gets transferred as quickly as possible with minimum trouble and minimum cost. Therefore, speed, price and convenience matter most to them. Blue collar workers are particularly sensitive to price, since they have typically low wages.

White collar workers will differ from blue collar workers in the outlook on important factors, simply because of the difference in wages. While “price” is certainly an important factor to consider, it will not place above convenience and speed in the mind of an average white collar worker. Since white collar workers have higher wages as compared to blue collar workers, a slight difference in prices across exchange houses and MTO’s will not affect their decision to remit money through a particular exchange house. However, convenience and speed of the transfer will function as differentiating factors.

How do banks fare in each of these areas?

COMPETITIVE VARIABLESMTOs / EXCHANGE HOUSE

HAWALA BANKS

Price• Hawala and exchange houses are the cheapest

options for sending remittances.

Speed• Instant cash from MTOs is the fastest

remittance service.• Bank products like direct deposit and check

take more than four days.

Reliability• Banks are the most reliable service as money is

credited directly to the account.

Customer Service1. MTOs provide better customer service in terms

of explaining the process, helping to complete forms, speaking the local language, etc.

Ease of Sending• MTOs provide better reach through exchange

houses, door-to-door delivery, the post office, etc.

Ease of Receiving• Hawala operators provide doorstep services• Remittances sent through hawala are not taxed.

MasterCard research conducted by Synovate, 2009

As can be seen from the above table, banks perform poorly as compared to exchange houses and Hawalas in the critical areas of price, speed and convenience. A crucial point to note is that exchange houses outperform banks even in the “Customer Service” category, as exchange houses have the resources and the labour to cater to different segments of the blue collar population and provide assistance to people of all nationalities and varied backgrounds.

Therefore, in order to offer serious competition to exchange houses and Hawalas, banks will have to focus on the areas of speed, convenience and price. Banks boast highly reliable services, but that isn’t a huge differentiating factor when compared to exchange houses. As can be seen from the chart, the deficit that banks encounter on areas of price, speed and convenience is far greater than the deficit that exchange houses encounter on ‘reliability’. Therefore, exchange houses appear as more well rounded competitors than either banks or Hawalas. Banks should follow a strategy that helps them to deliver on the three aforementioned categories, allowing them to seal their service package with ‘reliability’.

II: How are the two segments different?

As mentioned before, the primary differentiating factor between a White Collar worker and a Blue Collar worker is the fact that the former has a significantly higher wage bill than the latter. However, this simple difference can lead to a number of other differences as well.

Because they receive lesser wages, blue collar workers are more sensitive to price. Therefore, they will choose to switch loyalties from one exchange house to another if the price gap between the two widens frequently. Price is what keeps these consumers on the line, and a sudden change in price will result in the blue collar worker taking his or her business somewhere else.

Laborers, security guards, cleaners, etc constitute the blue collar market. Naturally, if the bank decides to break into the remittance business, it would be highly undesirable to have its blue collar audience queue up in branch locations to transfer money. This would unsettle the white collar audience of the bank, resulting in a loss. Therefore, when dealing with blue collar workers, the bank needs to keep in mind that accessibility to branch locations will be an important factor to consider. The bank will need to branch out in its locations to reach a larger portion of the audience while serving to keep both segments of the audience away from each other.

ADCB cannot use its banking and corporate services to entice blue collar workers. Rules and regulations prevent the bank from establishing corporate ties with a certain class of wage earners and unfortunately, blue collar workers fall into that category. The bank instead will have to pull in its blue collar audience through WPS services and payroll solutions. Wage Processing Services will be an integral component of the services provided in the bank’s remittance outlet.

A significant portion of the blue collar audience is located in labour camps across the country, which in turn are isolated and located in remote parts. Therefore, the bank will have to develop a strategy to reach out to its target audience despite location barriers.

Language is another important factor that separates the two segments. A significant percentage of the blue collar population consists of people from South East Asia, where ‘English’ is not the primary language of instruction. Most blue collar workers therefore find it difficult to converse in English and understand and follow instructions in their native tongue. While catering to the blue collar population through IVR systems on mobile platforms and through advertisements, the bank will need to keep in mind that blue collar workers will be able to understand a lot less as compared to the white collar segment.

Therefore, while looking at entering the business, the bank will need to keep in mind that is catering to two distinct sets of people, who have different needs from the same service. Whatever overall strategy the bank chooses to go with, it will have to develop two distinct plans for both segments of its target audience.

III: Identifying the two strategies for operation –“How can banks successfully enter the remittance market?”

The following details the two approaches that the bank can adopt while looking to break into the remittance business. The two strategies have been detailed with the help of two examples of banks successfully breaking into the remittance business.

National Commercial Bank, Saudi Arabia

The NCB is the largest bank in the Middle East. In 2009, it launched “Quick Pay”, a separate entity that provided remittance services to the

public. Quick Pay, while officially affiliated and created by the NCB was marketed as a separate entity

that focused solely on remittance services.

Offered sending money through different delivery methods – cash to account, cash to cash and via counters.

The different rates and the total cost per transfer are available on the NCB’s website. Its main selling point was the convenience factor involved in sending money. By focusing on mobile, online platforms and ATMs, Quick Pay eliminated the need for consumers

to stand in long queues. Quick Pay provided automated phone services, in which a simple touch of a button could

complete the transaction in the customers’ preferred language. Quick Pay offered remittance services for both NCB and non-NCB customers. Non NCB customers can transfer money using an “e-Wallet Quick Pay ATM Card”. The e-Wallet cards can then be used to send money through NCB ATMs located throughout the

kingdom. Quick Pay operated in collaboration with Moneygram, the world’s fastest growing and second

largest money transfer organization. It operated in the Bangladesh, Nepal, India, Sri Lanka, Philippines, Indonesia, Egypt and Pakistan

corridors by partnering with different banks in those countries. Cash to cash money transfers usually take 24 hours whereas bank transfers can up to 72 hours.

The NCB chose to enter the remittance market in partnership with a leading money transfer organization.

It is important to note that the NCB’s remittance model shifted the focus from the bank to a seemingly separate entity called Quick Pay which served to shift the traffic from the bank to other locations across the Kingdom.

The Bank also focused on convenience as its differentiating factor, as it eliminated the need for its customers to be physically present for the transactions. The website also details the simple procedure of sending money through mobile and online platforms. Transactions can be completed at home without the customer having to make otherwise necessary trips to various exchange houses.

The speed of remittance through NCB comes very close to that of an exchange house. While in an exchange house, some money transfers take less than one hour, the NCB completed the transaction in 24 hours. The speed of the bank transfer is slower than a day if one chooses to transfer money through Quick Pay.

The model also allows the bank to cater to all customers, whether they’re banked with the NCB or not.

The model allowed the NCB to operate in 8 corridors, providing great opportunity for business.

Al-Rajhi Bank, Saudi Arabia

It is the world’s largest Islamic bank. Its two main areas of operation are in Saudi Arabia and Malaysia. In 2006, it launched its first foray into international banking by opening business in Malaysia. Among normal banking services, it offers remittance services in Malaysia, operating in the four

corridors of Indonesia, Nepal, Bangladesh and Philippines. Al Rajhi has tied up with various banks in these countries, but not with any known MTO. Unlike the NCB, Al Rajhi has not created a separate remittance entity. Remittance services are carried out by “Tahweel Remittance Centers”. These centers are located throughout the city and are not located in the bank. Al Rajhi Bank does not offer services in mobile and online platforms, and one has to be

physically present in the outlet to carry out the transaction.

Upon first visit, the customer must fill out details of the sender and beneficiary just once, upon which the customer will be given a membership card for free.

The customer is given a receipt when the transaction is done, which the customer must keep as a proof of the transaction.

Charges and rates are available online and vary with each corridor.

While the NCB chose to partner with an MTO to enter the remittance market, Al Rajhi did it by entering solely as a bank, while operating in a different country.

Al Rajhi caters to a select group of corridors, and as of 2010, had plans to expand its business to more countries. However, since that announcement, nothing of significance has developed and the Tahweel Remittance centers operate in much the same way.

Al Rajhi has used the considerable resources at its disposal (being the largest Islamic bank in the world) to enter the business alone without partnering with a known MTO.

It provides a fairly ordinary service and does not advertize specific advantages of using its service.

In most cases, Al Rajhi’s remittance service offers completion of the transaction on the same day. The unique thing about Al Rajhi is that it operates its remittance service in a foreign country and

caters to the top corridors of that country while keeping its operations in Saudi Arabia functional. The remittance service caters to all customers, whether they’re banked with Al Rajhi or not.

These two examples represent the two options that ADCB has in choosing its style of entry and operation in the remittance market. While NCB represents an approach that involves partnership with an MTO, Al Rajhi represents a solo approach that the bank can undertake.

Below are the main factors that the bank would consider if it wants to enter the remittance business. By comparing the two approaches on the basis of each factor, an affective platform for comparison will be formed, making it easier to decide which approach would be most suitable.

Note: These models do not signify the only two ways by which the bank can break into the business. These are the two basic outlines; the bank can add its original ideas and offers wherever required. Strict adherence to either is not the goal of this exercise.

III: Operational analysis – Taking an in-depth look into the two strategies for operation

Before an operational analysis is conducted, it would be of use to look into a few factors that the bank would have to keep in mind regardless of the approach it decides to follow.

If ADCB is looking to enter the remittance business, it should keep in mind the following factors:

Cost : Total cost of entering the remittance market will involve infrastructural costs such as building and setting up of offices and hiring labour. Also included in the total cost will be the setting up of technology and other services that will be essential in providing satisfactory customer service.If ADCB partners with a world renowned MTO in its operation, costs will likely be split between the two parties. This would make it easier for both parties involved and will give each sufficient time to focus on other, equally important factors of the business. If ADCB plans to enter the business alone, it will have to incur all the costs separately and will have to decide the number

and location of branches it needs to open. The entire burden of planning will be placed on the bank’s shoulders.

Convenience of setting up the business : The partnership approach is obviously subject to the fact that an MTO would be willing to partner with the bank in the first place. If banks were to enter the business alone, it could possibly be a more convenient affair, even though the costs will be higher. If there are two parties, mutually agreeable decisions need to be taken since each party has different perspectives on the same matter. It might even be difficult to reach such a decision. If banks were to enter into the business alone, they would have only themselves to consult and answer to, which could be a major advantage.On the other hand, the expertise of an experienced player in the market could do little harm to the bank, especially since it is a newcomer in this particular business.

Potential revenue : If ADCB chooses to partner with an MTO, obviously, all potential gains from entering the business will have to be split accordingly, as opposed to the solo approach, where all gains would go to the bank.

Overall customer appeal Marketability: If ADCB chooses to enter the business with an MTO, it will have the added advantage of being partnered with a known brand name in the remittance business, making it easier to identify with the quality of service and rates offered. Customers would be more familiar with the speed and rates offered by the partner MTO and this would remove the unfamiliarity of sending money through a bank. Therefore, this represents a significant advantage over the solo approach as it would make it easier to draw in more customers. Bank procedures: One of the main disadvantages that banks face as players in the remittance business is that they make it less convenient for customers to transfer money due to the strict procedures that they have to follow. Documents must be presented to complete a money transaction. If, like NCB, the bank chooses to market its remittance service under a separate entity in partnership with an MTO, it would function as a normal exchange house, making it more convenient to transfer money.By entering the business as a separate entity, the bank can get rid of any negative preconceived notions surrounding money transfers from banks in general. It will enter the remittance market as a genuine competitor to exchange houses and will be able to simultaneously use its solid infrastructure as a bank to provide some unique offers and services to the public.

i) General costs of setting up a business

1. Infrastructural costs- Lease - Counters- Furniture - Electricity

2. Labour - Hiring Costs - Salary

3. Marketing Advertising by different outlets- Radio- Print- Signs - Agency fees- Printing pamphlets and brochures

4. Technology - Computers, mouse, etc. (number depends on number of counters/employees) fixed cost- Setting up and maintenance of website- Technical department - Mobile and online platforms (if there is any charge)

5. Administrative costs- Maintaince of outlet(s)- Monitoring of service (supervisor)- Stationary (Money transfer form)

6. Cost for products - Membership card-Pamphlets

Note: Costs of setting up the business multiply as per the number of outlets

ii) Operational departments

1. HR2. Technology and IT3. Staff – tellers4. Administrative5. Currency Exchange people 6. Marketing7. Processing 8. Corresponding banking9. Finance

iii) Revenue avenues

1. Remittance- Fees/Charge- Revenue made by exploiting difference between interbank and foreign exchange rate2. Currency Exchange 3. WPS 4. Allied services (credit card, card top up)

Having understood some of the common parameters associated with either approach, we can now devote our entire attention to a detailed analysis of the partnership and solo approach.

1. Partnership Approach Under this approach, as the name suggests, the bank would need to partner with a well known

Money Transfer Organization in a joint venture business attempt. Examples of organizations that bank can tie up with –

1. Xpress Money – Money Transfer Organization for remittance2. MoneyGram - Money Transfer Organization for remittance3. C3 – For WPS/Payroll Solutions

Each of these organizations are well known and successful brand names, and will each lend the bank a unique advantage in operation.

Advantages of partnership approach –1. Marketability and audience connect – By partnering with a known brand name in the

business, ADCB would be able to capture the attention of its target audience without alienating it under a totally new brand name. The partnership approach would bring in the important factor of familiarity among the audience, which would make the process of establishing a connection much easier. The brand would become more marketable and appealing to the audience if any pre-conceived notions about the inconvenience of transferring money through banks is removed.

2. Combined strength – If ADCB chooses to partner with a well known organization in the business, it would have the advantage of entering the remittance business with a seasoned competitor that knows the market much better than ADCB itself. It would be of immense benefit if ADCB could get a portion of the already cultivated audience attention that these companies have in terms of market dominance and customer base. By combining the financial and corporate capacities of a successful local bank with the know-how and seasoned market awareness of a successful MTO, ADCB can reap many benefits from a partnership. If looked at from a different perspective, ADCB simply cannot afford to compete with these organizations if it chooses to go with the solo approach.

3. Shared burden – The burden of setting up a business would be shared by two strong commercial entities in this approach. Instead of ADCB taking the entire portion of the financial, logistical and operational load, it can choose to partner with a successful organization which would make the entire process a lot easier.

Disadvantages of partnership approach – 1. Shared revenue – One major drawback of this approach is that ADCB would have to split

the earnings from the business with its partner.

Method of operationAs mentioned before, regardless of the approach that the bank decides to take, it would have to look at the audience as the sum of two parts – the blue collar segment and the white collar segment and would have to design a separate strategy for both segments.

1. Blue collar segment

WPS/Payroll Solutions

The bank should try and pull in the blue collar segment primarily through WPS/Payroll Solutions. To offer this service, the bank should invest in “Salary Cards”. Salary cards function as prepaid or debit cards, which provide the customer with the monthly

salary, payable at remittance outlets or even at ATMs. In providing this service, the bank could partner with “C3”, a company that provides Payroll

services to employees in various companies. C3 is a leading organization in the business and was the first company to be registered under the

Ministry of Labour’s WPS system in 2008. C3 Card offers companies the C3 Payroll card which enables employees to receive their salaries

via instant electronic transfer. The employees receive the funds on a card rather than having to cash a cheque and it gives them

access to shopping on the Internet or through the traditional retail environment. Cardholders do not need to carry cash around. 

For the non-banked, this solution removes the inconvenience and cost of exchanging cheques for cash, whilst providing the benefits of a Debit Card such as access to the online world of payments. 

ADCB would do well to establish corporate connections with C3 and secure its services. C3 card makes the process of salary transfer easier for both all three entities involved in the WPS transfer process, i.e. the company, the employees and the bank/licensed WPS agent.

It must be noted that ADCB can function both as a bank and a licensed WPS agent if the company concerned does not have a bank account upon acquiring.

Without partnership with C3, the cost and time involved in setting up a payroll solution in the solo approach would multiply. Besides that, the bank would have to compete with C3 itself, which would prove to be a very difficult task given that C3 is an established and successful player in the remittance market.

Partnership with C3 solves the problem of reaching out to the local blue collar population, as C3 has an infrastructural base that allows it to physically travel to labour camps and conduct personal transactions with the labourers – something that ADCB simply cannot afford to do on its own.

Remittance Services/Foreign Exchange

With the help of partnership with a leading MTO such as Xpress Money or MoneyGram, ADCB can get additional help in connections with banks and other organizations across different countries.

Partnership would give ADCB equal footing in both the sending and receiving side of the money transfer cycle.

Besides involving the expertise of potential partners, ADCB could also introduce offers of its own.

“Customer profiling” is one such viable offer that the remittance outlet could provide. Usually, blue collar workers transfer money back to their homes in native countries. By saving

their standard receiver’s details, the bank can make the process of transferring money much easier for its customers. By simply assigning a numbered code to the usual receiver, the bank can eliminate the need for customers to repeatedly fill out the same receiver’s details each time.

This is where mobile and online platforms could come in – once the sender’s beneficiaries’ details are saved, all it takes is a phone call to complete the transaction.

Instead of repeating the details of the recipient, the sender simply has to recite the assigned code and the transaction would be underway.

However, it needs to be kept in mind that language is an important component of this idea. Automated systems and IVR need to be able to speak in customers’ desired language.

ADCB could also offer a “Remittance Card” which would make it easier for senders to send money, given that they simply have to swipe at the nearest ADCB ATM to withdraw money for the transaction. This eliminates the need for customers to carry large amounts of money on their person, making the entire process more convenient.

The bank could also provide real time SMS alert providing notifications when money has been delivered. This is a service which neither exchange houses nor Hawalas provide. Providing SMS or email alerts helps guarantee customer satisfaction.

The Salary Card and Remittance Card could be combined to form a single card, which would contain money that has been loaded by the customer.

Allied Services

ADCB could also provide allied services such as card top ups, ATM services, NOL card issuances, etc to help draw in some more blue collar customers.

2. White Collar Segment

WPS/Payroll Services

The bank would cater to white collar workers in almost the same way as they would to blue collar workers as far as WPS and Payroll Services are concerned.

Partnership with C3 is the best option in this section of services offered by the bank.

Remittance/Foreign Exchange

Since white collar workers earn above AED 5000/- per month, ADCB can extend its corporate banking services to this segment of the audience. Some suggestions are – - After X number of transactions, open a savings account which will include X% of total

amount transferred – example of incentive to do business with ADCB.- OR after X number of transactions, you can get X% of cash back. The point of the above is to

build loyalty and a relationship base with all customers. - OR After a customer reaches the same number of X transactions, he or she gets offered better

rates. “Customer profiling” services will be offered to white collar workers as well. ADCB will find it easier to offer mobile, online and IVR services to its white collar segment,

simply because white collar workers will have the sufficient funds and knowledge to utilize these services. Hence, ADCB should capitalize on the capabilities of its customers and focus on such modes of service.

ADCB could also offer the “Remittance Card” to its white collar base, which would make it easier for senders to send money, given that they simply have to swipe at the nearest ADCB ATM to withdraw money for the transaction. This eliminates the need for customers to carry large amounts of money on their person, making the entire process more convenient.

The bank could also provide real time SMS alert providing notifications when money has been delivered. This is a service which neither exchange houses nor Hawalas provide. Providing SMS or email alerts helps guarantee customer satisfaction.

The Salary Card and Remittance Card could be combined to form a single card, which would contain money that has been loaded by the customer.

Partnership with MTO’s and other successful organizations becomes very crucial when dealing with the white collar audience. White collar workers will tend to value service, convenience and speed over any other factor while transferring money.

Partnership with entities such as Xpress Money, MoneyGram, etc. would help guarantee additional speed and service benefits to the target audience.

Without partnership, it would be very difficult for ADCB to set up an infrastructure on its own to compete with such seasoned market players.

Allied Services

ADCB could offer the same services to its white collar and blue collar audience.

2. Solo approach

Under this approach, the bank would endeavor to set up the entire remittance business on its own, with its own financial and logistical base.

It would follow an approach similar to the one that Al Rajhi Bank followed in its remittance operation with the launch of Tahweel Remittance Centers.

Advantages of solo approach1. Total revenue is for the taking – This is the primary advantage that the bank stands to gain

if it decides to operate as a single entity devoid of partnerships. The entire share of return from investment and profit is for the taking since the bank does not have any partner to split the revenue and profit with.

2. Easier to coordinate and make decisions – In the solo approach, the bank does not have any partner to run decisions by. ADCB will be the sole proprietor of the business and all decisions would have to be made by a single entity. This could reduce the inconvenience of red-tapism which would involve time spent in taking joint decisions. Being the sole player in this game, ADCB would make all crucial decisions on its own without wasting any time.

Disadvantages of solo approach1. Competition – This is the greatest disadvantage that the bank stands to face if it goes down

this route. Does ADCB have the financial, logistical and technical experience to enter and operate in the remittance market alongside seasoned competitors such as exchange houses and MTO’s? This is the question facing the bank if it decides to opt for a solo approach. Besides incurring the entire portion of the cost in setting up the infrastructure to run a profitable business, ADCB will have to face the problem of marketing itself as an entity with no known tie-ups and partnerships. It is common knowledge that banks do not represent the best option to people when they are looking to transfer money. How would ADCB market itself based on its image as a successful local bank?

2. Marketability – As mentioned previously, marketability is a major issue as well. Without a known name to partner with, ADCB would struggle to get the attention of its white collar or blue collar workers. The customers would opt for a more familiar and reliable brand rather than shift to a totally new entity that is being backed up by a local bank. ADCB would find it hard to get rid of any pre-conceived notions that people attach to banks when it comes to transfer of money.

3. Shouldering the burden – Without the experience of a well placed partner, ADCB would have to shoulder the entire burden of setting up a successful enterprise. It would have to incur all costs and take complete care of logistics on its own.

Method of operationAs mentioned before, regardless of the approach that the bank decides to take, it would have to look at the audience as the sum of two parts – the blue collar segment and the white collar segment and would have to design a separate strategy for both segments.

It must be noted that under both approaches, i.e. solo or partnership, the products and services offered will remain constant. What will change however, the various difficulties associated with each approach. Allied Services would remain the same, regardless of the approach.

1. Blue collar segment

WPS/Payroll Solutions

Without a partner like C3, ADCB would find it comparatively harder to offer WPS/Payroll Services to its blue collar segment.

It must be noted that WPS/Payroll Solutions form an integral part of the service package for blue collar workers. The bank will draw in most of its blue collar population through WPS/Payroll Solutions and then introduce Remittance/Foreign Exchange and Allied Services to them.

Without C3, ADCB would have to incur the monetary and logistical cost of creating its own salary card.

Simultaneously, it would have to compete with C3, which is a daunting prospect considering C3 has gained a very strong foothold in the market.

Another point that needs to be noted is that, without partnership with C3, ADCB lacks the ability to reach out to its blue collar audience, a major of portion of which resides in labour camps in remote areas across the city.

As mentioned previously, C3 has an infrastructural base that allows them to physically go to the labour camps and distribute wages to labourers present there.

Does ADCB have the logistical and monetary resources to implement the same method? ADCB would also have to divert the blue collar traffic from entering branch locations. Of course, the bank could set up Payout counters in its exchange outlets, but the entire process

would be made significantly harder without the backing of a partner such as C3. The bank would have to set up sufficient number of outlets in order to cater to the widespread

population of blue collar workers. Marketing and advertising would play a very crucial role in attracting the blue collar population

since ADCB would most likely not have the funds to venture into their territory. ADCB would have to more or less duplicate the “Salary Card” provided by C3 and implement it

in the same way without the help of C3.

Remittance/Foreign Exchange ADCB would operate in the same way in the solo approach as it would in the partnership

approach as far as products and services are concerned. It would still offer a combined Remittance-Salary Card, real time SMS alerts and customer

profiling. However, it would loose the edge of having the expertise of a leading MTO to back up its

products and services. As mentioned before, marketability would be a cause for concern, as the blue collar workers

would not be naturally drawn to an outlet with no familiarity whatsoever. Another very essential point to note is that, in the solo approach, ADCB would loose out on the

connectivity that MTO’s could provide. Leading MTO’s such as Xpress Money, MoneyGram, etc. provide widespread connectivity and

access to banks across the globe and in key corridors. By choosing to go the solo route, ADCB would loose out on such connections and would find it harder to establish a broad baking base.

Since most blue collar workers are from countries located in Asia, ADCB requires a broad connective base, something that the aforementioned MTO’s would be extremely helpful in providing.

2. White collar segment

WPS/Payroll Solutions

The bank would cater to white collar workers in almost the same way as they would to blue collar workers as far as WPS and Payroll Services are concerned.

The bank would encounter the same difficulties with the white collar market as far as WPS is concerned.

The cost and logistics would be solely in the hands of the bank. However, audience reach would not pose as significant a problem as it did with the blue collar

segment, since local branches and ATMs would be more accessible to the white collar segment. Online and mobile platforms could be set up as an additional benefit of working with a more

educated segment of the population. However, advertising and marketing would still play a very important role if ADCB wants to

follow the solo approach.

Remittance/Foreign Exchange As mentioned previously, white collar workers would tend to value speed and convenience of

transfer over price and other factors. Without the backing of successful MTO’s, ADCB would find it significantly harder to provide

the fast and convenient service that its audience requires. White collar workers might prefer to transfer their funds through international set ups such as

SWIFT, which offers a very fast and convenient service, albeit the prices offered are comparatively higher as compared to more conventional methods.

The problem of providing a fast and convenient service would be compounded by the fact that ADCB will not possess the connectivity required to transfer funds all across the globe, especially in key regions such as Asia and the Middle East.

The bank would have to work hard at providing a suitable service package without the help of an MTO, while proving the same baking services as an add-on to ensure customer loyalty.