How tighter bank rules are driving new cash technologies

Money transfer has been a big business in recent years, with the remittance industry reporting more than $436 billion in remittances in 2014 alone. Still, banks have been tightening up their rules for money transfers, making it harder and harder for small businesses to maintain their remittance business. Many are looking for technology solutions to get around those hurdles.

A remittance is, in the simplest terms, a money transfer from an individual in one country to an individual in another. Much of the growth of the remittance industry is being driven by people working abroad and sending money back to family and friends at home.

This industry is coming on to hard times as banks are growing more and more concerned about fraud and money laundering. Many banks have tightened their rules and security precautions; some are even flat out denying certain remittances, or closing accounts that initiate too many remittances.

That last category often includes small businesses that offer remittance services to the local population, particular if that population is “under-banked.” Even those businesses that do not face account closure are seeing tighter requirements: state licenses, hours of compliance training, and binders full of procedures and regulations to follow.

The issue is that these businesses—often convenience stores, small shops, and the like—need an account into which they can deposit the cash from a remittance. But because it is nearly impossible for banks to know the identity of the final end-customer, remittance transactions are being categorized as a high risk for money laundering and denied banking services.

Technology to the rescue for remittance?

The remittance industry is slowly changing so as to overcome these limitations. In particular, mobile app developers and fintech companies are providing alternatives to traditional remittance models by offering more convenient and cheaper methods of sending remittances via mobile phones, part of the larger trend toward mobile money.

International remittance using mobile money is proving to be full of opportunity:

  • For customers who need to send money, mobile money provides a highly convenient, safe way to do so without the need to visit a physical location.
  • Financial institutions are much more open to mobile money due to its security features. Sending and receiving remittances via mobile cash minimizes cash-handling risks and introduces a number of highly effective security features.
  • Mobile money represents a huge market opportunity for financial institutions and payment partners that want to add to their services portfolio and reach many under-banked individuals.

In short, mobile technology eliminates the forms, codes, agents, extra time, and fees tied to the traditional money transfer process, making it much more appealing.

An important part of the “rise of mobile money” will be finding ways to integrate various services into one user interface. As the industry stands, some apps might handle mobile payments, but not ATM withdrawals from a physical machine. Or they might facilitate remittances without being able to handle POS transactions. Increasingly, though, both app providers and financial institutions are looking to “stay in front of the customer” by offering a single app that taps into a number of these features.

And what about the small businesses that traditionally served up remittances? They are retooling. Some chains, like 7-Eleven and Wawa, are offering their own apps for customers that want these services. Others are investing more heavily in ATMs and ATM services—with “mobile cash” capability.

Such business moves show that mobile money is more than a trend: It is rapidly becoming a mainstay of financial transactions for people of all income levels. Security and integration of apps will be the focus of the coming wave of technology, with early adopters capturing a large market share.