Mobile Remittances: choosing the right business model

The remittance flows to the developing countries were in excess of 325 billion dollars in 2010, according to the World Bank. Naturally, the financial, telecom and technology companies would want to have a shot at this lucrative market, and it appears that in some regions they are!
In its latest landscape study on international remittances via mobile money, CGAP - a research and policy centre at the World Bank - found out that mobile remittances have shown a constrained growth in last two years as six of 17 planned deployments identified in 2010 had gone live by February 2012, including Telenors Easypaisa. Mobilinks Waseela, a stalled deployment, is expected to go live in 12-18 months.
The focus of this study is the mobile cash-out model which is primarily concerned with remittances landing on recipients mobile account (or mWallet), regardless of the channel used by the remittee. It must be noted that in a typical MR transaction, various participants are involved, e.g. agents, money transfer organisations, foreign exchange and settlement companies, mobile network operators, etc.
CGAPs analysis of the mobile cash-out model suggests that MR deployments are feasible only in the presence of a mobile money ecosystem. For the mWallet user, not being able to save or spend the remitted funds on mobile money transactions would be like buying tokens for a game one never gets to play. The recipient must be able to pay bills, buy airtime, transfer funds or simply cash out the money.
The CGAP study highlights that though mWallet cash-out deployments have doubled (17) in last 16 months, significant challenges still persist. Operationally, it is difficult for mobile money operators to establish partnerships with various entities in many sender countries. Strategically, it requires more time and resources to market their services and establish connection with the senders in high-income countries.
Perhaps the most noteworthy finding of the study pertains to business models which every branchless banking service provider would think hard about before foraying into foreign remittances segment. First is the differentiated model, in which an operator establishes a new corridor for every new sending country, and partners with various and many companies for operational and commercial activities.
Then there is the mobile hub model, wherein an operator collaborates with a specialised company that deals with all the intermediate processes (FX handling, settlement & processing). The hub can help the operator gain access to other countries where its operating. The third model is about a partnership between the operator and a major traditional remittance provider, like Western Union or MoneyGram.
Each model has their pros and cons. The differentiated model allows for more flexibility and pricing leverage, but is too complex to manage. Moreover, working with a smaller money transfer company leads to low brand recognition and limits further expansion. The mobile hub model is no less flexible, but cannot market and push the MR transactions for the operator in the recipient country.
Working with a big organisation like Western Union - which has over 450,000 agent locations in over 200 countries and processes all the transactions in-house - allows the operators rapid global reach along with extensive brand recognition, noted CGAP. However, the WUs significant market power reduces ways in which an operator can price, market, and expand its MR services. Besides, WU has its own turf to protect!
It turns out there will remain a trade-off between flexibility and outreach for the operators. As much as it is about pricing and marketing the service right, it is equally important to create a vibrant domestic mobile money ecosystem, so that a certain degree of utility and functionality gets associated with this channel.