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As start-ups, accelerators and authorities are dazzled and enamoured with the high-tech, high-capital world of cutting edge FinTech like contactless payments and cryptocurrency exchanges, one regional start-up is hoping to reach the most unbanked sector of the regional economy – expatriate labour workers.
Founded four years ago, Now Money aims to open up financial services for the low-income workers in the six-nation GCC: labourers, taxi drivers, cleaners and hotel staff who arrive largely from South Asia and Africa.
Almost 70 per cent of the labour worker population in the MENA region do not have access to daily banking services, says Ian Dillon, co-founder of Now Money, a Dubai-based financial technology group.
These workers tend to earn less than USD1,000 per month and remit a significant portion of it back home.
The GCC recorded outbound remittances of $120bn in 2017, according to World Bank data. However, Gulf banks tend to exclude workers earning less than $1,400 a month, leaving most of them reliant on exchange houses to remit cash home.
These exchange houses are notorious for taking a large percentage of the remittance, a gap in the market that Now Money aims to fill by teaming up with established exchange houses and banks — currently Al Fardan Exchange and Noor Bank — and is preparing to bring on more partners to broaden options for customers. Its business model involves taking a cut from the service providers such as exchange houses or telecoms providers, presumably in exchange for customer purchasing data and the opportunity to upsell them on products.
From basic incorporation to the complex process of forming business relationships with established partners who are reticent about investing with untested start-ups, there are numerous hurdles that Now Money and its competitors have faced in this arena.
While most banks see this market segment as an unnecessary and unrewarding risk, new market entrants like RuPay are hoping to profit from the volume of transactions rather that the percentage profit per transaction.
However, for up starts like Now Money, time can be a real killer as they also work through the regulatory framework Bahrain is hoping to overcome this with a simplified regulatory sandbox, but even that takes at minimum 18 months to graduate from, but at least during that time, the company is capable of earning limited revenue.
“Fintech firms face challenges with the regulatory environment and need to raise large amounts of capital if consumer facing,” says Heather Henyon, founding general partner at Mindshift Capital, a venture fund. “It is hard for them to work with the banks. It is hard to integrate back-end systems.”
With low-income workers, there is also the education gap. This is the aspect RuPay India’s nationalised alternative to international debit and credit cards intends to overcome, by becoming the familiar brand of choice for all Indian expatriates and offering extremely low transaction costs, sometimes as little as a tenth of the market rates.
In Abu Dhabi’s financial centre, the company has been testing technology to improve “know-your-customer” processes that Mr Dillon believes will prove beneficial for others in the industry.
The service, now awaiting approval by the central bank, allows customers to scan ID documents via their smartphone and use automated techniques to verify the information.
Where RuPay has a significant advantage are capital, reach and state backing. It can afford to lose money while it on boards workers and then later charges them marginally. However, surviving the regulatory process is very costly and has bankrupted most of Now Money’s competitors.
Even if they survive, Now Money may be bought out by one of the bigger players seeking to eliminate their competition.
RuPay on the other hand, can wait out the competition but it doesn’t have the same amount of potential reach, since its mandate is to mainly assist Indian nationals.
Meanwhile, Now Money is acquiring customers at 600 per week. Whichever of the two is able to capture the market share quickly and provide services at a lower cost looks set to tap this massive market, considering its high barriers of entry and uncertain regulatory framework.
With Now Money aiming to open a location in Bahrain soon, perhaps one of the glitzy new FinTech start-ups can take another look at doing what banks at one point depended on, to grow every year and was considered a central tenet of global banking – banking on the unbanked.
