The National - How technology transformed the way we sent money home in 2021

The UAE remittance industry's pace of digitisation continued to accelerate in 2021 as customers increasingly opted for the convenience of mobile apps and exchange houses partnered with FinTechs in a drive to capture new demographics and scale up their business offerings.

“Even traditional players like exchange houses have digital remittance options now. Banks have also started participating in the remittance space very actively in a sector previously left to exchange houses,” says Padmini Gupta, co-founder and chief executive of UAE FinTech platform Rise.

There are several banks now that offer zero-fee or low-fee remittance options to their customers and this has increased the competitive dynamic in the space,” she says.

Remittances to poor and middle-income countries are projected to have grown 7.3 per cent to $589 billion in 2021, the World Bank said in November.

In GCC countries, the recovery of outward remittances was also boosted by stronger oil prices and the resulting pickup in economic activity, the Washington-based lender said at the time. Remittances flows increased by 9.7 per cent in Mena region.

Remittances are projected to continue to grow by 2.6 per cent in 2022, according to the World Bank. A resurgence of Covid-19 cases and reimposition of mobility restrictions poses the biggest downside risk to the outlook for remittance flows to developing countries.

The rollback of fiscal stimulus and employment-support programmes as economies recover may also dampen remittance flows, the multilateral lender said.

Meanwhile, outward personal remittances from the UAE increased 8.7 per cent, or Dh3.6bn a year, in the second quarter of 2021, according to the UAE Central Bank. Outward remittances through banks rose by Dh6.1bn while transfers through exchange houses dropped by Dh2.5bn.

The top five countries for outward personal remittances from the UAE during the second quarter of 2021 were India, Pakistan, the US, the Philippines and Egypt, according to the Central Bank.

Outward personal remittances rose on an annual basis to all five major countries, the regulator says.

“The UAE’s remittance sector improved in 2021 due to events such as Expo 2020 Dubai and the government’s regulatory changes, including the Golden Visa and new foreign direct investments, among other initiatives,” according to Hasan Al-Fardan, chief executive of Al Fardan Exchange.

“The year 2021 has also seen favourable currency fluctuations in South Asian countries, which, in turn, led to foreigners in the UAE sending more money back home.”

However, there has been a “visible tendency” among people to hold on to money and wait for better rates to send money home, says Adeeb Ahamed, managing director of LuLu Financial Holdings.

“We also witnessed rate fluctuations in some of our major corridors, which serve 80 per cent of our consumer base,” he says.

Meanwhile, Expo 2020, the country’s visa reforms and efficient handling of the pandemic are cumulatively acting as a stimulus for employment generation, which is positive for the remittance industry, experts say.

“We have seen lot of new customer registrations from the second half of 2021, which has increased the overall volume of remittances,” says Rajiv Raipancholia, chief executive of Orient Exchange.

“The government is announcing a lot of new initiatives to stimulate the economy, which is positively [affecting] the job market, thus leading to increasing number of remittances. There is also a rebound in tourism. All this is very good for the economy and for the remittance industry.”

Although many remittance providers reported exponential growth in money transfers through mobile apps, an overwhelming majority of money flows remitted from the UAE are still sent from physical branches.

At Al Fardan Exchange, for instance, digital transactions account for 10 per cent of all remittances while physical branches contribute 90 per cent to the mix.

The LuLu Money app recorded an annual growth rate of 48 per cent in 2021 and it accounted for a double-digit volume of total remittances, says Mr Ahamed.

Mr Raipancholia says there is still growth in the "brick-and-mortar model for remittances but at the same time, we see fast-paced growth in technologies such as mobile apps for remittances".

"We believe that growth in the brick-and-mortar model will continue till 2023 and only digital will continue to have substantial growth going ahead,” he says.

Another major trend this year was money exchange providers increasingly tying up with FinTechs to cater to new customers.

“It is important to understand what a FinTech brings to the table when a traditional exchange house wants to do a partnership – it is mainly reach and a seamless UX/UI [user experience/user interface] model,” says Ms Gupta from Rise.

“There has been an explosion of FinTechs in the region with several different value propositions to the end-user – across savings, loans, wallets and transfers – and each of these groups can benefit from a remittance solution as the country has a majority of migrants,” she says.

FinTechs solve a very niche consumer pain point, according to Mr Ahamed. Legacy institutions, whether banks or other financial services companies such as exchange houses, have built their businesses on solid foundations.

However, the quality of services needs to be on par with global standards to expand and capture more consumers at a faster pace, he says.

“Instead of overhauling entire systems, modern FinTech propositions allow such traditional companies to scale up much faster through a plug-and-play API-driven model,” Mr Ahamed says.

“Also, the financial services sector is too vast to be serviced by any single player and in a digitally powered environment, collaboration with technology-driven solution providers in the ecosystem is necessary and, perhaps, the key to building meaningful value-driven solutions for consumers and other stakeholders.”

Al Fardan Exchange entered into a number of FinTech partnerships in 2021 and “has many more exciting partnerships in the pipeline in 2022”.

“We will continue to tie up with FinTechs that offer inroads into brand new customer segments as we see our global processing and clearing capabilities allied with digital technologies, which will ... lead to financial inclusion. We see this trend continuing as the UAE is positioning itself as a FinTech hub in the region,” says Mr Al-Fardan.

Meanwhile, in a sign of technology companies’ interest in the multibillion-dollar global remittance market, Meta-owned Facebook announced in October that it is piloting a fee-free money transfer service through its Novi digital wallet that allows users in the US and Guatemala to send money to each other.

Although the Facebook platform does not pose any imminent threat to the global remittance network as its pilot is primarily focused on the US, if the project turns out to be a success, the company is expected to apply for remittance-based regulatory approvals for other countries, says Arun John, chief market analyst at Dubai-based Century Financial.

In May this year, mobile wallet platform Google Pay tied up with money transfer companies Wise and Western Union to allow its US-based users to remit money to India and Singapore.

Meanwhile, all leading remittance providers in the UAE and FinTechs have a positive outlook for 2022.

“We are expecting double-digit growth within our retail and corporate segments,” says Mr Al-Fardan.

The UAE government and the Central Bank have stepped up the enforcement of compliance, which will benefit the industry and the wider economy in the long run.

This means that only highly compliant and competitive players will be able to operate in this environment, he says.

“We think 2022 will be shaped by not just local players, but also global players making disruptive moves,” says Ms Gupta. “For example, WhatsApp using Stable Coins to facilitate in-app money transfers. Once they have built the rails to do this, they can technically launch it anywhere and that can be a massive disrupter to the entire money movement space.”

The UAE will also see the emergence of a very different type of remittance customer, Ms Gupta adds.

The Emirates traditionally has had a large number of low-income migrants using remittance services, but as the country attracts more global technology talent and issues visas allowing people to work for companies in other countries, the country will attract a relatively high-income individual who needs to be paid from outside as well as send money outside, Ms Gupta says.

“This will shape a new class of players in the market – going beyond the competitive dynamic of pricing and focus on convenience as well as user experience.”