The Gulf is the world’s biggest source of outbound remittances worldwide and fintech startups are vying to disrupt the ultra-competitive sector, but regulatory hurdles and scaling difficulties will make it tough for unorthodox providers to succeed in the region.

Britain’s TransferWise, founded in 2011, is now valued at around $4 billion and transfers about £3 billion a month cross-border, completing remittances faster and at significantly lower cost than conventional banks. But following a similar model in the Gulf is tricky, as Dubai-based NOW Money can testify.

Regulatory hurdles have delayed the company’s roll-out since it launched its services in April 2019. Its app operates as a marketplace for exchange houses. Customers who otherwise would have to visit various exchanges in search of the lowest fees, can find the best deals through the app and then make money transfers within the platform. Crucially, though, the transfers are conducted by the participating exchanges, not NOW Money itself.

“In this region, we wouldn’t be granted an exchange licence, so we’ve turned that into a [unique selling point] USP by using our independence to build the marketplace and share revenue with the exchange houses that we work with,” says Ian Dillon, co-founder of NOW Money. “We can often offer better rates than you’d normally get because we do remittances in bulk and pass on those savings to the customer.”

Around four to six exchange houses will be part of the marketplace by the end of 2019, Dillon predicts, while the company aims to have up to 100,000 customers on its platform within the next two years, also expanding its services to other GCC countries. 

“We’re not really in competition with traditional providers, because if you want to send money cross-border from the UAE you have to do it via a bank or exchange house – it’s different to the West, where new entrants into the market can send the money themselves,” says Dillon. “If you’re a new player here, you have to partner with an existing company. We’re partners, rather than true competition, although those banks and exchange houses which don’t embrace the new ways of working will be left behind.”

NOW Money’s target market is low-income migrant workers in the GCC who would otherwise remain outside the financial system, with its app soon to be available in multiple languages including Arabic, Urdu, Hindi and Tagalog. Customers receive a debit card and can also pay bills and top-up mobile phone credit via the app. 

“We’re bringing these workers into the financial system, giving them a proper account so they can shop online, find better deals, build a credit history,”says Dillon. “We’re focusing on our core offering at the moment, but are also looking at expanding into providing credit, insurance over the next year or two.”

UAE residents must usually earn at least Dh5000 a month to be able to open a local bank account, excluding hundreds of thousands of workers from the banking system. Instead, these workers typically receive their salaries via a pre-paid card that allows a single cash withdrawal free-of-charge per month. Rather than woo workers directly, Now Money is targeting employers, with around five signed up already, covering about 5000 workers. 

Despite the operational obstacles, the potential for companies such as NOW Money is vast - the United Arab Emirates is the second-biggest source of outward remittances worldwide, according to the latest World Bank data. This shows that UAE residents sent $44.37 billion abroad in 2017, eclipsed only by the United States’ $67.96 billion.

Saudi Arabia’s $36.12 billion of outbound remittances placed the kingdom third, while Kuwait ($13.76 billion), Qatar ($12.76 billion) and Oman ($9.82 billion) were also all in top 15.

Such huge volumes have made for intense competition, with Saudi and the UAE among the cheapest markets to send money from worldwide, according to the World Bank. Fees for sending Dh735 from the UAE to India varies from 2.4 - 3.2 per cent, for example. That compares with a global average of 6.9 per cent.

“The Middle East market is very commoditised,” says Grant Lines, chief revenue officer at MoneyGram International, which operates in more than 200 territories and serves 22,000 “corridor” pairs such as UAE to India. “It’s very competitive. Pricing is low compared to other regions globally, but there are a lot more outbound corridors than you would expect due to investment across the region and a large migrant and expat workforce. It’s very competitive in terms of pricing in the core corridors.”

Traditional, brick-and-mortar remittance companies used to only provide remittances to customers who visited their outlets in person, but these firms are responding to the fintech threat by increasingly offering digital services via partnerships with the likes of MoneyGram.

“Regulators are increasingly encouraging fintech,” says Lines. “Fintech providers could offer – either directly or through MoneyGram – a very competitive service. They tend to focus on a limited number of corridors and if they want to expand to more markets, they need a partner like MoneyGram that has an existing pay-out network.”

The latter point is especially important, with regulators in many destination markets insisting on the receiving agent being pre-funded for the amount being transferred before any money is paid out. A further challenge is ingrained consumer preferences.

“Fintech, while providing choice and convenience, won’t necessarily change the behaviour of how and when people remit money,” says Lines. 

Dubai-headquartered start-up MenaPay is taking a different approach to disrupting the remittance sector, with the company aiming to replace cash with its Sharia-compliant, blockchain-based digital currency MenaCash.

Customers can top up their MenaPay wallets through wire transfer or via top-up points at participating venues such as convenience stores, money exchanges and internet cafes, with 1 MenaCash worth $1.

Once MenaCash has been added to a person’s wallet, they can transfer the money to another MenaPay account holder in less than 10 seconds. There is no limit on how much MenaCash can be transferred from one user to another.

Crucially, though, individual customers cannot then convert MenaCash into fiat currencies, while merchants will be charged 7 per cent to do so; MenaPay aims to make MenaCash a widely-accepted digital currency so that users will not need nor want to cash out. It has already partnered with a Turkish company that has 50,000 top-up points within the country.

“We want to be as global as Visa or Mastercard, but of course it’s going to take time and we’re trying to collaborate with intermediaries and ecommerce websites – we want merchants to accept MenaPay as a payment solution,” says Sera Akinci, MenaPay brand manager.

For outbound remittances, MenaPay is focusing on the Gulf, says Akinci. 

“We’re concentrating on a few big deals and after that we’ll soon be pushing India, Pakistan and some other Asian countries in terms of making deals with top-up places to be our resellers,” she adds.