An interview with Mr Munir Khan, Compliance Director with Pro Legal Consulting, our RemitONE Consulting partner, answers questions on the evolving markets in the global remittance industry.

Our roving reporter, Saiful Alom, caught up with Compliance Director Munir Ahmed Khan of Pro Legal Consulting to get the low down on the current state of the rapidly evolving global remittance industry.

Pro Legal Consulting, our RemitONE Consulting partner, is a leading UK based compliance and management consultancy. Through their key experience in the financial industry, they offer made to measure services for new and existing banks and money transfer operators (MTOs) and support international firms who wish to trade within the UK.

We would like to thank Munir for taking the time out of his busy schedule to provide us with his expert opinion.

Below is a transcript of the interview:

Saiful: Getting a remittance bank account these days has become a monumental challenge in our industry. How can we address this?

Munir: A bank account is imperative to a business that remits funds for its customers. Whilst some banks have completely withdrawn bank accounts for the remittance market, certain banks still remain.

A firm must understand why a bank may be concerned about offering services to MTOs and then aim to address those concerns through careful preparation leading up to making initial contact.

There are three areas which we believe to be high on the agenda for any bank:

1. History – track record of the business and the management behind the business
2. Infrastructure – for example: security of IT systems, records management and adherence to regulation and compliance
3. Turnover – is the MTO conducting enough business to warrant the bank opening them an account and entering into a relationship with them?

Saiful: What is the current state of the remittance market in the UK/EU?

Munir: The remittance market in UK/EU is a thriving one, given the number of migrant workers who have come, and still continue to come and earn funds for their families back in their home countries.

The authorities appreciate the service that MTOs offer such migrant workers but also are concerned that without proper control, MTOs may also be used by criminal elements. This is why MTOs need to ensure that they operate a rigorous compliance model and monitor all aspects of their payment business.

Saiful: Where do you see the opportunities for start-ups and existing MTOs?

Munir: Technology, without doubt, is becoming increasingly popular in the remittance market as users and target customers become more accustomed to tablets, smartphones and ‘phablets’. Firms should reflect on how accessible their services are and what degree of convenience they offer their customers.

Start-ups have an easier task of carefully analysing the services offered by their would-be competitors, identifying weaknesses and filling in those gaps – thereby creating a USP bespoke to them.

Saiful: What is the timeline for a start-up business to go live?

Munir: There are two key stages before going ‘live’:

1. Preparation – this includes understanding their target market, speaking with professionals, calculating costs, and drawing up their business plan and creating the compliance infrastructure
2. Getting licensed – once submitting an application to a regulator, whether in the UK or EU, a firm must be prepared to be tested in all aspects of their proposed business. Typically, this can range from 2 – 12 months (at the extreme)

Past examples have shown that the average timescale from initiation to completion is about 5 months.

Saiful: The future of remittance – will technology play a crucial role or will it stabilise quickly?

Munir: Investing in better technology does make sense due to the increasing pressures on MTOs to become more ‘compliant’ and stringent in their operations.

By operating a strong IT platform, firms safeguard themselves from human error – something that can work out to be very costly if not managed properly.

Technology has to be adaptive, robust, secure and, most importantly, compliant. It should be able to scale and be flexible enough to operate in a modular fashion. As our industry is a rapidly evolving one, there is a lot of room for standardisation, which makes the role of technology ever more crucial. Businesses that can quickly learn to harness the latest technologies will be able to survive in this space.

Staffing and manpower costs come at a high price whereas technology is much cheaper by comparison.

Saiful: Multi-channel, is this the future?

Munir: Most definitely. A successful money transfer business is one that rapidly adapts to the market’s changing needs. In large sending markets, banks are clamping down hard on cash based businesses. This is forcing established MTOs to start going ‘digital’. By providing online and mobile channels to their customer base, MTOs are realising the impressive cost saving potential inherent in a branchless setup where there are no brick and mortar costs. Having multiple channels to reach out to customers ensures that if one channel is affected, the other one can help positively sustain the business. It is simple maths!

Saiful: Do you think the time is up for cash?

Munir: I don’t think cash will completely go away. It is however slowly being phased out in send markets with the arrival of services such as Ping-it and cashless technologies making card and mobile services much easier for consumers. For many consumers, cash is still king and hence providers need to judge carefully what their customers’ expectations are and work accordingly.

In developing markets such as East Africa and Southeast Asia, cash will continue to dominate and this means that the agent model is here to stay for a long time.

Saiful: E-Money – Is it easy?

Munir: Yes and no – as this purely depends on the type of E-Money license that is required by the business. It is advised for firms to speak with their regulatory consultant on this matter and determine if gaining an E-Money license will be beneficial for them.

Saiful: What are the differences between E-Money, API, SPI and HMRC licenses?

Munir: E-Money is the digital equivalent of cash, stored on an electronic device or remotely at a server. Users store relatively small amounts of money on a smart card to use for small payments. The E-money can then be stored on and used via instruments like mobile phones or internet-based payment accounts.

There are a few licenses available for E-money ‘issuers’ and these depend on the volumes of ‘E-money’ that the issuer intends to hold.

API (Authorised Payment Institution) firms are businesses that will or have exceeded a turnover of €36m per annum or €3m per month respectively.

They must also demonstrate that they have a minimum shareholding capital of € 20,000. API firms can take advantage of offering cross border services in other EU states (subject to approval) and this is referred to as ‘passporting’. API firms must also demonstrate how they will safeguard clients’ funds via segregated bank accounts and provide evidence of their Bank accounts before they are given the license.

SPI firms are able to turnover up to € 3m per month maximum and do not need to invest in large shareholding capital thereby making it much less costly (and hence most popular amongst start-ups). An SPI is not permitted to offer any cross border services. These firms do not have to demonstrate evidence of their bank account but should advise the regulators how they will safeguard clients funds if they plan to, otherwise SPIs do not have to offer safeguarding (unlike APIs).

PSD refers to a Payment Service Distributor. You will see lots of PSDs in the form of newsagents and supermarkets that work as agents for big firms like Western Union. If an MTO plans to run an agent network, it must gain approval from the regulator and ensure that each of its agents is registered with the HMRC by completing the MLR 100 form.

Saiful: We at RemitONE have witnessed a sharp rise in the number of enquiries from start-up and established businesses, despite the tough regulatory conditions in send markets. Can you comment?

Munir: I am not surprised at all. I think the enquiries will continue to increase. The remittance industry is one of the biggest industries in the world. Nobody knows the actual size of the industry. It could be anywhere from $500 billion to $1 trillion dollars annually. There is plenty of room to play. New entrants with innovative models making use of sophisticated technologies should continue to prop up across the globe. Players from other verticals are also eyeing the remittance industry very closely. Telcos, mobile network operators, mobile virtual network operators and others see remittance as a value added service they can offer to their customer base. This industry will continue to evolve at an accelerated pace.