Some of the financial services industry's most influential figures attended the 2011 Global Money Transfer Summit (GMTS) to urge European regulators to provide greater clarity when they review the Payment Services Directive (PSD) next year.
Representatives from key stakeholder organisations such as The World Bank, The Financial Services Authority (FSA) and HMRC came together at the GMT Summit to discuss the industry's concerns about the PSD – which provides the legal foundation for the creation of an EU-wide single market for payments.
The PSD is set to undergo a review by the European Commission in November 2012. While the PSD has been viewed as an important step in the drive for harmonisation across Europe since its introduction in 2009, industry experts believe there must be greater clarity and set procedures for regulators. In Italy, for example, the PSD is applied to all financial transactions irrespective of the origin or destination of the funds. However, this approach differs from most other European nations where the PSD is only applied to intra-EU transactions, as such, industry leaders feel that greater clarity must be provided to ensure the rules are not exploited to serve national interests.
Leon Isaacs, Managing Director of the International Association of Money Transfer Networks (IAMTN) said:
"The Payment Services Directive is beginning to shape the way the remittance market is regulated in Europe but there seem to be significant inconsistencies in how it has been introduced. In short the practice has not matched the theory. We, at IAMTN, will be working hard to ensure that the views of money transfer operators are well known during the review process that is to be completed before November 2012"
The seventh annual GMT Summit also provided an opportunity to address many other important issues within the financial services sector. Money transfer businesses are currently operating in tough market conditions; as such there is increased scrutiny on the regulatory landscape. According to Ezra Levine, Banking & Finance lawyer from Morrison & Foerster, the Dodd-Frank Act is expected impose even more restrictions and requirements to the money transfer industry in North America. The 'disclosure and display' procedures of the Act were described as "a practical nightmare" by one of the speakers during the GMT Summit –particularly for global companies. As one of the largest international payments firms, Dahabshiil operates in over 144 countries worldwide. Global businesses like Dahabshiil must adhere to compliance guidelines across each of its outlets. Nonetheless, Dahabshiil believe regulation is good for the industry, but predict that increased operational costs of compliance could impact on prices.
Abdirashid Duale, CEO of Dahabshiil said:
"The industry must be mindful of compliance and adopt any change in regulation in all areas of operation. However, tougher regulations mean higher costs, particularly for global companies. This will put further pressure on prices. The G20 aims to reduce global price of remittance by 5% in 2014, but this is not reconcilable with the measures taken by some member states."
According to the World Bank's Remittance Prices Database, prices are on downward trend and have fallen from around 10% in 2009 to 8.7% in 2011. Industry analysts believe there is likely to be greater consolidation in the remittances market as it becomes increasingly difficult for small and medium sized operators to maintain profitability given the current trends in the market. In 2008, Dahabshiil expanded its operations with the strategic acquisition of SOMTEL, a leading Somali telecoms and mobile internet firm, allowing it to benefit from an improved understanding and increased capabilities of applying mobile technologies to its remittance business – following growing demand for mobile and internet payment methods in the European market.
Dahabshiil's new Managing Director of European operations, Abdi Abdullahi said:
"Clearly it is a highly competitive market, particularly in Europe and this is one of the main reasons for the price decline seen in recent times. However, Dahabshiil has insulated itself through expansion into new corridors, while managing to maintain a strong financial position in the remittance market."
Hetal Poppat, a spokesperson for Barclays Bank indicated that banks are refining their approach to remittance companies and are tending to favour Authorised Payment Institutions over Small PIs. As such, it is becoming harder for money transfer companies to open a bank account. Consolidation of the money transfer industry is therefore expected to accelerate in the coming years as profit margins decrease due to lack of access to working capital and the increasing cost of compliance. Some industry experts question whether the number of money transfer businesses currently in operation is sustainable for the industry. IAMTN estimate there are currently over 800 international payments firms currently in operation in the UK alone with hundreds more in operation throughout Europe, North & Latin America and Africa. Competition in the market is fierce, with some of the larger businesses opting to consolidate their position by acquiring smaller companies, moving into new geographical territories or expanding operations into related sectors such as mobile or online banking.
Abdi Abdullahi concluded:
"It is inevitable that there will be consolidation in the industry. Some of the smaller money transfer companies will be absorbed by larger competitors. Tough competition, falling prices, tighter regulations, lack of banking access and working capital constraints, will sooner or later force many to seek mergers with others to stay afloat."
The Global Money Transfer Summit is a notable fixture in the international remittance calendar with international business leaders from money transfer companies, banks and regulators every year in attendance at the event. The two-day summit was hosted by IAMTN and sponsored by Dahabshiil. The GMT Summit was held in the Hilton hotel in Park Lane, London on 15th and 16th November.
