Mr Mohit Davar, the former CEO of MoneyGram International / Travelex and Coinstar Money Transfer, shares his thoughts on the global remittance industry.

It is difficult to look into the future or even the current without a trip down memory lane: when I first got involved with money transfer back in 1995, the gross revenue for a transaction of US$300 to Mexico was on average US$50; this was made up of US$20 in fees and US$30 in FX earnings, which is a 10% margin!

Outrageous, I hear you say: probably right and that is why this led to class action lawsuit against the leading players and the gross revenue over the years has been driven down to approximately US$12; this is made up of US$9 in fees and US$3 in FX earnings, which is a 1% FX margin. The good old days!

In those days, Licensing, AML, KYC, etc. were not a concern; all we focused on was growing the business and we couldn’t grow fast enough. There was little competition and even less regulation. Banks were happy to open an account, receiving agents were happy to give you credit and there was no prefunding. This was certainly the case until 2001/2002.

Post 9/11 the world changed, suddenly the biggest challenge became licensing. If you were an existing player that was still ok, however, it was starting to get tough for new entrants. A number of new regulations came out and the existing players were grandfathered under those. We had to start resourcing our compliance departments and introduce new processes, particularly around compliance and KYC. Training staff and agents to adopt these new processes by no means a small task, however, we realized early on that the only way was to embrace the “new world” and implement these and work with the regulators and not fight them.

A number of things changed over the years and the Payments Services Directive (PSD) came in and changed the competitive landscape, triggering a lot more competition, particularly in Europe, and this started to drive down pricing. Exclusivity was fast eroding and the networks that had been restricted to the leading players were now available to most MTOs. There was no need to have proprietary network and a number of aggregators started emerging and MTOs started sharing their network and the competition moved to the send markets. While all of the above changes might have been challenging for the MTOs, it was good for the consumer and gave them more choice at competitive prices.

Now we are in a strange period, where the new regulators calling the shots and determining the future of MTOs are not the typical regulatory bodies but the BANKS!

It has become increasingly difficult to maintain a banking relationship and all the high street banks in the UK have by now either exited or substantially downsized their relationships with the MSB businesses. This is also true in the US and the rest of the world. While I can appreciate why the banks are “de-risking”, there is a real risk that this will drive the movement of money away from the legal to the unauthorized channels and then no one will have visibility and control.

There is a fundamental mismatch between the regulatory environment, which with the implementation of PSD is harmonizing and making it easier to passport the license into other EE jurisdictions. However, the MSBs can’t open a bank account, so it is a moot point! The PSD review needs to take account of these challenges and address these issues.

So what does the future hold?

A number of on-line and mobile remittance companies are emerging. While a number of these solutions are looking for a problem that doesn’t exist, some are getting traction. We are slowly moving away from the need to handle cash on one or both legs of the transaction. Regulatory and legal changes in parts of the world like the introduction of Wage Protection Scheme (WPS) in UAE and now in Saudi Arabia will also accelerate transition from cash to stored value. WPS has been in force in the UAE for sometime and now is being implemented across the region slowly. I see this trend continue and accelerate, it is virtually impossible to define the time period in which it starts to make a material enough impact to render cash irrelevant, perhaps not in my life time!
Technology will play an ever important role in enabling smaller MTOs to play in the industry and will also empower the bigger MTOs and allow consolidation of aggregators on the send side. Customer demand for newer products, technology and regulation are key factors that will transform the remittance landscape into a level playing field for all supply chain members. For banks in receiving markets, compliant money transfer platforms with modern technologies and ability to pay-out multiple transaction types will be in high demand.

The MTOs are very resilient and have held strong and continued to battle their way through these challenges, however, now I think we will see consolidation as they need scale and the good old adage: “Size does matter” becomes even more relevant.

I do believe that the Industry does need to raise its profile and self regulate. All the stake holders (MTOs, Regulators, Banks, etc.) need to work together, introducing measures such as third party audits, mystery shopping, increased capital requirements, enhanced due diligence requirements, etc. A few rotten apples are affecting the entire industry which really provides a much needed service to the immigrants.

The single largest factor that drives growth in this industry is the migration pattern and that remains strong and with all the political and economic events taking place, it looks like migration will continue to grow in the foreseeable future.

I remain optimistic about the future of the Money Transfer Industry. I think it is facing some headwinds that it needs to navigate through and evolve in the process and then come out strong on the other side, perhaps with fewer MTOs.

Written by

Mr Mohit Davar

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Mr Mohit Davar is an experienced payments executive, who has been working in the global remittance industry for over 17 years. He has extensive hands on experience of setting up and leading global teams and operations and managing relationships with banks/financial institutions and regulators at the senior most level. He has been involved in two start-ups in this industry, firstly in 1997 he helped form the Joint Venture between MoneyGram and Thomas Cook and took the position of CFO and then went on to become the CEO until 2003, when this was sold back to MoneyGram. This was valued in excess of US$200m at the time of the transaction. He then set up Travelex Money Transfer in 2003, which was acquired by Coinstar Inc. in May 2006 for approximately US$27m. Mohit went on to create another successful global money transfer company which was recently sold to Sigue Corporation in June 2011 for an undisclosed amount.

Mohit is now a Non-Executive Director on the Board of Earthport Plc. and WallStreet Foreign Exchange (Part of Emirates Group). He is also an advisor to a number of payment companies.

Prior to MoneyGram he worked at Thomas Cook M&A and Sedgwick, the insurance brokers.

Mohit is also the Chairman of the Advisory Committee of the International Association of Money Transfer Networks. He is also a member of the Institute of Chartered Accountants in England & Wales

Contact
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Skype: mohit.davar
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