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Instant international money transfers soon

LiveMint logoLiveMint 11-09-2017 Vivina Vishwanathan

Do you feel that sending and receiving money across international borders takes too much time? That is set to change in the coming years. In the last few months, large commercial banks, remittance companies and remittance-focused fintech firms have started creating products that can facilitate faster transactions at cheaper rates. And every product in the remittance arena will have a direct impact on India because India is the largest remittance recipient in the world.

It is not that banks and exchange houses were not interested in improving this business. After all, inward remittance volumes are too big to ignore. “Banks had been looking into remittances in the past. Traditionally, over a decade ago, public sector banks were more active when consumers sent demand drafts from physical outlets,” said Arun Agrawal, group president-international banking, Yes Bank Ltd. Then, with improvements in the country’s payments systems, faster means of money transfer came in. “Now with National Electronic Funds Transfer (NEFT), Real Time Gross Settlement (RTGS), Immediate Payment Service (IMPS) and bank-to-bank transfers, the physical network is no more important and somewhere the turnaround time became very important,” said Agrawal.

Along with it, the outward remittances also grew. “We are increasingly seeing outward remittances. Last year through the Liberalised Remittance Scheme (LRS), there was about $8.5 billion outward remittance and that number continues to grow. There is a sizable opportunity where trade transfers are happening. People are also getting used to online remittances, though it is relatively new and the limits are not too high, but the space is opening up,” said Deepak Sharma, chief digital officer, Kotak Mahindra Bank Ltd.

Say, you want to send money to a local bank in Uganda from your local bank account in India. If your local bank doesn’t have the facility to directly send the money to Uganda, your money will be sent to an international bank in India—which has an overseas branch and that branch has the capability to route the money to the local bank in Uganda. Since the money may have to go through multiple banks, the transaction would take at least 3-5 days to complete. Earlier, when technologies such as IMPS didn’t exist, the first leg of sending money to the international bank from your local bank too used to take a long time. With IMPS, this happens instantly. To reduce the overall turnaround time, remittance companies as well as banks tie up with fintech companies, banks and exchange houses to facilitate faster transactions. So far, banks usually did bilateral tie-ups—i.e., tie-ups with each overseas bank individually to send and receive money on behalf of customers. With the help of technology, banks are now tying up with intermediaries and get access to their networks. Banks are now exploring both options. For instance, Yes Bank has a tie-up with Ripple, which gives it access to a network of banks in countries that it earlier didn’t have access to based on bilateral tie-ups. “Ripple is a technology platform and since it has multiple tie-ups in different countries to send and receive money, we have decided to explore it. Ripple is a relatively new technology,” said Agrawal. The bank also has a tie-up with WorldRemit, an online remittance company.

Kotak Mahindra Bank has tied up with Earthport, a cross-border payments company. The bank has also launched an online platform for remittances. “Now we have a customer-facing portal called KotakRemit. At the back-end, we have tied up with Earthport to enable faster remittance. The back-end arrangement is for faster routing. Now you can (remit) online. The registration will happen immediately and it (transaction) takes 48 working hours,” said Sharma. This tie-up will also allow the bank to access more countries. “The focus is to provide the cheapest and fastest routing. Earthport is giving me the capability to access locations where I may not have a tie-up and hence multiple banks would have been required to complete the transaction. When you do multiple hops, there is cost and it takes longer,” said Sharma.

Banks say that consumers are moving from physical cash transfers to bank transfers. “We have clearly seen a shift from agent outlets to bank-to-bank transfers. This is also due the increase in banking penetration. Even blue-collared remittances have started happening on bank channels. Cash transactions have been going down and bank transfers have been increasing,” said Agrawal. Though the turnaround time varies from bank to bank, instant cross-border remittances may soon be a reality. The time to receive money has reduced from 3-5 days to 4-48 hours. Also, when banks have to route money through multiple banks, they have to pay all the intermediaries. But with tie-ups that allow direct transfers, the cost of the transaction will come down. You will also see more banks choosing the online model for cross-border remittances.

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