With remittances continuing to grow, Saudi Arabia's banks are tapping into the market for money transfer services

According to a statistical bulletin released by the Saudi Arabia Monetary Authority (SAMA) in early 2015, the amount of money remitted by expatriates in 2014 reached a record high. In total, SR153.3bn ($40.9bn) was transferred to the home countries of the nation’s foreign labour force, representing a rise of 3.6% over the previous year. Data published by the UN Economic and Social Commission for Western Asia (ESCWA) show that 1.2 people arrived in the country per 1000 population between 2005 and 2010 – a trend which led to 9.06m international migrants living in the Kingdom by 2013 – a figure that represents around 31.4% of the total Saudi population.

The origins of these significant flows were widely dispersed: men and, to a lesser extent, women came from East Asia and the Indian subcontinent, the GCC nations and populous North African countries such as Egypt to work in the Kingdom’s rapidly expanding economy. As a result, Saudi Arabia has become one of the globe’s largest sources of remittances, with World Bank data showing it to be placed second only to the US. In terms of destinations, India has traditionally claimed the top spot, followed by Egypt, Pakistan, the Philippines, Bangladesh and Sri Lanka. The size of the remittance market in the Kingdom makes it one of the most efficient in the world. The more competitive corridors to South-east Asia show some of the lowest remittance costs internationally, well below the South Asia regional average of 6.6% in the first quarter of 2014, according to the World Bank.

EXPANDING SECTOR: Given the size of the remittance business in Saudi Arabia, it is not surprising that it has caught the interest of the nation’s banks. While the money transfer services that grew out of the telegraph businesses of old, such as Western Union, still play an important role, banks have developed their own facilities to tap the market – frequently in the form of a dedicated remittance arm. Bank Al Bilad’s Enjaz was an early market entrant and a good example of the model. According to Aljazira Capital it accounted for approximately 24% of its parent’s income in 2012, and it now has more than 150 centres nationwide. Other lenders have also begun to build similar networks, one of the largest of which is SAMBA’s SpeedCash service. Bank AlJazira, meanwhile, opened its seventh Fawri branch in late 2014, as it sets about building a similar network.

WORKING TOGETHER: The potential rewards on offer in the remittance arena have persuaded some institutions to enter into partnerships in a bid for market share. In 2013 the Saudi Postal Corporation signed a deal with Alinma Bank to form the Ersal service, by which it accepts remittance funds through its network of more than 600 branches (which is larger than that of the nation’s largest bank, Al Rajhi).

The transfers are carried out via electronic link by Alinma Bank, with the commission for the transactions is split between the two organisations. In 2014 Saudi Post and Alinma signed a global remittance agreement with Western Union, which will see Western Union services made available through the Ersal money transfer service, initially available at 15 post office locations across the Kingdom. The deal represents another advance by Western Union into the market after its inking of an agreement with Riyad Bank in December 2013 to offer remittance services through the bank’s EZTRANSFER arm.

LOOKING AHEAD: While the established institutions compete, and sometimes cooperate, to serve the remittance market, the next generation of money transfer service is showing an interest in the Saudi Arabian business. Australia’s Igot, a rapidly expanding Bitcoin exchange that has already opened for business in 40 countries across Europe and the Middle East, has expressed its interest in expanding into the Kingdom as well. In the markets in which it is already established, customers are able to deposit and withdraw the digital currency from their local banks, and the ability to do so in Saudi Arabia promises to bring yet more competition and lower prices to the market.