Further consolidation is expected in the United Arab Emirates' remittances industry, the world's second largest, as declining volumes and a switch to digital transfers due to coronavirus-related movement restrictions endanger smaller exchange houses.
Remittances from the Middle East and North Africa, which mainly comprise money sent home by migrant workers in the wealthy six-member Gulf Cooperation Council, are set to fall by 19.6% in 2020, the World Bank forecasts.
"The market is very competitive. Everyone's present in the Gulf: global players, regional providers and a whole range of niche and corridor specialists," said Grant Lines, chief revenue officer at MoneyGram International Inc., which operates in more than 200 countries and territories and serves 22,000 currency pairs.
Such broad involvement is understandable, given the size of the market. The UAE's outbound remittances totaled $44.4 billion in 2018, second only to the U.S. Saudi Arabia was third with $33.9 billion, while Kuwait, Qatar and Oman were also in the top 20.
Stricter licensing requirements have caused the UAE's currency exchange sector to consolidate, with the number of companies falling to 80 as of 2019 from a peak of 140 in 2017, according to Rashed A. Al Ansari, CEO of Abu Dhabi's Al Ansari Exchange. His firm claims a 31% market share among currency exchange companies and has 190 branches across the country.
"With the rise of the pandemic and the difficult global economic conditions, we expect more of the smaller exchange firms to close, and possible acquisitions to take place among the medium[-sized] and larger exchange companies," he told S&P Global Market Intelligence.
In the UAE, remittances must be conducted via banks or exchange houses, making it problematic for fintech entrants to the industry because they must partner with established rivals. Britain's TransferWise Ltd., which declined to comment to S&P Global Market Intelligence, received a license from Abu Dhabi Global Market, the emirate's financial free zone, in late 2019. Currently, around three-quarters of remittances go through exchange houses and the remainder via banks.
"We haven't seen any revolutionary technology or new benchmarks in customer experience [from] the new fintech companies that have entered the market so far," said Al Ansari. "Hence, they were left with no other value proposition except to offer lower charges."
For popular MENA currency corridors, such as the UAE dirham to Indian rupee, fees are below the global average of 6.8%. Sending $200 from the UAE to India on average cost 3.45% in fees in the second quarter, according to the World Bank. The same transaction from the UAE to Pakistan cost 3.94%, while other destination markets are similarly priced: Philippines at 2.67% and Egypt at 3.53%. This quartet are the biggest destination remittance markets from the UAE.
UAE outbound remittances fell 15.6% in March
"Within each particular corridor, the difference in fees between providers can be as small as fractions of a dirham," said Shadi Kaddoura, head of market research at Dubai's Viva Consulting, which conducted research into UAE remittance costs for TransferWise.
The coronavirus pandemic has caused international money transfers to decline. UAE outbound remittances fell 15.6% in March, the most recent central bank data shows. Al Ansari forecasts his company's remittances will decline no more than 10% in 2020 versus a year earlier.
However, he said the number of customers using the company's digital services to remit money has more than doubled, with its app now accounting for nearly 10% of remittances.
"The pandemic has warped the speed of adoption for existing digital channels, shortening the uptake that would normally take three to five years into six months due to the restrictions in movements," he said.
To open a local bank account, UAE residents must usually earn at least 5,000 dirhams a month, which rules out hundreds of thousands of manual and service industry workers. They commonly receive their salaries on a pre-paid card permitting a single free-of-charge cash withdrawal per month, and usually take this cash to a mall where they can visit multiple exchange houses to find the best rate to transfer most of their salary home.
But the shift to exchange house apps could become permanent. Such apps engender greater customer loyalty — once a consumer has passed the necessary know-your-customer requirements to send money through an exchange house's app or a mobile wallet, they are much less likely to complete a similar process again to enroll with a rival provider's app.
Some entities have created mobile wallets to woo low-income customers.
MoneyGram is the remittance provider for the mobile wallets of First Abu Dhabi Bank PJSC, the UAE's largest bank by assets, the country's former telecom monopoly Etisalat and its Qatari rival Ooredoo.
"The stickiness we're seeing with Ooredoo is much, much higher than for cash transactions," said Ahmed Aly, MoneyGram International's head of Middle East operations.
MoneyGram's Lines said COVID-19 has not necessarily impacted overall volumes and revenue, depending on the size and scale and distribution and the partners companies have.
"It's more that it's changing how and where transactions are taking place," he said.
As of Sept. 29, US$1 was equivalent to 3.67 United Arab Emirates dirhams.