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A REPORT ON

A STUDY ON REMITTANCE BUSINESS AS A TOOL FOR INCREASING MARKET SHARE OF BANKS WITH SPECIAL REFERENCE TO ICICI BANK IN AHMEDABAD

By SAIYED TARIQ ALI

ICICI BANK

A REPORT ON
A STUDY ON REMITTANCE BUSINESS AS A TOOL FOR INCREASING MARKET SHARE OF BANKS WITH SPECIAL REFERENCE TO ICICI BANK IN AHMEDABAD

By SAIYED TARIQ ALI


PGDBA-MBA 2007-08
A report submitted in partial fulfillment of The requirements of PG PROGRAM (Class of 2007) ICFAI National College

TABLE OF CONTENTS
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GANDHINAGAR

TABLE OF CONTENTS
Acknowledgements .. 5 Abstract . 6 Introduction .. 8 1. ICICI Bank An Overview.. 12 2.What is International Remittance. 16 Research Methodology. 23 Mid-Course Correction.. 26 Findings . 27 1. Primary Data Evaluation 2. Findings of personal observations 40 3. Conclusion of Primary Data 44

Review of Literature & Empirical Analysis.. 45 1.Facts & potentials behind business.. 2. Role of money transfer operators. 52 3. Comparison with banks. 60 4. Important Assets with bank. 63 5. Glimpse of Informal Market 64 Remittance with reference to ICICI bank 67 Position of ICICI bank 71 Strengths of ICICI bank. 72 Conclusion . 74 1.Areas where banks needs to gear up 2. Key Variables. . 75 3. Challenges 76

ICICI Bank As a remittance service provider.. 78 References .. 80

ACKNOWLEDGEMENT

The successful completion of this report could not have been possible with out, the co-operation and support of my Company guide Mr. Pragnesh Mehta & faculty guide Mr. Harish Morwani. I am also thankful to Mr. Amit

Chauhan who is sales executive of the bank for his co-operation. I forward my appreciation to respected principle of the ICFAI National College, MULANI. Last but not Least, I am thankful to ICFAI & ICICI Bank for jointly providing the opportunity that gives a practical exposure to corporate world. Gandhinagar Mr. KAUSHAL

[SAIYED TARIQ ALI]


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ABSTRACT
This report is basically divided in 4 phases. They are as follows: 1)Introduction information 2)Primary Data Evaluation Data collected Interpretation Conclusion of primary data 3)Secondary Data Evaluation 4)Conclusion of the entire report of the topic & related

highlighting remittance business as a tool for increasing market share of banks with special reference to ICICI Bank in Ahmedabad.

1)Introduction & other related information Report in the first phase would

basically describe, What is remittance market??? Who are the parties involved??? What are the various mechanisms by which a person can transact between 2 countries??? & many such questions. It will also give a brief about ICICI Bank & the remittance products provided by it.

2)Primary data Evaluation Primary data evaluation will mainly highlight the Data collected by way of surveying 100 respondents. It would be easier to analyze as

there would be charts to describe responses of every question followed by an interpretation. After this there would be a conclusion of entire primary data collected. 3)Secondary Data Evaluation Secondary data is collected using various mediums Like internet, ICICI banks journals etc.

Secondary data highlights on the various business potentials in remittance market on which banks can bank upon and increase their market share. It also describes role of various money transfer operators, informal channels, money. 4)Conclusion Conclusion is basically highlighting that Remittance business if taken seriously can definitely boost up market share of bank. It
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&

other

ways

for

transacting

also highlights on strengths with ICICI bank in order to carry out this business. The above four were the major phases on which entire report is based, it depicts the flow of report, but apart from it there are various other headings included in report like research etc methodology, recommendations

INTRODUCTION

Management Thesis title itself asks for a deep study as India is the largest remittance receiver in the world ahead of China & Mexico. Study should highlight on the overall remittance market in India. To perform this project, one has to evaluate the potentials of remittance market that can help bank in achieving greater market share.

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Therefore, in order to know the potentials of the market. One has to collect information regarding the amount of remittance receipt in a country, the products of major players in market etc. Customers seek products which are economical to them in terms of exchange rate difference, charges & on the other hand it needs to be simpler & faster.

Management Thesis on this title will help

SIP Company, to identify its competitors &


strategies adopted by them. It can know the strengths of their competitor, awareness about competitors products, distribution network etc. By using this information company can get an insight to the overall remittance market & can design need-based products for

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its customers & gain a competitive edge over its competitors. Remittance market is emerging day-byday. ICICI Bank is the only bank with dedicated sales team in remittance market. More banks will identify this opportunity in future & may enter this emerging market. Thus, being updated with the current trends in the market, bank will have upper hand over its competitors.

The basic purpose of the report is to find out, whether remittance business can help a bank increase its market share??? This will be done by doing survey of various banks,
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personal experiences & factual secondary data.

ICICI BANK An Overview


ICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financial institution, subsidiary. and was its wholly-owned

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ICICI Bank is now India's second-largest bank with total assets of about Rs. 2,513.89 bn (US$ 56.3 bn) at March 31, 2006 and profit after tax of Rs. 25.40 bn (US$ 569 mn) for the year ended March 31, 2006 (Rs. 20.05 bn (US$ 449 mn) for the year ended March 31, 2005). ICICI Bank has a network of about 614 branches and extension counters and over 2,200 ATMs. It is looking forward to become number one bank of India with its recent mega issue. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment insurance, management. banking, venture life capital and and non-life asset

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ICICI Bank set up its international banking group in fiscal 2002. It currently has subsidiaries in the United Kingdom, Russia and Canada, branches in Singapore, Bahrain, Hong Kong, Sri Lanka and Dubai International Finance Centre and representative offices in the United States, United Arab Emirates, China, South Africa and Bangladesh. Its UK subsidiary Belgium.
Product Portfolio The product portfolio of ICICI bank is very vast. It has classified various services & into NRI Personal Services. Banking, Corporate Banking,

has

established

branch

in

Product Portfolio can be generalized into following categories:


Deposits Tradeway Loans Investments Online Cards Insurance SME Services Demat Services Online Taxes
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Money Transfer Bank Accounts Investments Corporate Net Banking Forex

Online Services Property Services

Cash management Trade Services

Remittance ICICI Bank:

Products

of

(1)

Remittance Card: Remittance Card is like opening a hassle free zero balance account with the bank. A person, whose beneficiary is in abroad & transfers money to India, can purchase this card. This card has an account ID on which money can be transferred. It acts like a debit card. But, this card can only be used once money comes from abroad till that time it operates with zero balance. Money2india.com: Another product

(2)

which I was supposed to sell is, not

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actually

sales,

but

it

was

getting

registrations for ICICIs online money transfer website i.e. money2india.com. This website provides platform for money transfer from abroad to India wherein a person needs not to visit bank. It also has a host of transfer facility which a customer can use. Not only this, it is genuinely a superior product which gives better exchange rate than its closest competitor i.e. Western Union Money Transfer. Other Remittance Products: There are also other remittance products of ICICI bank like NRI A/C etc. But during SIP IO was placed under IBG Global Remittance Department & this department deals with only this two products. This products are very much economical than NRI accounts but gives almost same utility as NRI accounts provides.
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Report mainly focuses on the products namely; Remittance Card & money2india.com which can help ICICI Bank increase its market share.

What Remittance? To

is

an

International

understand

the

challenges

&

potentials of a particular market, one has to be aware of its actual meaning first. It is,
Payments from one country to another that are not payment for anything (goods, services, assets, the use of capital, etc.), such as charitable contributions, gifts to family members, and government aid.

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Quite simply it is a cross-border, personto-person payment of relatively low value, typically families from in migrant home workers to their Global their country.

remittances are an important source of family income in many developing countries. While the main purpose is to support the migrants family living in the home country, other uses are to boost savings in remitters home country bank account, investments in securities or property, or the repayment and/or servicing of loans.

Remittances

are

anywhere-to-

anywhere payments. However because of migration patterns there are some very clearly defined remittance corridors. Examples of these include: US India: India receives US$ 25 billion of which
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Approximately 30-35% comes from the US. (Report of the Working Group Reserve Bank of India). Americas Philippines: The Philippines receive US$ 12 billion of which a more than half originates In the Americas. Middle East/Asia India, Philippines and, Saudi Arabia

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What does a typical consumer profile look like? Who are they and what are their needs?
The sender is usually working in a developed country, away from home and family and often faced with language and cultural difficulties. He or she is looking for dependability and trustworthiness, convenience, a minimum amount of paperwork, low cost and an assurance that the payment has reached the receiver. The receiver is usually living in an emerging market country, living at home with other family members. She or he needs quick funds availability, convenience in receiving, no hassles or paperwork, no fees, easy access to the funds and some form of customer service upon funds arrival.

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Traditionally, participants in this growing and important market are comprised of established players, such as money transfer operators, large multinational banks, and local banks in the destination countries.

Now, a range of new players, such as Web-based transfer agents, alternative payment providers, and credit card networks as well as privately owned networks are entering the market. New participants also include couriers (who handlecash collection and delivery) and often include local service providers (such as those providing bill payments and shopping services).

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There are two aspects of the mechanisms in remittance handling: origination and disbursement. What does a typical remittance transaction look like?

Lets briefly run through how a typical remittance transaction may be originated and disbursed. On the origination side, banks providing remittance services offer numerous access channels. Traditionally, services have been provided through a bank at a branch or through agent partner networks.

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Over time, Banks have launched a series of innovations, and have built alternate access channels such as dedicated Internet portals, ATMs, telephone interactive voice response (IVR), and mobile phone banking. Remittances may also be initiated through a non-bank money service business, through branded storefronts, agent locations or the Internet.

On the disbursement side, payment methods vary by destination country and beneficiary preference. This process may involve cash, an account credit, cutting a cashiers check or funding a prepaid card account. Innovations such as prepaid remittance cards have been launched with
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mixed success. Cash pick-up remains the most popular disbursement method due to the large number of unbanked recipients involved.

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GRAPHICAL REPRESENTATION

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RESEARCH METHODOLOGY
The methodology used to accomplish this project is like any other research project which comprises of exploratory research & the survey undertaken to complete the project. First of all I collected information about remittance market from readily available sources. This helped me gain an insight to the remittance market and helped me identifying the factors which are crucial for making an effective report. Findings also include personal

observation during entire 4 months in SIP. During these 4 months, I happen to interact with many remittance service users & came to know the potentials of this market in Ahmedabad. Banks can definitely increase its market share if they popularize remittance services like MTOs does.
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Survey: A survey of 100 respondents using remittance service was undertaken in order to know the potentials of remittance market, & the areas where banks need to gear up to provide better services. Survey followed the following procedure: Identifying the research problem i.e. Remittance as business as a tool for increasing market share of banks with special reference to ICICI Bank in Ahmedabad. Identifying the sampling units: The sampling unit for this survey is anyone who is having relative or friend person India. or anyone abroad & the to abroad remits money

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Determining the sample size: The sample size for this report is 100 respondents whose views will be generalized in order to draw conclusions. The limitation in sample size is because of duration of SIP & other works assigned by Sip company which resulted in less focus on survey part

Determining sampling method: To complete the survey I have used Simple Random Sampling. IO have identified the population for this survey & anyone falling under that population being representative of entire population was considered as sample or sampling unit

Selecting the sample & extracting the information: After the sample was selected, the was method the help used. of of The
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interviewing

with

questionnaire

questionnaire is kept close-ended in order to get informed responses from banks respondents. that can Questionnaire market highlighted on important factors for increase share of banks & identified certain factors that can boost market share of banks, & what customers expect from a bank. Finally secondary data related to the problem under study was collected & analyzed & necessary inferences were drawn from it.

MID Course Correction


Sampling units or sampling population for this project at the initial phase was identified as banks & it was classified as following for the survey: Private Sector banks providing

remittance services
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Public Sector Banks providing remittance services Co-operative Banks providing remittance services Banks that can emerge in providing remittance services. But when I started surveying banks, I came to know that very few banks consider remittance to be an important activity. Many of the banks do not provide remittance services at all & some banks provide only to their existing customers like Bank of India, Oriental Bank of commerce. Thus it was difficult to draw necessary conclusion required to accomplish surveying potentials. the report effectively opted by for banks. Thus,

surveying the mass market & identify the

FINDINGS
Lets start the report with primary data evaluation. The questionnaire used to collect
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data

for

survey

&

its

responses

&

interpretation is given below: 1.Name:_______________________________ 2.Relation with person abroad:___________________ 3.Occupation of person abroad: Student + Part rime Services Service Business

Occupation of person abroad

15%
Student+Part Time Services

46%

Service Business

39%

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Interpretation: There are a large number of students studying abroad who do part time job, & sends money to their parents for repayment of loans taken by them. The amount sent by these students may be less, but there are so many students outside India who remits money & thus it is not ignorable. People engaged in business & services abroad are the ones who have established themselves in foreign country & sends regular money to their beneficiaries in India. But service category may include people like workers working in Gulf countries etc.

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4.How much money do you receive approximately? 1000$ 1000-5000$ 5000-10000$

10000 & above


Remittance receipt

7% 21%

39%
1000$ 1000-5000$ 5000-10000$ 10000 & above

33%

Interpretation: activity. India

considerable

amount

reaches all over India by way of remittance is the highest remittance receiver in the world. Survey is conducted in Ahmedabad & in Ahmedabad also there are many people whose relatives are in abroad & send money at regular intervals.
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5. At what intervals do you receive money? Monthly Quarterly Half yearly Annually
Intervals of remittance reciept
16% 7%

Monthly Quarterly
42% 35%

Half yearly Annually

6.Present service being used for money transfer: Banks Portals Others MTOsAgents Online

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9%

Channel of transfer used 5% 17%

Banks MTOs Agents Online Portals Others

39%

30%

Interpretation: If we analyze the responses only 17% of the people uses banking channel in order to do remittance transactions. A major portion of remittance market is held by Informal network & MTOs. Thus, if banks consider remittance to be one of its core activities, it will yield good results for bank.

7. Referring to above question, why have you preferred a particular channel to transfer money? Interpretation: As it was an open ended question, there were a number of responses

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for this question. But, the most common ones identified by me is, 1)Illiterate people uses agents network as they dont want to indulge in all sort of paper works
2)

People that

fear

using not

banking disclose

channel proper

because lack of transparency. People feel bank does exchange rates & the days it will take to send & receive money.

8. Reasons for not opting banking channel to transfer money: Lack of transparency Lack of Awareness Low speed of transfer

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Less Economical

Reasons for not opting Banking 11% channel

22%

48%

19%
Lack of transparency Lack of Awareness Low speed of transfer

Interpretation: The most common reason for not opting banking channel is the lack of transparency in banks. If banks disclose proper charges applicable for transacting through banking channel & also disclose the number of days to transfer money, keeping it competitive with other formats to transfer money. People will surely use banking channel as it gives the Trust & Wide Spread reach to the customer.
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Another issue with banks is the LOW SPEED OF TRANSFER when compared to MTOs & agents. It should also be taken care of.

9. Which of the following would you consider more important while transacting through the channel of bank? Transparency Easiness Faster Economical

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Important Variable for Bank

20% 34%
Transparency Faster Economical Easiness

25% 21%

Interpretation: If we see the chart, we come to know that customer expects all the above mentioned factors from the banks because there is a very moderate difference in each of percentage values signifying bank needs to gear up for all this in order to increase its market share by using remittance services as a tool.

10. With reference to the question above, if provided wit all those factors by a bank, will

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you be interested in transferring money through banks as a channel? YES NO


22%

Yes No

78%

11.

Which

of

the most

following reliable

would source

you of

consider

the

transferring money?
RELIABLE SOURCE TO REMIT MONEY

27%
BANKS

52%

MTOs AGENTS

21%

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Interpretation: By analyzing the response of above two questions, we come to know that people are ready to use banking channels if certain parameters are fulfilled. Banks need to bring transparency in their operations. agents. People any can also bank come & expect speedier the the a transfers as it is the case with MTOs & Thus identifying with can all gain opportunity competitive

parameters

considerable market share.

The next question signifies that people consider banks to be the most reliable source to transfer money as there is a trust factor attached to it. People have good relationship with their banks, & if that bank caters to this need also they would be happier. But they avoid banks due to the factors discussed above. Thus it should be considered.

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12. Has the person abroad ever used online portals to remit money to you? YES NO
Using Online Portals

30%
YES NO

70%

13. with reference to above question was the experience satisfactory (for the ones who have used the service)?

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YES

NO
Satisfaction Level of Online Portals
18%

YES NO

14. you aware about ICICI

82%

Are remittance

Banks

services? YES NO
Awareness Level of ICICI Bank's remittance services
27%

YES NO

73%

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15. How much interested would you be in using ICICI Bank services for remitting money? Very much Interested Interested Neutral Least Interested

Interest In ICICI bank's remittance services 11% 20%


Very Much Interested Interested

31% Neutral
Least Interested

38%

Interpretation: The above two questions shows peoples awareness & likeness about
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the ICICI Bank as a remittance service provider. There are 73% people who say they are aware of ICICI Banks remittance services but this may include NRI A/Cs & other products of bank. From the next question we can fairly say that people are more or less are interested in using ICICI Banks remittance services. Therefore, ICICI bank has to create an awareness of its remittance products in order to gain a good market share. But there are also some people who had bitter experiences with ICICI bank & are least interested in using its services.

FINDINGS BY WAY OF PERSONAL OBSERVATIONS DURING SIP


By working in remittance market since last 4 months, I have come to know somewhat about remittance business in Ahmedabad.

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Most of the Muslim migrants go to Gulf countries; they are not that educated and go for labor intensive work. On the other hand, their beneficiaries in India are also not very educated or techno savvy. Therefore, they do not use any internet portal for transferring money. Most of the people are contacting their agents for receipt & sending of money. This agent as per my experiences provide a better exchange rate & faster transfer than formal channels like Western Union Money Transfer or banks etc. The business of these agents runs on phone calls.

An agent from abroad will call an Indian agent & he will tell him to give money to the beneficiary of the sender & beneficiary gets money in minutes. This type of information was common in many of the customers I met.

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Therefore, many of them were not ready to use formal channels to transfer the money. They are scared of getting into the eyes of government as some of the businessman uses agents network & receive a huge amount from abroad. If this people are encouraged to use formal channels there would be an increase in total remittance receipts that would help banks in Ahmedabad to increase their market share. This people will give business if banks create awareness of their product & keep transparency in terms of exchange rate & charges. Banks should focus on keeping exchange rate same or even low as agents network.

Another important thing is a good number of students from Ahmedabad are going abroad every year. This is I came to
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know by interactions with many VISA consultants & IELTS classes whom I have consulted. Majority of my achievements in money2india.com with proof are of students. Therefore, I have been in touch with many students who have been in India for vacations or leave. This student not only studies over there but also do good jobs in call centers & other such places thereby covering their cost of living & education fees. This student transfers regular money to their parents for repayment of loans, or as a gift etc. The amount sent by student is not very large but its regular & number of students is also high. So, beneficiaries of this student will not opt for an NRI A/C which needs to be maintained Rs, 10,000 of minimum balance. Therefore, ICICI Banks remittance card is better option for them which costs only 400
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rupees & can be maintained at zero balance. It is also economical when compared to its competitors like Western Union Money Transfer, Moneygram etc. Thus, ICICI Bank or any other bank can definitely increase its market share by designing need based products for their customer. Above all, Gujarat is a state of Patels who migrates to US which is largest source of remittance in India. So, not only Ahmedabad but whole Gujarat can act as a market for remittance service providers. Many of the migrates to US are staying there above the time limit of their VISA & are afraid of using formal channels. So, this were some of my findings by operating in remittance market which helped me identifying certain opportunities & challenges that banks can face for increasing

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market share in Ahmedabad by way of remittance services.

CONCLUSION OF PRIMARY DATA


Primary data collected both the ways, by survey & personal observations attempts to identify the potentials of remittance market that can help banks gain a good market share. Survey findings revealed that there is an immense opportunity in this market. People send money regularly to India by using variety of medium, if they are lured to use banking channel it would definitely boost up market share of banks. Survey also reveals that people consider banks to be a reliable channel & fear using it only because of certain factors. People attach

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trust factor with bank & consider it to be the most reliable source of transferring money. Considering ICICI Bank in Ahmedabad, people are considerable people are aware about its existence & its remittance products. People have also exhibited certain level of agreeableness for using ICICIs remittance service.

REVIEW OF LITERATURE & EMPIRICAL ANALYSIS

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Certain Facts behind the potentials of the Business


H h s R m ta c R c iv r o t eW r ig e t e it n e e e e s f h o ld
2 5

Remittance Receipt in USD Bn

2 0 Id n ia C in h a Mx o e ic 1 5 F ne ra c P ilip in s h p e Sa p in B lg m e iu G rm n e ay U K 1 0 Mro c o co S rb e ia P k ta a is n B z ra il B n la e h ag ds 5

0 1 C u tr s o n ie

The India Remittance Market operates across multiple corridors


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Market Share Send Receive

Banks 55-60% 95%

MTOs/ExHs 35%

Online 5-10% 5%

The total market size through formal channel in 2004-05 is estimated to be $21bn. The unofficial market would be an additional 30-40% Percent of GDP 1990-91 to 2005-06
Percent GDP 2.1 8.5 12.07 12.85 15.4 16.39 21.61 20.25 24.55 0.7 3.22 2.72 2.84 3.29 3.39 3.69 3.03 3.08

Year 1990-95 1995-1999 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006

Remittance(US $ billions)

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India the largest remittance receiver of the world


Money transfer companies plan to increase their network in India in order to cash in on the growing remittance market in the country, which is hailed the largest remittance receiving nation in the world ahead of China & Mexico. According to a World Bank study, India accounts for around 10% of the $240-250 billion person to person international remittances. This amounts to $22-23 billion every year. As per Reserve Bank of Indias report 2006, the maximum remittances came into India from North America and the Gulf, in which the former accounted for 44 % of the remittances and the latter 24%. "The growth of Indian's remittance market is based not only on increasing number of Indians working abroad, but
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also on the growing number of people who begin to use formal channels of remittance instead of informal ones."

Minimizing

use

of

informal

channels to transfer the money will boost banks share


According to the IOM research, 70% of remittances to India, Bangladesh and Sri Lanka are informal, so high percentage is caused by historically entrenched network of businesses "Educating operating in that is context. the key customers

challenge for us in India. People have to be made aware of other money transfer mediums to avoid practices like Hawala and similar. This would grow the market for all." Thus, its a great challenge for Indian Banks to make people using informal channel to transfer money, use formal channels. By

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explaining the benefits & more specifically create an awareness of their remittance services. This can be done by highlighting lower transfer charges & exchange rate differentials. If the banks are able to highlight a transparent image of them, this business will surely help them increase their market share.

Improvement countries
Most workers Indian

in

Quality

of

people who migrate to foreign

migrants for and

are as

unskilled years in domestic

employed

several

construction,

transport

helpers in the Gulf oil exporters as well as in southeast Asian nations such as Malaysia, but there is also a significant flow of more skilled migrants who tend to stay in the

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English-speaking immigration countries such as Australia, UK and the US permanently. India has some world-class educational institutions, and 20 to 30 percent of the graduates Technology of the (IITs) Indian Institutes at of emigrate least

temporarily, as do half of the graduates of the All India Institute for Medical Sciences (AIIMS). India has a large numbers of welltrained initially. and English-speaking graduates willing to work for relatively low ages, at least

Information technology (IT) has been the driving force for exporting skilled Indian workers, and there is an oft-told story of how multinationals locations, and "discovered" set in the skills Indian of IT Indian IT workers, transferred them to foreign motion migration flows to many countries. The Indian IT industry has been able to move up the
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"value chain," shifting from sending only workers abroad to selling custom software and sending IT migrants to maintain it. Therefore, it is sure that if more & more skilled labor will migrate to foreign countries, they will be paid more remuneration than unskilled workers resulting in increase in remittances thereby, giving an opportunity to bank to cash in on the increasing remittances. Moreover, they are tech savvy, & will be very happy to use an online portal to transfer money.

Remittances Market

growing

India receives the largest amount of remittances in the world, getting over 10%

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of the $230 billion global market, according to World Bank numbers, Business is expected to grow 15-20% annually in the next 4-5 years. According to some estimates, the

remittance market is expected to grow to $26-27 billion by 2006-07. The region will become a powerhouse because of the economic boom here and the development in science and technology. Remittances, due to their low values, are relatively low risk. This, coupled with the benefits of fee revenue and new business potential, makes it an attractive, high margin business for banks. Another opportunity in remittance business is finding out new business and customer loyalty growth. Remittances are value-added services from the bank to its customers, as well as effective tools to attract new customers.
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Role of Money Transfer Operators in Remittance Market & comparison with banking operations
MTOs: The main participants in the money transfer business were not, until recently, banks or other commercial financial institutions. Rather, the industry was dominated by businesses called money transfer operators (MTOs) established for the primary purpose of transferring funds from one place to another. The MTOs are solely in the transaction business, while banks are more interested in transactions that can support their business model: the relationship business. Banks, in general, make their profits from creating relationships with customers who make deposits and borrow from the banks.
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The banks profit from deposits and loans, as well as fees in some cases. MTOs earn their money from the transactions, with relatively small fees on each one. Many of their costs are relatively fixed, so they increase their profits by increasing volume. Fees are based on many factors, including the actual costs of operation, the exchange rate used for the transaction (the differential between the official exchange rate of the countrys central bank and the actual rate charged by the company), the level of competition in a specific market, the type of transfer mechanism (e.g., electronic transfer, debit card, hand delivery, money order, Internet, phone, courier, bank to bank), and the businesss profit target The fee also can depend on the split between the MTO and its agent, which varies among companies. Some companies adjust between the fee and the exchange rate to
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obtain the desired profit level, in some cases offering a lower fee but (less transparently) charging more on the exchange rates. In other cases, the receiving institution is able to charge what it wants with no restrictions imposed by the MTO. In any case, exchange rate differentials represent a significant, and often partly hidden, cost of remittances. A recent study by the New York City Department of Consumer Affairs demonstrated some of the possible pricing differences. The department staff surveyed MTOs in three neighborhoods (Sunset Park, Washington Heights, Jackson Heights) with high concentrations of immigrants and remittance companies. They asked the same question of all the companies: What is the charge to remit $500 in Dominican pesos to Santo Domingo, Dominican Republic. The department compared prices, presentation of prices, other services offered, and signage

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posted (such as licenses, identification requirements, and special offers). The prices ranged from $5 to $36 for the same transaction. There is no apparent difference in the services provided. Both types of businesses appear the same and the money is guaranteed to arrive within the same time frame. Western Union consistently charged $36 and MoneyGram sometimes charged that amount and sometimes a little bit less. Other companies generally charged much less. (The study also showed the high concentrations and competitiveness of the business in some locations. The study concluded that between five and ten remittance businesses can survive on the same block in some neighborhoods.) Besides what they make on transmittal fees, funds transmitters can make substantial profit from exchange rate markups. These charges often are not obvious to customers.

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Some transmitters exchange funds at rates as much as 6 to 10 percent lower than the officially available rates (Case 1996). Western Union and MoneyGram settled a lawsuit that charged they were not disclosing the exchange rate differential to their customers. Some banks are charging just a 2 percent foreign exchange rate differential, a better price than offered by many MTOs. As with many other businesses, brand is very important with money transfers. Many people have had bad experiences with banks or other institutions in their home countries and/or in the United States. They may have lost money or had trouble getting deposited funds out of their accounts, or they might have felt that they were treated disrespectfully, slighted, or ignored. Many people who have had such experiences were poor, worked very hard for their money, and desperately needed the
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funds. Many are immigrants and do not understand the systems used in the United States. Therefore, a company that can build a brand and strong differentiation from other competitors and be considered respectful by its patrons will gain customer loyalty and referrals of new customers. Western Union, which has strong brand recognition, dominates the remittance industry, but newer entrants have brought price pressure and innovation to the market, causing Western Union to lower its prices in some markets with substantial competition Although competitors are entering the market, there are barriers presented by both startup costs estimated at $150,000 to $1 million (Jain 2003) and the increasing costs of regulatory compliance and licensing requirements.

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Startup costs include expenses to: travel and conduct research on the markets and gain partners in other countries to receive money transfers; complete regulatory applications and ensure compliance; purchase computers and other equipment; purchase software in Spanish or other languages, if needed; hire and train staff; and set up office locations. Western Unions charges for remittances vary depending on location and amount, which makes it difficult to compare its charges to those of other transmitters, many of whom charge fixed rates. However, Western Union charges tend to be higher than those of most other transmitters Due to competition and other factors, prices have been falling for the past few years. Western Union has lowered its fees for

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sending up to $200 from the United States to Mexico from $30 to approximately $15; the fee for sending $400 fell to $20. The largest competitor to Western Union among MTOs is MoneyGram MoneyGram says it guarantees to complete an international transfer in 10 minutes, and the company offers senders a free, three-minute phone call to let the recipient know that the funds are available. A free 19-word message can be sent with the funds, and a discount card is available, reducing the cost for repeat transfers. MoneyGram recently started e-Money Transfer, a service that enables people to send money from their accounts via computer MoneyGrams fees vary, based on send and receive cities, country and dollar amount being sent, according to the companys Web site, which also states that its service usually costs less than Western Union.
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Nevertheless, MoneyGrams fees appear to be higher than those of many other MTOs. The New York City study found MoneyGrams fees to be generally comparable to Western Unions, although occasionally lower Other Money Transfer Operators are also operating US & other countries, one example of a relatively older company that is now growing rapidly is Vigo Remittance Corporation.

Although, there are similarities, between both interfaces to transmit money i.e. Banks & MTOs as both industries deal with money in one form and another, but the differences are significant:
Banks target audiences are usually high net worth citizens, whereas remittances are sent by low net worth immigrants Most banks offer most of their business locally (checks, loans, mortgages), while remittances are mostly international

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Banks tend to make money on deposits or the float of transfers, i.e. by holding the money, while remittance companies make money on the fast payment to the beneficiary Banks go for long term, high value financial services, remittances are low value and often one-time activities Banks offer a variety of more or less complex products; remittances are a single and relatively simple product.

Comparison with banking Channel stating how banks are more reliable channels than MTOs
Bank charges for remittances are lower than charges by most of the traditional money transfer companies. Banks with their

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sound communication technological infrastructure & being safer channel for these transactions can act as a better service provider than an MTO if it enters remittance market. Some reasons for lower prices include the fact that many banks involved are very large, have access to upfront capital to back the outflow of capital at a reasonable cost, have an existing or more easily developed distribution network, may be fairly wellknown to the potential customers, and can concentrate concentrated their efforts on attracting customers in areas where immigrants are

Aggressive pricing by banks has helped to pressure the MTOs to reduce their prices in
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many markets. But the MTOs profits are based on volume, and the volume of MTO remittances has increased dramatically in recent years, particularly in some markets, and is expected to continue to expand in future years so reducing prices is not necessarily reducing MTOs profits because lower prices are offset by increasing volume. Banks, on the other hand, are less interested in a volume business and more interested in relationship business (to generate loans, investments, deposits). However, profits have not been the primary issue for banks in implementing remittance programs. Although they certainly understand the profits to be made from the remittance interested business in making and their are clearly remittance

businesses as profitable as possible, banks long-term goals are to gain new customers
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who will use a range of financial services, many of them possibly more profitable than remittances. During the year 2005 NRI deposits rose by a phenomenal 188%. Banking Channels have accounted for bulk of inward remittances indicating the trend & an oppurtunity to bank upon. The RBI suggested that the banks should take advantage of increasing level of remittances. It has told the banks to cut the down the charges for remittances, to organize awareness program among NRIs on benefits of using Indian banks or foreign banks with branches in India. To provide facility to conversion into Indian rupee at the receiving end & possibly to create a central receiving center which can facilitate real time settlements. Thus, if banking channels operate in this market, they will surely make a difference with their high customer loyalty & faith that customers put on them. Major
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Indian Banks are bagged with every prerequisites for starting a remittance service. So, banks in Ahmedabad or anywhere in India, identify this opportunity they will be able to increase its market share but by designing effective products, survival in competition with MTOs & customer service.

Furthermore, banks have several important assets necessary to successfully conduct remittance services:
Branches in the home country to do payouts even at a large scale Trust and awareness of the senders and receivers, because they are in connection with the bank since a long time & trust bank for it. Adequate locations (safety) and enough cash to pay out

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Branch offices in the sending countries to facilitate remittances The necessary licenses. Banks normally have or can acquire necessary licenses to conduct the remittance business which is difficult for a new entrant in the market.

A Glimpse at informal channels to transfer money


Despite the growth of formal transfer mechanisms, substantial amounts of remittances continue to flow through informal (and sometimes underground) channels, outside the purview of government supervision and regulation. These transfer mechanisms go back centuries, particularly in Asia. Examples include hawala and hundi (South Asia), fei

75

ch.ien (China), Phoe kuan (Thailand), Hui (Viet Nam), casa de cambio (South America). IVTS systems flourish in countries with economic controls, political instability, and low levels of financial development. Using basic low cost technologies they rely more on trust than violence, riding on the social capital of ethnic groups. These systems transfer .at a minimum, tens of billions of dollars. Globally, offering speed, easy access, low costs and anonymity.1 Basically the sender gives money to an IVTS agent (usually in an ethnic neighborhood) who calls or faxes instructions to his counterpart in the region where the money is to be sent. The counterpart makes the payment within a few hours. Settlements are made either with a transfer in the opposite direction and/or

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periodic wire transfers or through over (under) invoicing of cross-border trade. These services transfer funds derived from both legitimate and illegitimate activities, ranging from corruption to tax evasion, drugs to terrorism, and funds deployed by intelligence agencies.

Graphical Representation of an Informal Transaction

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Remittance With reference to ICICI & other Banks in Ahmedabad

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Remittance activities in Ahmedabad have also geared up. There are many people whose relatives are settled in abroad. Ahmedabad comprises of people from all communities such as Hindu, Muslim, and Christians etc. Not only is this, amongst these religions also there different people communities. For e.g. Patels are famous for going in America, Muslim people go to Gulf countries as laborers. There is also an increase in students going abroad for higher studies. This student not only works there, but they also do some job & send money to repay loans, & other purpose to India. There are also many people who are staying in foreign countries whose VISAs are expired. Thus, this people have settled very well there & send money to their beneficiaries. Thus, there are tremendous opportunities in this region to develop a remittance

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business and it can also help in increasing market share of bank. Many of the remittance players have found Ahmedabad to be a prospective place for remittance business. This is the reason why many of the banks & money transfer operators have started there remittance services in Ahmedabad. Some of the major players are listed below: Western Union Money Transfer ICICI Bank UTI Bank Thomas Cook Money Gram CitiBank HDFC Bank Bank of India

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& a huge informal network. All these sources are doing well in business operating in Ahmedabad. Western Union has established itself in Ahmedabad also as it is the market leader in the remittance business all over the world. It has came out with out & out innovative concepts in remittance market & this is the reason its charges are more than banks. Western Union has tie-up with vast

network of post-offices which gives it a tremendous reach. Western Union is very aggressive in marketing also. It has tie-ups with many travel agents, VISA consultants, cyber cafes etc. Actually, it has identified all the places where it can find prospective customers & provides a good commission to member of its network.

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MoneyGram

is

not

very

established

player in Ahmedabad because its network is better only in very few countries like USA. Therefore, it has not gained an important position in Ahmedabad but it is a very reputed player worldwide.

Thomas

Cook

also

provides

certain

remittance services. It basically deals with traveling matters, currency conversions etc. Like ICICI banks remittance card, Thomas Cook provides its clients a Global Transfer Card which is quite similar to them. Now, briefing about banks in Ahmedabad. Banks have recently identified opportunities in remittance business. Till now bank did not considered remittances as one of its core activities. But now they are establishing dedicated departments for this purpose.

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Banks like UTI, ICICI, HDFC etc. provides a host of remittances services. But they are more concentrating on NRI deposits as it gives a quality & voluminous business because a normal bank A/c has a nominal balance & NRI A/Cs requires Rs. 10,000 as minimum balance & also there are maintenance charges on which banks can earn. But banks have not become aggressive in marketing of their remittance services. They simply puts up a hoarding in front of a bank, or sometimes at other location also. Still, they do not act like MTOs.

Position of ICICI Bank as a remittance service provider in Abad

ICICI Bank is the only bank in Abad with a dedicated remittance Ahmedabad sales product. team No its to other promote bank in remittance

promotes

products through a sales team effort


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Products of ICICI bank i.e. Remittance Card & online portal money2india.com are competitive & economical when compared to other existing products in Ahmedabad ICICI bank has global reach. It has got branches in many foreign countries also. Thus, a customer has widespread reach for receiving & disbursements of remittance money ICICI Bank has Money2india.com an online platform to transfer funds of ICICI banks

Thus, it shows that ICICI is technologically strong & can compete with MTOs

Strengths of ICICI bank


Free money transfer above $.1000

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Charges for less amount are also very low Superior exchange rates Established Brand name Global reach Tie-ups with foreign banks & exchange houses Favorable word-of-mouth publicity by m2i users M2I comes with a host of different transfers that a customer can choose

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ICICI Bank has won the inaugural Excellence in Remittance Business award at the sixth Asian Banker Excellence in Retail Financial Service Award, program recognize the in most Asia esteemed, Pacific of that comprehensive & anticipated awards pursuit excellence

amongst retail financial institutions

CONCLUSION
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If banks want to establish itself in remittance market & increase its market share there are certain areas that needs to be geared up:
Banks will have to become more customer oriented by providing assistance to the beneficiary expansion

&

sender

both

in

bank

branches. This will help in target market Establishing a global network for

cash(currency conversion) to match the needs of beneficiaries

Improving process transparency for better customer service Packaging Rapidly products: improving Linking deposit and

services, cards and remittances

infrastructure

technologies are now emerging to provide competitive services at a lower cost than the main transfer agencies. needs. Therefore, should
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banks need to upgrade its technology to match customer Banks

provide

an

online

portal

dedicated

to

remittances that would help customers send money to India.

Certain Key variables, if considered it will surely increase market share of banks as they result in customer

convenience & ease.


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Banks has to provide these benefit but on the other hand, banks need to consider to costs also & it has to balance between both of them. Challenges for Banks in order to play a dominant role in Remittance Market
Banks offering remittance services tend to move money between accounts, but a large number of unbanked immigrants prefers or needs to pay cash without the necessity of an account for the sender or the beneficiary. Especially in developing countries like India, only a minority of people have bank accounts.

Normally, banks do not make awareness of their remittance services as they do not consider it as their core activity. Consumers are only likely to use a specific
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remittance if they are aware of it. It can be assumed that the consumer will choose between the available whichever option is best, taking into account the price and the service provided.

Despite the growth of formal transfer mechanisms, substantial amounts of remittances continue to flow through informal (and sometimes underground) channels, outside the purview of government supervision and regulation

Banks need to find a technological edge to compete successfully with the transfer agencies that remitters may see as more trustworthy and who offer immediate ease of use. Banks will face a very tough competition from the already established MTO in the market. MTO have a high brand recognition & reach in the market

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Rural reach still remains a problem for most of the banks. Nowadays, many of the banks have started rural banking services but its still at infancy level. In receiving countries, there may not be any banks nearby or any ATMs in the region. This can be especially true in rural areas. MTOs, on the other hand, typically have widely known locations in the receiving countries, often with better coverage in rural areas and other areas without bank participation.

Brand loyalty is very important. The MTOs, especially the large ones, have developed an excellent brand, and many MTOs are highly trusted, which can be more important than price. Western Union, for example, has a brand that is well recognized, and many immigrants are willing to pay the higher price for its
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services. Convincing people to change brands can be expensive; Banks will have to increase their budgets for advertising targeted to develop brand, but Western Union is countering by spending $300 million in advertising to immigrants. Compliance with government rules & regulations, obtaining specific licenses to do business. Banks will have to consider remittances as one of its important activities. In a nutshell, Success depends on ability to meet competition, create awareness, designing need based product, upgrading technology, increasing reach, controlling informal channels & be transparent in terms of charges & exchange rate differentials

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ICICI BANK AS A REMITTANCE SERVICE PROVIDER


ICICIs service is indeed channel an of

economical

formal

transferring money

As per the words of my company guide Mr. Pragnesh Mehta, Major portion of revenue i.e. 28% comes from IBG Group

Thus, ICICI have all the potentials to increase its market share & it has gradually increased also from the time it incorporated this service

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References
ICICI BANKS journals

www.money2india.com

Pamphlets

provided

by

bank

on

remittance markets

www.saag.org/ %5Cpapers20%5Cpaper1903.html

www.thehindubusinessline.com/2005/12/ 09/stories/2005120902961100.htm

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www.dnaindia.com/report.asp? NewsID=1052444

www.nextbillion.net/newsroom/2006/10/1 1/icici-bank-plans-new-products-inremittances-business

www.adb.org/documents/reports/consulta nt/worker_remittances_phi.pdf

www.banktech.com/showArticle.jhtml? articleID=199203698

www.worldbank.org.in/.../INDIAEXTN/0,,co ntentMDK:20595174~pagePK:141137~pi PK:141127~theSitePK:295584,00.ht

www.hdfcbank.com/nri/remittances/defau lt.htm

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