'Removing cap on remittances will spur further growth'

With $45 billion inward remittances in 2008, India saw the largest transfer of foreign funds in the world, according to a recent World Bank report. The 150-year-old Western Union Financial Services, which entered India in 2001 with about 3,000 outlets, is the largest private player with over 50,000 agent locations across India. Anil Kapur, its managing director, South and South East Asia, tells Anirudh Laskar that the challenge is to grow in rural areas, where 60 per cent of the remittances go. Excerpts:

How far do you think your business could be impacted due to the ongoing slowdown?
Western Union anticipates that the global money transfer market will grow at a slower rate in 2009 compared with 2008. However, the long-term drivers of the money transfer market remain very healthy.

In 2008, Western Union grew its worldwide market share to 17 per cent, earned revenues of $5.3 billion, a cash flow of $1.25 billion and posted an operating income margin of 26 per cent, all the while handling $67 billion in cross-border remittances.

We believe 2009 is a year of opportunity, where financially strong companies and world-class brands will stand out among their peers. Given our network strength and brand awareness in India, Western Union is well positioned. In the first quarter of 2009, our India business performed significantly well, with a revenue growth of 19 per cent and transaction growth of 42 per cent. This proves the point that a good product and an effective distribution network do help in sustaining the business in a challenging environment.

What are the challenges faced by private players in India? What are the possible solutions?
One major issue faced by the families of migrant workers in India is the limit of 12 transactions a year with a limit of $2,500 per transaction. We offer a point of service in rural areas, which are not as financially connected as the rest of the country. Customers often voice the need to use our locations to transfer funds within the country.

As evident, remittances also propel India’s financial inclusion agenda as a significant number of rural families are often dependent on remittances for sustenance. World Bank studies indicate that remittances to India ($45 billion in 2008) account for around 3 per cent of its gross domestic product (GDP). To put this into perspective, the total foreign direct investment (FDI) that flowed into India in calendar year 2008, according to official figures, was approximately $33 billion. This clearly indicates the significance of remittances to the Indian economy. Any step taken towards helping the remittance industry could only benefit the economy as a whole.

Private players have urged the Reserve Bank of India (RBI) to relax the caps on inward remittance and allow outward remittance to gain a level-playing field with banks. What sort of impetus will the remittance market gain if these caps and restrictions are removed?
Lifting of caps on inward remittance could be a positive step. For instance, customers who reach the 1- transaction limit are often attracted towards the informal (illegal) channels. Relaxing the cap will address this concern.

The outbound remittance market could also be an exciting opportunity to tap, especially with the growing number of Indian students studying abroad. Having said that, the inbound market continues to remain our focus as we expand our operations in the country.

Where do you position Western Union vis-a-vis other private players in India in terms of market share, revenues, volumes and operations (reach)?
Western Union’s biggest strength is its network of 379,000 locations across 200 countries. It would take some doing to catch up with a network as strong as ours. In India, it has been a great journey from 3,000 locations in 2001 to more than 50,000 in 2009. India continues to be one of the fastest growing markets for Western Union in the world. Over 6.6 million customers used our services during 2008.

What are the key areas that Western Union will be working on to expand in India over the next two years? Where do you position India’s growth in remittances among other major emerging markets such as China, Singapore, the Philippines, Korea and Hong Kong?
We will continue to create more access to our services in India by expanding our network. While we already have a formidable network across 7,500 towns and cities, many of our customers in rural India still have to travel over 10 km to receive money through our services. Our vision is to have a Western Union outlet in every corner of the country. For example, you can receive money at any of our 50,000 outlets in minutes after the transaction, even if you do not have a bank account. Given that over 60 per cent of the Indian population does not have a bank account, this is a significant benefit.

Over the last few years, India has consistently emerged as the largest remittance-receiving country the world over. With more than a few million Indians migrating each year, we have one of the largest migrant communities in the world, which could also be the single-largest reason for the increasing remittances each year. And, as they say, the world is a global workplace now, creating new job opportunities and fuelling migration to new countries each year. This is, of course, true for other major markets in Asia as well.