High growth potential for remittance sector
Jan 15 2016
Samish Kumar, CEO, Transfast, outlines the company’s plans during his recent visit to Chennai
Can you give us a quick recap of the Transfast journey so far?
Transfast is into its 27th year of operations this year. But the real growth happened over the last eight-plus years where we have been achieving high double digit growth. Till 2007, Transfast was only operating in the Latin American markets, but now its operations have spread to over 120 countries across Asia, the Americas, Africa and Europe. We have also broadened our service offerings to become an omni-channel business as we facilitate transactions through mobile app, online and in-person. Through these, customers can send money to bank accounts as cash and to credit and debit card accounts. We are licensed in over 70 jurisdictions and our subsidiary in India has a license from the RBI for conducting operations in the Indian market.
What made you look at the global crossborder money transfer industry?
I’m an Indian by birth and spent the early part of my life in Bangalore and Kanpur. My mother used to work as a teacher in Nigeria and she used to send money to support my education. Those days, it used to take weeks for me to get that money. That was my first hand experience with the crossborder money transfer process.
Developing economies like India sustain to a large extent on money transfer and remittance industry. With migration becoming a global trend, the remittance industry has been growing consistently across regions and economies. This industry offers a great growth opportunity. And remittance is the more reliable source of foreign capital for developing economies, more than the Foreign Direct Investment (FDI) which ebbs and flows. Remittances helped India during the global downturn at the time of the first Gulf war and also to overcome its Balance of Payments (BoP) crisis at that time. Worldwide, remittance industry flows to emerging economies is estimated to be over $450 billion. Sensing the under-served needs of the customer, growth opportunity and the vast potential this industry, I approached GCP Capital Partners (at the time Greenhill Capital Partners) with the idea to create a secure crossborder money transfer system that better served the needs of millions of migrants around the world. It was a $2 billion fund and if they backed us, we could expand Transfast globally to become a global organisation, rather than remain a regional player.
Prior to this, Transfast was under-managed and was like an orphaned business that had a presence only in the Latin American markets. But it had a great team of dedicated individuals and a solid compliance track record on which we could build up the business.
How do you see the inward remittance business in India and how has this been growing in recent times? Because, as per World Bank estimates, inward remittances were $71 billion in 2014 and touched only $72 billion in 2015.
While there is consistent year-on-year growth in remittances to India, of late, there have been some changes in patterns of how people send money. Today, they wait for the right exchange rate and as a result, we might observe some choppiness and shifts in growth rates. But it is a stable industry and has been growing in mid-to-high single digit over a longer period, though there might be some phases of slower growth, such as during the last credit crisis. But if you look at an 8-10 year horizon, its growth has been steady.
Our business model is based on what the customers and the market needs. In the US and Canada, money can be sent by customers whose are on the go via their mobile phone or from the comfort of their home or office using their bank account or debit/credit cards. Or if a person should so choose, they can send money from one of thousands of authorised Transfast locations. In West Asia, we have tied up with Bank Al Bilad, the largest player in Saudi Arabia, and people can send money from there from the safety of the banks's remittance centres. In the UK, we recently soft launched our mobile and online platform so that customers can send via these channels or visit an authorised physical location to send money in person. In Malaysia and Hong Kong too, we have our global network where customers can send in person at branches of our partner financial institutions. As a result, we have covered geographies that originate over 95 per cent of remittances originating for India. We were the first company in the industry to launch instant crossborder bank deposits 24x7x365 in the year 2009.
Can you throw some light on various source markets for remittances into India?
When you look at transfers originating from US and Canada, our customers use our mobile app or send money online using their bank accounts or cards, though there is a sizable number who also send remittances in person using cash. However, from West and Southeast Asia, senders remit primarily in person at a physical branch and use cash to do so. The US, Canada and the Gulf region are the largest markets, followed by the UK/Europe, Southeast Asia and Australia.
States like UP and Bihar are said to be among the leading states for remittances into India now, as against Kerala and others in the past. Can you elaborate?
It is not that other states are not important, but some states have grown faster than others. In the case of UP and Bihar, for several years they were not a major source of migrant workers. However, in the last 10 years, they have come into the market in a big way. At the same time, states like Kerala, Tamil Nadu and Andhra Pradesh continue to be strong on migrant labour force. Tamil Nadu and Andhra Pradesh have been a major source of knowledge workers for industries like banking, medical and IT in bigger markets like the US, Canada and Europe. Such knowledge workers tend to be high earners and prolific savers. As a result, a knowledge worker typically remits on an average somewhere around $1,500-$1,800 a month, whereas a typical migrant labourer who is an equally important contributor to India's remittances sends around $300 a month.
Direct to bank global money transfers were allowed a year ago. How has been the response to this?
This was a good move by the RBI and a catalyst for driving further growth of remittances to India. Enthusiasm of our customers is evidenced by the fact that our instant and direct bank deposit product is growing at triple digit rates from markets like the US and Canada. At the same time, it is important for RBI to continue to support a variety of products so that customers have the benefits choice and convenience. Cash continues to be an important disbursement method and should continue to enjoy the support of the regulators so long as service providers comply with RBI requirements and exercise an enhanced level of compliance and due diligence.
With increasing attention on ‘money laundering’ and ‘terror funds,’ what are the issues that companies like yours face?
We take compliance very seriously and think of it as absolutely central to our business. Every transfer that goes through us is screened against multiple blacklists and jurisdictional compliance requirements. Our compliance staff is vigilant about making sure that we prevent the bad guys from using our system for any purpose and making sure that we are in compliance with the laws of a given jurisdiction in which we are operating. This is not only limited to the originating geography but also on the receiving side. Furthermore, as a US company, American laws with regards to matters such as sanctioned list of countries follow us around the world. More often than not, we have imposed compliance rules that are even more stringent than those proposed by regulators, for example identification requirements at much lower limits than prescribed by a given regulator. This shows our commitment to going above and beyond the law to make sure that we are operating at the highest level of compliance and integrity. We look to partner with regulators around the world and feel strongly about engaging with them in a dialogue to consistently think of ways in which we can improve the system for hard working immigrants who have legitimate reasons for sending money back, whether to support families or for their own savings, while also thinking of ways to build defences against the bad guys who might want to use legitimate channels for transfers.
I would like to mention, however, that many AML/KYC enforcement personnel say that in today's world, those looking to transfer sizable funds for illegitimate reasons are more likely to do so by transporting physical cash and via financial markets or real estate than money transfer systems of professionally managed companies given their controls, screening and monitoring.