Remittance Project

Discussing the business opportunity, competition and strategies for operation

01st Aug 2013

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Agenda

Total Business Opportunity - Global Market- Regional Market- Local Market

Why should ADCB look into the business?

A Look at the Competition

How can ADCB do it?

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• More than 215 million people (3% of the world’s population) live outside their countries of birth, and over 700 million migrate within their countries.

• Migrants today would constitute the fifth most populous country in the world.

• Global remittance flows, including those to high-income countries, are estimated to total $514 billion in 2012, an increase of 10.8% since 2011.

• Global remittance flows to developing nations are estimated to total $401 billion in 2012, an increase of 7.7% over the $372 billion in 2011.

• Demographic forces, globalization, and climate change are expected to increase migration pressures both within and across borders in the coming years.

• Worldwide remittance flows, including those to high-income countries, are expected to reach $550 billion by 2013 and $615 billion by 2014.

• Remittance flows to developing countries are expected to grow at 7-8 percent annually to reach $467 billion by 2014.

Source: World Bank’s Migration and Development Brief 18.

Remittance: The Global Market

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Remittance: The Global Market

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2009 2010 2011 2012 2013 2014 20150

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500

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Global Remittance flow (in $billion)

Data calculated using World Bank Data and a projected 7-8% growth rate in 2012-2014 and estimated global remittance flow of $608 billion in 2014.

• One of the reasons for the high growth rate over the last few years is the increase in migration of portions of the native population of many countries to other countries.

• On the international stage, countries have realized the importance of remittances for the population and the economy of the country and have taken steps to monitor remittance prices worldwide.

• In 2008, the G8 planned to monitor prices and take steps to control them whenever necessary.

• On April 19th 2013, The World Bank announced the establishment of the Global Knowledge Partnership on Migration and Development (KNOMAD), envisioned to become a global hub of knowledge and policy expertise on migration issues.

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Remittance: The Global Market

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Top 10 Remittance Receiving Countries (2012)

Rank Country Remittance (in $ billions)

Migrants per 1000 of the population

1. India 69 -0.05

2. China 60 -0.33

3. Philippines 24 -1.27

4. Mexico 23 -3.11

5. Egypt 21 -0.20

6. Nigeria 21 -0.22

7. Pakistan 14 -2.00

8. Bangladesh

14 -1.04

9. Vietnam 10 -0.34

10. Lebanon 7 -12.08

• Net migration rate is the difference between the number of persons entering and leaving a country during the year per 1,000 persons.

• A positive migration rate indicates net immigration whereas a negative migration rate indicates a net emigration.

• If a country is involved in net immigration, it means it holds a high number of immigrants who will transfer money from the country of current residence to their home country.

• If a country is involved in net emigration, it means that it will send out a large portion of the native population and will therefore receive large amounts of money in remittance.

• Therefore, countries with a negative net immigration rate, or those countries involved in net emigration stand to receive large amounts of money in remittance.

Source: World Bank Data Report on Migration and Remittances 2012

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Remittance: The Global Market - A quick look at the UAE

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• The United Arab Emirates has a net migration rate of 16.82, which makes it the 3rd highest net immigrator in the world. Expatriates constitute 70% of the population.

Top Immigration Countries, 2010number of immigrants, millions

Top Immigration Countries, 2010percentage of population

Source: World Bank’s Migration and Remittances Factbook, 2011

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Remittance: The Regional Market

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Remittance outflow from MENA regionIn $ billions

2009 2010 2011 2012 2013 2014 2015

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Remittance outflow (in $billion)

Growth Rate (%)

Remittance outflow from GCC regionIn $ billions

Saudi Arabia

UAE Kuwait Qatar Oman Bahrain Total0

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• $83 billion was the amount of money remitted by expatriates in GCC countries in 2012.

• The GCC region accounted for 15% of the total remittance flow in 2011.• The Gulf – South Asia corridor is considered to be the second largest market for

remittance flows after USA – Latin America.

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Remittance: Outflow of the Local Market

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2009 2010 2011 2012 2013 2014 20150

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UAE Remittance Outflow

UAE Remittance Outflow (in $billion)Growth Rate (%)

The remittance outflow for the years 2013 to 2015 have been estimated using the forecasted growth rate for the MENA region.

The main reasons for the robust remittance outflow are-

• Immigration: According to the World Bank, the UAE ranks 14th on its list of “Top Immigration Countries” as per 2010, with 3.3 million immigrants. The UAE also ranks 3rd on the World Bank’s list of “Top Immigration Countries – in terms of population”, with 70%.

• Labour Force:The large foreign workforce, coupled with the fact that the UAE is one of the fastest growing tourist destinations, with a 10 million annual tourist flow has helped contribute to remittance flows.

• PricesAccording to the World Bank, sending remittances from the UAE to Pakistan (an average 4.92 percent of the money transferred) is the cheapest corridor in the world, while the UAE to Sri Lanka (6.35 percent) is the fifth cheapest. To send US$200 from the UAE to India – where a significant chunk of the nation’s earnings are sent – costs an average 5.02 percent, while it can be as cheap as 2-3 percent depending on the bank used.

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Agenda

Total Business Opportunity

Why should ADCB look into the business?- Revenue Analysis

A look at the competition

How can ADCB do it?

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Remittance – Why should ADCB look into the business?

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Revenue Analysis

Top-Down Approach

Using World Bank Remittance Data

Bottom-Up Approach

Using data obtained from conducting exchange house

surveys

• For fair comparison, only data from the top exchange houses and the above analyzed corridors is used. Banks are excluded for the same reason and weighted average of different prices across different modes of remittance (cash to cash, cash to account) is taken.

• Ticket sizes of $500 are used as base values for calculation.

• Total UAE remittance outflow is estimated at $20 billion.

• Market research shows that 60% of remittance flows are routed through exchange houses, which amounts to a $12 billion flow.

• For the bottom up approach, estimates were calculated using data obtained from UAE Exchange, which is the world’s largest exchange house.

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Remittance – Revenue Analysis

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Top-Down ApproachCorridor Fees Margin Total Cost

%Total Cost

(in $)

India 4.09 1.594 2.406 12.062

Nepal 4.71 0.304 1.254 6.274

Pakistan 3.374 0.92 1.6 8.0.18

Philippines 5.952 0.72 1.864 9.552

Sri Lanka 4.996 1.01 2.008 10.042

Weighted average of total cost: $9.1896 (for transaction of $500)Therefore transaction of USD 12 billion gives a revenue of $231,120,000 – controlled by exchange housesTherefore, transaction of USD 20 billion gives a revenue of $367,200,000 – total revenue poolTherefore, remainder i.e. $136,080,000 – controlled by banks and hawalas

Bottom-Up ApproachAverage cost by transaction of AED 1000/- is AED 17.69

The revenue made by UAE Exchange on a flow of $6 billion amounts to $106,171,001.

Then on a remittance flow of $12 billion, the exchange house market makes $212,342,000 which is the total revenue controlled by exchange houses.Then on a remittance outflow of $20 billion, the entire remittance market makes $353,903,333 which is the total revenue.Banks and Hawalas capture the remainder which amounts to $141,561,333 which is the total revenue opportunity.

According to analysis, total revenue pool estimated between $353,903,333 and $367,200,000

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Agenda

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Total Business Opportunity

Why should ADCB look into the business?

A look at the competition

How can ADCB do it?

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Distribution of Licensed Money Changers (End 2011)

Remittance - Competitive Landscape

Emirate/City Head Offices

Branches

Abu Dhabi 24 146Dubai 78 292Sharjah 9 94Ajman 2 23Umm Al Quwain

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Ras Al Khaimah 0 15Fujairah 1 14Al Ain 5 38Grand Total 119 628

Exchange House

No. of Branches

UAE Exchange 118

Al Ansari Exchange

110

Al Fardan Exchange

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Major Exchange Houses in UAE

The number of moneychangers operating in the UAE reached 119 with 628 branches, compared to 114 main offices and 562 branches at the end of 2010.

Typical Product Suite

Source: Central Bank of UAE Annual Report 2011, Websites of Exchange Houses

• Remittances

• Currency Exchange

• WPS Salary Distribution

Allied Services

• NRI Account Opening

• Mobile Top-up

• NOL Card Recharge

• Airline payments

• Bill Payments

• National Bonds

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Agenda

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Total Business Opportunity

Why should ADCB look into the business?

A look at the competition

How can ADCB do it?- Understanding and identifying the target audience- Identifying the two approaches - Things to keep in mind

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Remittances – The Target Audience

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AudienceBlue Collar • Income < AED 5000/-• Estimated population : between 2.45 and 3.02 million • Value price and convenience more than anything else.

White Collar• Income > AED 5000/-• Estimated population : between 5.18 and 5.75 million• Value speed and convenience more than anything else.

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Competitive Variables

Source: MasterCard Research, Team Analysis

COMPETITIVE VARIABLESMTOs /

EXCHANGE HOUSE

HAWALA BANKS

Price• Hawala and exchange houses are the cheapest options for sending

remittances.

Speed• Instant cash from MTOs is the fastest remittance service.• Bank products like direct deposit and check take more than four

days.

Reliability• Banks are the most reliable service as money is credited directly to

the account.

Customer Service1. MTOs provide better customer service in terms of explaining the

process, helping to complete forms, speaking the local language, etc.

Ease of Sending• MTOs provide better reach through exchange houses, door-to-door

delivery, the post office, etc.

Ease of Receiving• Hawala operators provide doorstep services• Remittances sent through hawala are not taxed.

Banks lag other providers in meeting send side remittance needs

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Remittances – The Two Approaches

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Solo Approach (e.g. Al Rajhi Bank) Partnership Approach (e.g. NCB)

Advantages DisadvantagesTotal revenue is for the taking

Competition

Easier to coordinate

Marketability

Overbearing burden

Advantages Disadvantages

Marketability Shared revenue

Combined Strength

Shared burden

The same services will be offered in both approaches. What changes is the method of operation.

Typical Product Suite• Remittances

• Currency Exchange

• WPS Salary Distribution

Allied Services• NRI Account Opening

• Mobile Top-up

• NOL Card Recharge

• Airline payments

• Bill Payments

• National Bonds

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Remittances – Operational Analysis

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Services Partnership Solo

WPS Partnership with C3 – C3 provides “door to door service” in labor camps

Self backed

Remittances Partnership with MTO, such as Xpress Money, Money Gram, etc.

Self backed

Allied Services Self backed Self backed

Blue Collar Workers

White Collar Workers

Services Partnership SoloWPS Partnership with C3 Self backed

Remittances Same partners as with blue collar workers. Extend banking and corporate services to White Collar Workers.

Self backed

Allied Services Self backed Self backed

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Remittances – Additional things to keep in mind

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Key Departments

• Administration• AML & Compliance• Audit• Branches• Correspondent Banking • Customer Service• Finance• Information Technology• Marketing• Operations• Personnel• Process• Product• Quality• Reconciliation• Treasury

Factors determining the choice of the business partner

• Reputation amongst competitors and the audience

• Reliability

• Financial Assets

• Competitive History/Previous Alliances

• Worldwide network