APAC remittances: Are banks missing the opportunity?

The Southeast Asia and Pacific region has one of the most mobile workforces in the world. The Philippines and Indonesia in particular are major sources of these workers, with many migrating to the Middle East and East Asia regions for work. With so many of these workers sending earnings back to their families in their native countries, there is tremendous potential for banks to develop lucrative remittance and mobile payments markets in the region.

The question that remains is why are banks struggling to seize this opportunity? Leaving aside wider issues such as distribution of funds in developing countries, institutions face key challenges in monitoring remittances and combating money laundering and terrorist financing. Furthermore, it can be expensive to expand into this space. Traditional options have included building a proprietary network or partnering with existing money transfer operators. However, both mean cuts in margins – the former through high initial investment costs and the latter through the siphoning off of a proportion of profits to a third party.

I see another approach which can combat both high costs and address sanctions issues. Many banks in APAC have already grown siloed regional operations running through the key remittance corridors. Simply linking these operations together using a centralised payments hub would allow them to effectively transfer funds throughout the region. This enables a payment network without the huge upfront costs. By incorporating sanctions screening capabilities into this centralised hub, banks could then also ensure they are showing due diligence in combating money laundering and terrorist financing.

This is a chance for APAC banks to seize the day by using their regional infrastructure to deliver competitive remittance services. I think that the measure of success in payments though will be seen in the banks that not only include opportunities for gaining new worker accounts, but also think strategically to add employer accounts.