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Sat 16 Jan 2010 04:00 AM

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Pay as you go

Pamela Patsley, head of MoneyGram International tells us why the Mideast is the market to watch in 2010.

Pay as you go
Pay as you go
Pay as you go
MoneyGram will face a mix of small remittance houses, unofficial couriers and black-market currency traders in its bid for market share in the Middle East.
Pay as you go
In 2009, remittances fell by seven percent across the MENA region as the downturn hurt expats.

A lynch-pin of the global economy, worldwide remittances keep 53 million people above the poverty line. Pamela Patsley, head of MoneyGram International, the world's second largest cash transfer firm, tells Joanne Bladd why this year the Middle East is the market to watch.If, as the old adage says, money makes the world go round, it's remittances that keep it spinning. These cash transfers, shipped home from an army of migrant workers to their dependents in poor countries, totalled $338bn in 2008, outstripping global development aid three times over. India pocketed $52bn from its diaspora in 2008, while in Morocco remittances outpace tourism. In Sri Lanka, overseas breadwinners generate more revenue than tea exports.

For MoneyGram International, one of the world's largest money transfer firms, this is its bread and butter. With 187,000 outlets in 190 countries and territories - more than double those of McDonalds, Starbucks and Burger King combined - the firm shifted some $18bn round the globe last year. Now, as the recession pinches traditional immigrant strongholds like the US, MoneyGram is setting its sights on the Middle East's 20 million foreign workers to boost its coffers.

"If it's a transaction - whether it is south of Lebanon to north of Lebanon, whether it is from the US to Saudi, or from Saudi to Sri Lanka, we're interested," chairman and CEO Pamela Patsley tells me, during a flying visit to the firm's Dubai office.

"Frankly that's a transaction we want to touch. For the whole of this region, we're just at the beginning in terms of where you're going to see Moneygram if you revisit in a year, and then a year after that."

As the world's third-largest destination for foreign workers, the Middle East is ripe for exploitation. Its money-transfer outfits are a lifeline for blue-collar migrants sending chunks of their paychecks home. Many work illegally, or lack the necessary identification to open a bank account - the "underbanked", as Patsley quaintly calls them - making firms such as MoneyGram their only means to send cash cross-border.

For thousands of tiny villages in Asia and Latin America, money transfer agents are their main link to the global economy.

With its hive of foreign workers, Saudi Arabia is the world's second largest outbound send country by volume, ranking only behind the US. In oil-less Arab countries - including Egypt, Jordan and Lebanon - wages from the Gulf comprise, staggeringly, up to 25 percent of the economy.

Unofficial transfers of cash outside the banking system mean the real percentage may be twice that.

MoneyGram, however, has come late to the party. Of its global spread of outlets, just 2,200 are in the Middle East; 3,600 if you factor in the ATM network included under its partnership deal with Saudi's National Commercial Bank (NCB). The firm controls nearly five percent of the worldwide money transfer market, but its footprint in the region is still minimal. And as a result, there's plenty of room to grow.

"In terms of outlets there isn't a number I would declare victory at; it is more about market share," muses Patsley. "We need it [market share] to be double-digit. Our focus for the company is getting towards double-digit transaction growth, which will then drive double-digit revenue growth and so on.

 "It's a huge market... [and] as long as there are remittances, we want our fair share and then some."

It's fighting talk for a company that, were it not for a quirk of timing, wouldn't exist. MoneyGram was one of the early victims of the subprime meltdown in early 2008, a result of bad bets on asset-backed securities. The firm was resuscitated with investments from Goldman Sachs and Thomas H Lee Partners - a deal which, a matter of months later, would have been untenable as the full scope of the financial crash became clear.

MoneyGram repaid $187m of debt last year, says Patsley, who came onboard as executive chairman in January 2009 and became CEO in September; and has ambitious plans to reverse its fortunes over the next few years.

 "MoneyGram is going to be vastly bigger than we are today," she says. "And this region is just a very attractive region because of the immigrant diaspora. In our broader Middle Eastern region, there are about 20 million immigrants, in the GCC about 16 million - it's a huge market for us."

But MoneyGram faces tough competition from a string of rivals. Top of the list is the gargantuan Western Union, whose 400,000 global outlets process some $74bn in remittances each year. With a market cap of $13.7bn to MoneyGram's $250.85m, it is a little like David versus Goliath.

But even the Western Union powerhouse only mops up an estimated 20 percent slice of the total remittance market. The remaining 75 percent is split between a hodge-podge of smaller or single agents, unofficial couriers and black market currency traders - known as hawala in the Middle East - collectively branded ‘unofficial channels'. Together with increased migration, as poverty-stricken nations foist more workers into the labour pool in search of work, wresting market share from this white space offers cash-transfer firms the best chance of growth."Anecdotally you hear about it a lot in this region...this grey or white space for the industry. When you have two global players and together our market share is under or around 25 percent, there is lot of growth and space opportunity," says Patsley. "Plus there is a sort of exponential factor to it, because the more countries or networks or quarters that we add, the more we enhance our business in the US [its domestic and largest market] by offering more locations to send to."

Luring these migrants in, however, will be tough. For low-wage workers, fees can be the name of the game, and the cost of using an official remittance firm can outstrip its benefits. For example, in the third quarter of 2009, sending SR750 from Saudi Arabia to Egypt cost SR17.70 - or 2.36 percent of the transaction - using Saudi American Bank. To send the same via Western Union cost SR39.75 and, by Al Rajhi Bank, a whopping SR64.50 - nearly nine percent of the original sum.

MoneyGram, smaller and nimbler than Western Union, can generally undercut some rival firms on price but still struggles to compete with under-the-table couriers. For Patsley, the key is broadening brand appeal.

"Whether in downturn or upturn, we don't turn a blind eye to fees," she admits. "Blue-collar workers are fee-sensitive, but it's also about convenience - what is open outside work hours, where is a convenient place to send money? What's most convenient for the receiver?"

MoneyGram certainly isn't in retreat. It has fought back by slashing fees, broadening its agent network and rolling out new delivery options. In July last year, it inked a deal with Saudi's NCB to offer ATM-based cash transfers. With access to 1,400 ATMs, MoneyGram became the oil-rich Kingdom's single largest money-transfer network.

It is now eyeing similar deals across the GCC, where it typically partners with banks or exchange houses. Using ATMs in host banks, MoneyGram can cater to walk-in customers and the bank's own clients, and simply splits the commission with the bank. This has the dual bonus of cutting down the competition - banks can ride the coattails of MoneyGram's large network, a more alluring option than striking out alone - and linking the firm to local brand names.

The firm has also dipped a toe in the fledgling market of mobile phone transfers. Asia has the world's fastest-growing mobile phone market - India, where handsets cost as little as $13, is adding eight million new users a month - and MoneyGram is raring for a piece of the pie. Last month it announced it was piloting phone-to-phone transfers in the Philippines, a country where some five million people are kept above the poverty line by expatriate workers. The cash is redeemed using ATMs, partner outlets, or used to pay bills through a phone-based account.

If this scheme is rolled out globally, MoneyGram's reach would be vast - and come at a fraction of the cost of quadrupling its agent locations.

"We want all the offerings," Patsley tells me. "Any way someone wants to send, and any way someone wants to receive - we need all the combinations available.

"More people have phones than bank accounts, so by definition that's putting us squarely in that market. It'd be fair to assume [the pilot scheme] is going to expand, given the prevalence of Filipino workers in the Middle East."

Money transfer firms don't behave like normal businesses. When the chill wind of recession blows, rather than sitting tight, they expand rapidly. In part this is because the wider their network, the more business they do; but also because in lean times, global remittances have paradoxically tended to surge. Workers send much-needed capital home to help struggling families, or opt to take advantage of currency fluctuations. In the last nine months of 2008, for example, transfers to India swelled as the rupee depreciated by more than 25 percent against the dollar.

"There is a lot of leverage in our business because even in a recessionary global economy, we continue to expand and build out our agent locations," Patsley says.

Still, the current financial crash has taken a toll. Global remittances fell by six percent in 2009 - admittedly significantly less than the one-third drop in foreign direct investment - and by seven percent across the Middle East and North Africa, as factories closed and the region's construction industry reeled. Egypt, the region's biggest recipient, saw a 20 percent plunge in remittance flows in the first half of 2009 from its swarm of expatriates.

MoneyGram too has felt the squeeze. The firm's third quarter results revealed a $18.3m net loss, despite it recording a six percent rise in transactions in the same period. With fourth quarter financial results due out in a fortnight, Patsley is too smart to call the market for 2010, but allows she is cautiously positive about the year ahead.

"I'm optimistic. I think we're seeing a lot of momentum, anecdotally," she says slowly. "I'm not going to be a prognosticator for the world remittances market; I'll take what the World Bank says. But for Moneygram, I think we're going to have a good year."

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