RP mobile phone chips key to tapping OFW money

by *WILLIAM ALZONA *
www.ofwjournalism.net


MANILA -- A THUMBNAIL-SIZE ceramic chip in the Philippines is changing
the way cash is couriered from its citizens across continents.
This chip, called a SIM card, has also earned smiles from multilateral
agencies such as the Asian Development Bank and the World Bank, which, for
years, have been egging on banks to bring down the cost of sending money
from anywhere in the world.
In its *Global Economic Prospects for 2006*, the WB said that remittance
transaction costs are often "significantly lower than the fees that most
customers pay."
WB noted Smart Communications Inc.'s as "innovative," and proved the
multilateral agency's premise.
When customers buy a SIM [subscriber identification module] card from
Smart's any brands, the package usually contains a debit card, or what the
company called "Smart Money".
Back when it was introduced early in the decade, it was just another debit
card stuck with old receipts, calling cards, and candy wrappers inside
wallets. The card - which could be activated by sending a short message (SMS
or "text") to Smart's network - can be used to purchase products from
selected supermarkets and department stores.
That platform, which Smart's rival Globe Telecom Inc. has been too slow to
follow considering it had a much bigger banking affiliate, is now being used
to remit money at a rate far cheaper than the ordinary remittance service.
The ADB was the first to acknowledge these remittance services of the
country's top two mobile phone firms.
"The Philippines is right on the edge of (remittances) technology," said
Robert Bestani, director general of ADB's private sector operations
department, during a forum on remittances and poverty reduction last
September.
The Manila-headquartered ADB believes that if the cost of remittances were
to be brought down to as low as possible from where it is now, more people
will be encouraged to use the formal system. Doing so, it said in two
reports on remittances, would increase the money flowing to the developing
countries and improve financial access of the poor.
"Reducing transaction fees will increase the disposable income of poor
migrants and increase the incentives to remit as the net receipts of
beneficiaries' increase," the WB has said in its own report released last
November.
* *
*Caveat emptor*
THE caveat in using technology on sending money, according to the World Bank
study, is that if remittance fees were brought down, cross-border payments
for retail trade, investment, and pension benefits would also increase.
This means there will be more traffic of money in the system: the banks can
earn more because they earn through such money traffic alone.
At the moment, providers of remittance service in the formal sector-or the
banks and the money transfer agents like Western Union and Money
Gram-usually charge 10 to 20 percent of the principal amount to handle the
small remittances sent by the migrant workers.
Still, Smart's innovative idea has become a trophy for the advocacy of these
multilateral agencies.
"The system's (Smart remittance service) simplicity keeps fees down. (and
it) appears to be secure," the World Bank said.
The system goes like this: A Filipino migrant worker in Hong Kong deposits
his money to one of Smart's affiliate remittance partners, giving the
beneficiary's 16-digit Smart Money and the Smart mobile phone number. A
message would then be sent to the beneficiary in the Philippines informing
him or her about the remittance from Hong Kong.
The remittance can be credited to the Smart Money subscribers' "electronic
wallet" account. The money can then be withdrawn from an automated teller
machine (ATM) using the Smart Money card. The recipient can also get cash
from Smart's partner companies in the Philippines.
Smart's partners include fast food outlets like McDonalds, pawnshops
operated by Tambunting, 7-11 convenience store chains, and Shoemart
department stores.
Both the sender and the receiver of the money will be charged to as low as a
percent of the amount sent or received. If combined with the cost of text
message sent, the fees can hit to about five percent of the principal or the
total amount of money the sender plans to send.
Fees vary per country.
For instance, in Hong Kong, it is about US$2 for the sender. For remittances
within the Philippines, Smart charges one percent of the amount to be sent
and the cost of the text message, which is a minimum of P2.50.
* *
*Security itch*
EACH of the sender using Smart's remittance service is given two sets of
personal identification numbers: one PIN for the cell phone and a different
PIN for the Smart Money account.
According to the WB, doing so makes it difficult for unauthorized access to
the funds. Plus, an identification card is required when collecting the
cash.
The country's central bank, however, only allows up to P50,000 (about
US$930) worth of remittances, which can also decrease risks of theft.
Smart's introduction of this service debunked the concept that only banks
and remittance agents can do the job of sending money from one country to
another.
Still, smaller nonbank financial institutions don't have the backing that
Smart has from parent Philippine Long Distance Telephone Co. (PLDT).
According to the WB survey of 40 countries around the world, these
institutions face challenges in entering the remittance market that Smart
has broken into. These challenges include securing licenses for transactions
involving foreign exchange and access to national payment.
The WB cited that monetary authorities in some countries generally believe
giving nonbank financial institutions direct access to central banks'
clearing and settlement systems may not help reduce the remittance fees
charged by these institutions.
"Only five countries-Azerbaijan, Belarus, Bolivia, the Philippines, and
Thailand-are contemplating granting access for clearing and settlement
systems to a few large non-bank financial institutions, mostly post
offices," the WB said, referring to the survey.
Ironically, Smart's banking affiliate First E-Bank, has not reported profits
from the service. But since the bank was bought by Banco de Oro Universal
Bank, this gives edge to its rival Globe, which is owned by the Ayala Group
of Companies that owns Bank of the Philippine Islands, the country's second
largest bank.
Globe, to note, had been first to form a tie-up with several remittance
partners in the United States, in order to compete head-on with Smart in the
remittance service arena.
It will be only a few months before these two mobile phone operators device
another way to tap into the OFW market.
*OFW Journalism Consortium, Inc.*