Mobile cash transfers to boost foreign inflows

KARACHI: Involvement of telecom operators in foreign remittance transactions would lead to a surge in foreign inflows as mobile users sharply outnumber bank account holders, industry experts said on Thursday.

“While banks associated with telcos are receiving remittances on their approved outlets, but most volume still goes to commercial bank branches,” an official said. “Some of this volume does come into mobile wallets but not a significant number today.”

Around 46 million people have bank accounts in Pakistan as against a staggering 140 million mobile phone subscribers.  Mobile money transfer is rising at a decent pace as agents responsible to send and receive domestic remittances outnumber banks’ branches.

“Since there is a growing penetration of mobile accounts especially in areas where there are no bank branches this can dramatically increase the foreign remittance flow from formal channels in the country,” a telecom firm’s official said on condition of anonymity. “Remittance straight transfer to mobile wallet can be a game changer.”

Pakistan is struggling to increase remittances to ease pressure on the country foreign exchange reserves. It’s one of the important sources to finance a hefty current account deficit and foreign debt servicing.

Workers’ remittances rose slightly 1.05 percent year-on-year to $4.790 billion in the first quarter of current fiscal year.

Remittances routed through illegal sources could be much larger than usually thought as many senders bypass banks and money transfer companies. It’s at least as the same size as of the formal channels. Unrecorded transfers through unofficial channels could be worth up to $20 billion, an estimate said.

Currently, Jazz, a brand of Mobilink, leads the pack in foreign remittance transactions, followed by Telenor as per the State Bank of Pakistan’s report.   Officials said growing competition, leveraging existing networks and infrastructure are also encouraging telco-driven mobile money in the country.  

They said routing of international remittances via telecom operators is a positive sign. “But, with such a large mobile phone penetration and unknown users, the whole mechanism of money transfer becomes very dangerous,” an official warned.

The World Bank said banks remain the most expensive type of remittance service provider, with an average cost of 11 percent in third quarter of 2017 as compared to 6.14 percent charged by other money transfer operators.   

“Mobile money continues to be the cheapest means of disbursing remittances although not as widely available as traditional instruments,” the Bank said in a report. The cost of sending remittances to a bank account within the same bank or to partner of the originating bank was recorded at 6.73 percent in the third quarter. In contrast, sending money to a bank account at a different bank is the most expensive option at 7.85 percent. When funds are sent to a mobile wallet, the average cost was 5.21 percent. The price for sending $5,000 to a foreign country from Pakistan is $11.6, including 16 percent federal excise duty.