For the large immigrant populations living in the Gulf region, exchange houses have been their primary means to channel hard earned wages to poor relatives across the sub-continent – but that may soon be about to change. With the growing popularity of mobile phone banking in other regions of the world, telecommunications providers in the Gulf are on the brink of introducing applications that will encourage users to conduct money transfers directly from their mobile phones.
In many respects, the exchange houses are the unsung heroes of the GCC – often run by indigenous entrepreneurs, they offer a widening array of products to low income communities and ensure enough competition in the money transfer market to ensure that the cost of transfers remain low. But this traditional business model could soon become a thing of the past, as banks and mobile phone operators are pioneering ways to allow users to carry out all their daily banking activities from their phones. If successful, the new technology could catch on quickly in the Gulf region, where although many are poor, the majority of workers own mobile phones.
To date, few of these new services have gone live. Among those that have, they did not prove particularly attractive to workers – who still had to find ways of “funding” an e-wallet before money could be transferred. This process normally requires a visit to an agent, and thus demands about as much effort as visiting an exchange house – but without the opportunity to enjoy a cup of chai with their countrymen who gather around the exchange houses in the evening.
Yet there are many indications that the present barriers to mobile phone banking could soon be overcome. As an increasing number of Gulf workers acquire basic bank accounts and/or card products through which they receive their wages, more banks are providing mobile solutions to allow new customers to push payments from these accounts through from their phones. In addition, mobile phone providers may soon produce phones that come with a pre-loaded application – similar to the calculator or stop watch loaded on most phones – that would allow users to easily register their card and initiate a transfer.
Earlier this year, a deal between a mobile payments company called Obopay and Nokia laid the foundation for the possible launch of the built-in application. According to a press release issued by one of the signatories, Nokia may soon pre-load a mobile payment application on all Nokia phones (which have by far the largest market share in the handset market). This would remove one of the biggest challenges to adoption – getting customers to download applications onto their phones. And as Microsoft’s many rivals have discovered, competing with something that comes pre-loaded (even when it is far from free) is extremely difficult. Research by mobile operators has shown that consumers spend a large amount of time experimenting with whatever comes pre-loaded on their phone – even if they were not initially looking for the service.
So whilst there will always be customers who prefer cash, the scale of market adoption that is possible when the product becomes accessible, can be dramatic. In Kenya, for example, over 8 million of the leading mobile operator’s customers signed up for a money transfer service in less than three years (1 in 3 adults by some estimates). These customers now make regular payments to relatives up-country via their mobile phones.
According to the author, GCC exchange houses need to urgently reassess how they do business.
Exchange houses must find ways to compete with platforms of this nature, and be alert to changing consumer dynamics that signal the shift to new ways of doing business. There is a lot to be done: they should investigate ways to become part of the payroll business, and should start creating linkages and providing services that compliment rapidly evolving business models.
Copyright 2009 Genesis Analytics, PTY Ltd.
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Michel Hanouch is an expert on mobile payments and money transfers and leads the work for Genesis Analytics in this area. Genesis Analytics is a specialist banking and payment strategy firm with operations in UAE and South Africa. Genesis was a participant at the Mobile Money Transfer Conference held in Dubai from the 26-28 October 2009, and the GCC card summit held in Bahrain.