Integrating Remittance and Mobile Wallet Services: A Case Study of IME Pay in Nepal

Introduction

Remittances are central to the Nepalese economy.In 2020, Nepalese migrants living abroad sent home US$8.1 billion, constituting as much as 24 percent of Nepal’s GDP.¹ This was a record high, facilitated by digital remittance channels that enabled the country to defy expectations of declining remittance flows in response to nationwide COVID-19 pandemic lockdowns. While digitization has become common among senders, most recipients, especially women, still receive their transfers from agents in cash.

IME Pay is Nepal’s top remittance company, and in 2017, with technical assistance from UNCDF, it developed a digital mobile wallet for domestic users to send and receive money. It has already become Nepal’s second-largest mobile wallet provider, with a network of more than 30,000 agents and a rapidly expanding customer base of over 1.4 million people across the country.Until recently, however, IME Pay’s remittance and mobile wallet services were distinct. Remittance customers could only receive transfers in cash or into a bank account, and wallet customers could only transact with other domestic users. In 2020, IME Pay integrated these two popular services, enabling both men and women customers to receive international remittances in their mobile wallets.²

We are building a gender-inclusive digital remittance solution, helping agents onboard customers through incentive and accreditation mechanisms by harnessing the power of data analytics and a human-centric design approach. We are also adding a female-led ecosystem targeting the B2B2C market to trigger the productive usage of remittances. By doing this, we will serve the unbanked and underbanked populations and create access to final services across all the geographical regions through IME Pay platforms.

Bikash Kr. Nahata, CEO, IME Digital Solution

In 2021, IME Pay again collaborated with UNCDF, this time to further refine the mobile wallet to encourage digital adoption among migrant family members as remittance recipients and to offer linked financial services. While promoting digitization, the joint engagement also aims to improve the value proposition for the agents who have enabled IME Pay’s remittance service success to date. UNCDF is also contributing to the efforts of IME Pay to improve the design of its remittance products, tailor its remittance delivery channels to last–mile customers, specifically women, and become more gender–smart and migrant-centric.

In May 2021, the partners carried out institutional and data mapping exercises, a market scan and transaction data analytics on 22 million cash remittances, domestic mobile wallet and international mobile wallet payment transaction records covering the June 2020 – June 2021 period. This research enabled an analysis of customer profiles and transaction behaviours to understand the customer journey and identify pain points, in particular for remittance senders and receivers. The findings from this assessment are summarized in this blog, the first in a three-part series on IME Pay, Nepal.

Access to digital remittances 

Migrants’ access to digital remittances can be inferred through customer profiles, geographic availability of services and supply- and demand-side constraints.

The typical profile of remittance recipients in Nepal

According to the market scan and literature review, over 90 percent of international labour migrants from Nepal are men,³ and 69 percent of remittance recipients are women aged 20-39. A large portion of recipients have a secondary school education (39 percent), are employed in the agriculture or service industry, and live in a low-income area (83 percent). Recipients primarily use remittances for consumption smoothing but also invest their transfers in property—mainly for agriculture—and their children‘s educations.⁴

Women remittance recipients have been slow to adopt the mobile wallet 

As shown in Figure I, 57 percent of IME Pay’s cash-terminated remittance recipients are women. This is similar, although slightly lower, to the national trend. However, women comprise only 22 percent of wallet-terminated remittance customers, indicating that digital adoption is slower among women than men.

While the proportion of women customers is similar across most districts, it is notably low in Madhesh, Nepal’s most densely populated province.

This likely has roots in both demand- and supply-side constraints. On the demand side, well-documented financial and digital divides inhibit women’s access to both types of services. Women as a group tend to have lower levels of financial knowledge and literacy and lower rates of bank account and mobile phone ownership than men although the gap has been reducing.⁵ As per the latest Findex report 2021, the account owner for women stands at 49.9 percent and men at 58.6 percent.⁶ Thesechallenges are further underpinned by deep-set gender norms and constraints, with women generally lacking financial autonomy and decision-making in the household. On the supply side, services may not meet the specific needs of women and other last-mile customers.

Linking the mobile wallet and remittance services improves access in remote areas

The integration of IME Pay’s international remittance and domestic mobile wallet services allowed the company to expand its geographic remittance footprint, reducing transaction cost to receive cross-border remittances for populations living in rural areas. As shown in Figure II, while IME Pay agents serve around half of the country’s districts, mobile wallets are accessible everywhere, enabling opportunities for financial inclusion and financial sector deepening in even the most remote and mountainous rural areas where remittances account for as much as 30 percent of households’ income. IMF Financial Access survey (FAS)⁷, reported a rise of 7.12% in the value of mobile money transactions (as a % GDP) from 2020 to 2021. This is a significant change and from UNCDF data insights we see individuals receiving international remittances in mobile wallet utilize the wallet for other payments as well (both rural and urban) increasing financial sector depth. For instance, over 200 customers in Mount Everest National Park have already begun using the service.

Disclaimer: The designations employed and the presentation of material on this map do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations or UNCDF concerning the legal status of any country, territory, city or area or its authorities, or concerning the delimitation of its frontiers or boundaries. 

While IME Pay has the fewest customers in rural Karnali and Sudurpashchim, two of the country’s largest and least populous provinces, the international mobile wallet offers significant opportunities for increasing uptake of remittance services in these areas in the coming years.

Access to digital financial services is constrained on both the supply and demand sides

On the demand side, recipients’ access to both digital and financial products and services is often constrained by limited awareness, low digital and financial literacy, and a lack of trust.⁸ These challenges lead customers, especially women, youth, rural and other last-mile customers to continue to pay the higher costs associated with cash payouts because they know and trust their agents, despite the availability of more cost-effective digital alternatives. On the supply side, this is driven by the fact that existing commercial arrangements and income streams incentivize agents to cash customers out and disincentivize the promotion of digital alternatives because of limited aggregation of financial services at the agent transaction point.

Digital remittances have surged in Nepal over the past two years, as COVID-19 affected physical mobility and agent channels. In alliance with UNCDF, IME Pay is conducting intensive research to improve the digital medium for remittance recipients in Nepal. Despite being cheaper and more instantaneous than traditional agent (cash) channels, a lack of awareness among remittance receivers means that digital adoption is limited. Thus, one of the primary areas we aim to address through the partnership with UNCDF is the poor uptake of digital channels by remittance recipients in Nepal, primarily women.

Suman Pokhrel, CEO, IME Ltd.

The extent to which migrants use domestic payments and drive use-cases for digital remittance channels to thrive depends on the macroeconomic environment, central bank policies and remittance service providers’ incentives.

The COVID–19 pandemic unexpectedly accelerated digital remittances in Nepal

Initial predictions suggested that the COVID-19 pandemic would cause remittances to plummet, both in Nepal and around the world.⁹ As shown in Figure III, while Nepal did experience an initial decline in March and April 2020 at the pandemic’s outset, formal remittance inflows began to increase in May and skyrocketed, as captured through the formal channels, above historical averages by June. All told, the country experienced a 3.5 percent increase in year-on-year remittance inflows from June 2019 to June 2020.¹⁰

This increase can likely be attributed to several factors, similar to ;those experienced by BRAC Bank in Bangladesh. First, pandemic lockdowns blocked many informal and in-person remittance channels, necessitating a shift toward formal, digital channels. Second, Nepal’s central bank increased the maximum limit on funds transfers and merchant payments to further promote digital remittance transactions.¹¹ Finally, many remittance service providers implemented promotional campaigns to onboard new customers. For instance, IME Pay integrated its mobile wallet and international remittance services in April 2020, around the onset of the global pandemic.

Usage of IME Pay’s cash and digital remittance services have increased significantly

In line with these nation-wide trends, the number of remittances received through IME Pay have increased at steady rate, as did the share of remittances terminated in a mobile wallet (Figure IV). The number of international remittance transactions increased from 3.8K in Dec 2020 to 7.2K in April 2021, and touching almost 10K transactions by June 2021. After April 2021, 3 out of 10 transactions were via the mobile wallet, given that both cash based, and digital based transactions have increased. Given the fact that individuals previously had to visit the agent location for international remittance to be deposited in wallet or to be cashed-out, the upward trend of digitally-terminated remittances is promising given the short time since the launch of IME Pay’s international remittance transaction directly in mobile wallet.

Remittances and financial resilience

Improving financial inclusion and resilience involves strengthening people’s financial ability to withstand setbacks. IME Pay’s mobile wallet data shows that those receiving international remittances receive larger, more frequent transactions than those using it for domestic transactions alone, offering evidence to show that digital remittances accelerate access to formal financial services, thereby offering a pathway towards the financial inclusion of migrants and their families – especially women.

A small group of early adopters is heavily using the mobile wallet to receive remittances

As shown in Table I, although the ability for IME Pay mobile wallet customers to receive international remittances is still relatively new, to date, only 4 percent have done so. The remaining 96 percent of mobile wallet customers are still using them for domestic transfers only.

Interestingly, it appears that due to the high prevalence of remittance receipts among women, more women use the international mobile wallet than the domestic one. This suggests that offering a fuller suite of financial services through an integrated product that women already use can lower barriers to entry and help them overcome the digital divide. It will be interesting to see whether this trend holds over time.

Overall, customers using their mobile wallets to receive international remittances are more active, making nearly twice as many transactions of over four times the value as those making domestic transactions only. Not all of these transactions are international remittances, though. International mobile wallet users receive roughly five times as many domestic transactions as domestic mobile wallet users. Considering that around 1 out of 4 Nepali households receive remittances, there is a public policy and business case for the digitization of remittances because it can generate wider mobile money usage in the economy, thereby contributing to greater efficiency gains in the financial intermediaries.

Customer retention and loyalty are higher among wallet users who receive remittances

Mobile wallet customers receiving international remittances are also more loyal than those using them exclusively for domestic transactions, as revealed by the higher retention rates shown in the customer survival curves in Figure VI. For instance, out of every 100 domestic mobile wallet customers who download the app, almost 28 drop off the system within the first month, and 45 leave within the first three months. After six months, only 38 of the original 100 customers are still actively using the wallet, having made at least one transaction in the previous 90 days. In contrast, of every 100 remittance-receiving mobile wallet users, only 15 drop off within the first month, and only 25 drop off in the first three months. After six months, 60 are still making transactions.

Figure VI also shows that women remittance-receiving wallet users drop out more quickly than men. UNCDF’s analysis suggests that improving the retention rate of women to the same level as mencould generate IME Pay an additional $3.5 million in revenue each year.

Achievements and next steps 

By working together to improve access and usage of digital remittances and thus increase financial resilience for the Nepalese people, especially last-mile customers like women, youth and those in rural areas, IME Pay and UNCDF have the opportunity to transform the remittance landscape in Nepal.

Since the start of the collaboration with UNCDF, IME Pay has onboarded 4,045 new international mobile wallet users who have already used it to receive $3.3 million in remittances. At the same time, UNCDF has contributed to IME’s efforts in building an interactive dashboard combining agent and mobile wallet customer data and transactions to monitor the remittance market.

IME Pay has already begun using the research and insights generated so far to ideate possible product improvements to its international mobile wallet. For example:

• translating the IME Pay app into the Nepali language and simplifying the app interface to improve mobile money access broadly;
• implementing phone surveys to better understand the low rates of digital remittance adoption among women in Madhesh, Karnali, and Sudurpashchim;
• implementing an inclusive agent scoring incentivization and accreditation system to encourage the onboarding of new customers, especially women and other last-mile groups; and
• increasingly using the power of data analytics and human-centred design to tailor products and services to customers’ needs.

Working with UNCDF has significantly aided us in identifying the gap between banked, unbanked and underbanked remittance recipients and in understanding the gender gap in the uptake of digital services. Thus, our fundamental strategy entails building accessible financial services to connect the unbanked to a digital banking platform, thereby reducing the gender gap. We have a clear resolution to activate the underbanked population by providing them with the necessary digital financial tools for saving and investment.

Hem Raj Dhakal, MD, IME Group of Companies

The next stage of the collaboration will involve implementing demand-side customer surveys to provide baseline insights for product innovation. The next IME Pay blog will use insights from these surveys to provide more in-depth customer and agent profiles as well as detailed comparisons of agent-based cash and mobile wallet-based digital use cases.

References

1. World Bank, “Personal remittances, received (Current US$, % of GDP) – Nepal”, World Bank DataBank. Available at: https://data.worldbank.org/indicator/BX.TRF.PWKR.DT.GD.ZS?locations=NP (accessed on 3 February 2022).
2. IME Pay. “Remittance feature live on IME Pay”, 16 April 2020. Available at: https://blog.imepay.com.np/remittance-feature-live-on-ime-pay/#:~:text=IME%20Pay%20has%20introduced%20remittance,and%20securely%20into%20their%20wallets.
3. Government of Nepal, Ministry of Labour, Migration and Social Security, Nepal Labour Migration Report 2020 (Kathmandu, Government of Nepal, 2020). Available at: https://moless.gov.np/wp-content/uploads/2020/03/Migration-Report-2020-English.pdf.
4. Sujeev Shakya, Sudip Bhaju, Subrina Shrestha, Raju Tuladhar and Shayasta Tuladhar, Making Access Possible:Nepal Detailed Country Report (UNCDF, 2016); UNCDF, “Demand analysis on remittances in Nepal”, presentation slides, February 2019. Available at https://uncdf-cdn.azureedge.net/media-manager/documents/95318?sv=2018-03-28&sr=b&sig=eoTm%2FLxNaWn8cojfDLcgD1wg979RQLaC3GeZ0po9cK8%3D&se=2022-07-19T17%3A03%3A27Z&sp=r&rscd=attachment%3Bfilename%3D190131-Demand%20analysis-nepal-mm4p.pdf; and ibid.
5. Sujeev Shakya, Sudip Bhaju, Subrina Shrestha, Raju Tuladhar and Shayasta Tuladhar, Making Access Possible: Nepal Detailed Country Report (UNCDF, 2016).
6. The Global Findex Database 2021
7. IMF – Financial Access Survey (FAS) 2021 
8. Shakya, S. et al. (2016) Making Access Possible – Nepal Detailed Country Report.
9. Robin Gravesteijn, Amil Aneja and Houle Cao, “Migrant remittances in the times of Covid-19: Insights from remittance service providers”, UNCDF blog, 11 May 2020. Available at: https://www.uncdf.org/article/5611/migrant-remittances-in-the-times-of-covid-19-insights-from-remittance-service-providers (accessed on 3 February 2022); World Bank and KNOMAD, “COVID-19 crisis through a migration lens”, Migration and Development Brief, No. 32 (Washington DC, World Bank, 2020). Available at: https://openknowledge.worldbank.org/handle/10986/33634.
10. International Organization for Migration, 2020 Remittance Inflow Trends Snapshots (Bangkok, IOM, 2021). Available at: https://www.iom.int/sites/g/files/tmzbdl486/files/remittance_inflow_trends_snapshot_web-compressed.pdf.
11. Prithvi Man Shrestha, “Banks digitise remittance processing after lockdown”, The Kathmandu Post, 16 May 2020. Available at: https://kathmandupost.com/money/2020/05/16/banks-digitise-remittance-processing-after-lockdown (accessed on 3 February 2022).