There are about a billion migrant workers around the world who send money to their families in remittances. This source of income is vital to the economies of low to medium income countries and for the GCC, the world’s largest source of outbound remittances, it is an equally important segment of the financial market.  

During the lockdown periods in the GCC, banks and most exchange houses remained open, but getting to them was another matter. This pushed demand for online remittances and exchange houses worked to make their services available online. Burdened by legacy, they struggled to make a seamless transition to the digital world and in their place, financial technology (fintech) companies offering peer-to-peer (P2P) money transfers began to thrive.

One startup that saw substantial rise in usage is Denarii Cash, a mobile money transfer app for expatriates in the UAE, which saw growth of 535 per cent in downloads of its application and expanded its services to 11 countries during the lockdown including to the Philippines, India, Pakistan and Egypt. Demand was so high for its service, that it claims to have waitlisted 1.1 million users, compared to just 57,000 active users prior to the coronavirus.

The rise in activity was similar for UAE-based NOW Money, a digital payroll and accounts solution for migrant labourers which offers remittances on its platform.

“Engagement has gone up among all our products, everything has doubled or tripled for those who have been paid,” says Katharine Budd, co-founder of NOW Money.

During the height of the lockdown, money transfers and remittances grew across the world, fuelled primarily by job losses as workers prepared to leave and sent their severance packages back. This spike has slowed and is expected to decline by 20 per cent this year to $445 billion globally according to the World Bank, the sharpest decline in modern history as a result of rising unemployment and salary reductions.

Nevertheless, the pandemic has so far been a boon for fintechs in the P2P payments and remittances space. Of the 38 investment deals in fintech startups based in the Middle East and North Africa (Mena) so far this year, seven of these have been P2P payment platforms and eight in the payments segment. These include Mamopay and rise in the UAE and Flick in Egypt, which is targeting the GCC-Egypt corridor which was valued at $18.8 billion in 2019.

Financial Inclusion and Purpose

The move to digital in remittances has increased the need for financial inclusion in the GCC. Most banks require a minimum salary of Dh5000 a month in order to be eligible to open a bank account. This, for many migrant workers is impossible, especially since most send back up to 80 per cent of their salaries back to their home country.

Fintechs like NOW Money and rise offer a solution for this segment of the market.

“There are people who don’t get access to traditional bank accounts, that doesn’t mean they shouldn’t get the same opportunities,” says Budd. “We’re giving customers the convenience and price they deserve. Nobody wants to take a bus or a long walk to go to an exchange house, they want their money to be in the financial system so they can send it to their family.”

The digitisation of the outbound and inbound aspect of remittances is leading to purpose-driven remittances. Usually, money is sent in a lump sum and received in cash by the recipient who controls how it is spent. Digital wallets that enable senders to allocate a budget for specific purposes like paying the water or electricity bill is gaining popularity.

According to data from Rise, 93 per cent of people who send remittances have no control over how the money is spent, which has led to tensions between senders and spenders in up to 75 per cent of the cases. The company recently launched a new service, Xare, a mobile app that enables people to share their accounts and credit cards with friends and family while maintaining control over how the money is used.

“We started about three and a half years ago, we launched for a very simple purpose: give migrants the ability to control how their money is spent-cross border,” says Milind Singh, co-founder of rise. “We have a platform where the migrant and their family can spend from one common financial entity, it moves access instead of moving money.”

But not everyone views these fintech startups so favourably.

“The labour force here still believe in hard currency, they want to see the money being paid to them. It’s going to be an education, it will take time and it is already too competitive a market, this is the cheapest place in the world to send money,” says Zahir Moghal, CEO of UAE-based Delma Exchange. “These fintech companies are coming, but the model is very different.”

Most exchange houses have prefunded accounts around the world “so when someone comes into my shop and gives us Dh1000 and wants rupees in India, we already have that money in the federal bank in India” says Moghal.

“You would have to be very cautious to deal with an outside fintech company, because companies like myself and the other UAE exchanges are licensed and regulated by the Central Bank,” he says. “Fintechs here are not licensed, why would you want to deal with a fintech company, they don’t have a penny in the bank.”

While exchange houses attempt to transition to the digital world and fintech companies try to navigate the regulatory market, there is one company that is leveraging its infrastructure to become the region’s biggest remittance player.

Careem, the mobility unicorn which recently launched its super app strategy, entered the fintech space when it released its closed loop P2P wallet in 2018, enabling its users to transfer credit to other users of the app. Its mobile wallet is the most downloaded digital wallet in Mena and while it does not have the necessary licences to become an open wallet, whereby users can cash out their payments, it is possible to purchase a variety of goods and services on its platform. Careem is currently partnering with other service providers to join its super app, so users can pay for them using the Careem wallet. If the company does manage to get the regulatory approval to become an open wallet, it will become the biggest remittance startup in Mena.

For Careem, and othercompanies looking to bolster their presence and offer more services, it is a way of attaining greater sustainability and longevity of their platform. 

“They’re trying to create these financial super apps and mobile payments is their route to doing that, it’s a very well-trodden path and it centres on capturing the market,” says Rupert Shaw, chief commerical officer at Ding, a mobile top-up company based in Ireland. “The idea of selling multiple products to the same customer is you have them in your ecosystem now and offering them as many reasons not to leave.

“We’re seeing a lot of companies adding remittances and top up to their offering. Companies are trying to put diverse services on their apps to support their customer’s other daily needs. Remittances will be something that big retail companies will be looking at very soon,” says Shaw.

Wamda has invested in NOW Money