In a recent article in Finextra, Lakshmi Narayanan at Travelex discusses the contrasting approaches taken by the Pakistan and India governments to the problems inherent in their countries remittance industries.

India is the largest market for inbound remittance in the world, receiving more than $72bn of inbound money transfers from overseas, whilst Pakistan also has a large inbound remittance market worth around £19.3bn.

In both cases, the majority of the money transfers are coming from citizens living abroad, sending money back home to support friends or family members, but what both governments found was that not everybody was using legal means to make their transfers. Systems such as Harwala; using a network of agents and verbal passwords to bypass bank fees or money transfer operator charges; were popular; perhaps accounting for 45% of all transfers. in general, people seemed to prefer not to use digital channels, wary of the costs involved, and preferring to use a “tried and trusted” method.

As a result, both countries have adopted measures designed to encourage people to use more official, digital money transfer channels. Whilst India took the radical step of pulling its most popular bank notes, the 500 and 1,000 rupee notes, out of circulation as part of a wider initiative to persuade people to use digital money, and fight corruption, Pakistan, Narayanan explains, have taken a more measured approach.

The Pakistan Remittance Initiative was launched in 2009 and introduced incentives to encourage banks to market their remittance services more to customers, and a real time settlement system was introduced to ensure that once sent, transactions reached their destinations within hours, rather than days.

You can probably guess which of the two strategies have proved more successful. Narayanan draws the comparison between the carrot and the stick. By improving their systems and also encouraging banks and MTOs to offer better services, and rewarding them for doing so, Pakistan has significantly reduced the level of Harwala activity, which has the added bonus of isolating criminal activity such as money laundering, which often uses such networks.

The fact that many people on the subcontinent are mistrustful of formal MTOs suggests that not enough effort was made in the past to put the customer first – MTO’s were too focused on profit and neglected to provide the kind of transparent and competitive service that is finally beginning to emerge.

A decade ago, if you wanted to send money abroad you had to choose between your bank, which did not see money transfer as a core service and therefore hiked prices to compensate for the considerable effort involved, or a money transfer operator, like Western Union, that had little competition and therefore little incentive to lower its prices or speed up its service. Nowadays, however, disruptive technology has made it possible for a slew of new companies to enter the market, undercutting banks and MTOs’ prices and also offering transparency, security and speed.

The fact that governments and now MTOs and banks have recognised and embraced this new technology is great news for the consumer. The World Bank has even set targets that aim to ensure that all money transfers worldwide will cost less than 5% of the transaction value; although these targets have not yet been hit, it is the disruptive money transfer startups that are currently driving average costs down.

The next step is to ensure that diasporas and indeed anybody who wishes to send money overseas are fully informed of the options available to them. It is only natural that people would be suspicious of new technology that promises to slash prices and speed up transaction times; if it sounds too good to be true, then it probably is; but slowly, and with government’s help, the international money transfer industry can take a step forward.

Whilst mobile money is catching on in a big way on the subcontinent and in Africa, and people are beginning to make it work to their advantage, of course, when sending larger sums abroad, a professional broker should be used, as they can advise on exchange rate fluctuation, currency hedging and perform more sophisticated security checks. Luckily, brokers too, are leveraging new technology to ensure they remain an attractive option price wise and are doing everything they can to appeal to customers. Using a site like The Money Cloud, which uses live pricing feeds from brokers, it is easy to compare and contrast prices and transaction speeds and learn about brokers services before committing to use them.

Over the past decade, the money transfer industry has moved from justifying expensive, complex procedures by charging high fees, to using technology to create transparency, reduce waiting times and not hit consumers so hard in the pocket. Governments like new technology because it gives them oversight, criminals do not for the same reason. The rise of bitcoin or crypto based money transfers that provide anonymity is an interesting new development that may muddy the waters somewhat, but the general trend is towards digital services that put the customer in control, and the signs are that the public are beginning to embrace the opportunity.