Every week or so, Nehemias Navas-Perez, 32, a Long Island, New York, landscaper, trudges over to the local Western Union or Intermex to send a couple hundred dollars to his family in the jungle-covered outpost of El Peten, Guatemala. Remittances from folks like Navas-Perez, who emigrated from El Peten 11 years ago, can account for 11% of GDP in small countries like Guatemala, and create huge international money flows each year: In 2011, World Bank figures indicate that there were $483 billion in such remittances worldwide. The stream runs pretty consistently. According to Dilip Ratha, manager of the World Bank's migration and remittances unit, international transfers fell just 5% in 2009, the nadir of the recession, before quickly rebounding.
It's not a smooth flow, however. Each time Navas-Perez sends money, 5% to 6% goes to Western Union or Intermex. That adds up. Last year, Guatemalan migrants paid $232 million to remit roughly $4.4 billion, according to local newspaper El Periodico. Furthermore, getting that remittance money can be terribly inconvenient for poor Guatemalans, involving long travel to urban centers with banks that are open for limited hours. But in the pocket of his jeans, Navas-Perez has the technology that could solve these problems: his phone.
Over the past decade, a Luxembourg-based telecom provider called Millicom has established itself across Latin America and Africa by offering, under the Tigo brand, prepaid phones and expansive coverage to low-income consumers. "When our competitors saw us adding rural communication towers," says Tigo exec Juan Carlos Arriaga, "they said, 'You're throwing your money away. Those people won't have money to buy a phone or a scratch card.'" They were wrong, and now Tigo is the market-share leader in many of the countries it serves.
In 2011, Tigo launched a domestic mobile-transfer program in Latin America, allowing its customers to send cash to one another via cell phone. To ensure easier access to that money, it tapped 1,600 of its prepaid phone vendors to become cash-out points. Explains Arriaga, "We're using hardware stores, local pharmacies, and big grocery stores. The financial institutions in Guatemala charge 15% to 25%, but our fee is just 6%." Tigo already has more affiliates than all the other remittance centers in the country combined, and it plans to expand to 3,000 next year.
This spring, Tigo will offer its program across borders, which could make it much easier for folks like Navas-Perez to send money home. There's huge potential for growth. "Banking penetration in Guatemala is only about 32%," explains Tigo Money's consumer-understanding coordinator, Carla Colindres Garzaro. "The goal is to give people a solution that matches their reality." Juniper Research projects that by 2016, migrants will send $55 billion by phone, compared to $12 billion in 2011.
Going international, Tigo will borrow from the playbook that has helped mobile financial management take hold in Africa. Password-protected mobile accounts and cash-out centers in villages are designed to help indigenous Guatemalans overcome their historic distrust of banks and fears of crime in big cities. But mobilizing transactions in the Americas may actually be more complicated than in Africa. Tigo and other providers must navigate a morass of regulatory hurdles in both the sending and receiving countries. Those policies don't just vary by country; they vary by U.S. state. These high barriers to entry in developed countries help drive up remittance prices, while the prevalence of large providers preserves the status quo. Africa's less-developed cell-phone infrastructure, by contrast, featured a lax regulatory system.
So for now, mobile operators like Tigo must partner with established, old-guard remittance companies to get their international transfer programs rolling. That reins in Tigo's plan to change the existing fee structure. "There's much better technology now than before, which should make remittance costs very cheap," says Ratha, of the World Bank. "But there's a lot of money in keeping people ignorant."
Arriaga, however, isn't discouraged. "We won't be able to lower prices during the first year of operation," he acknowledges. "But we plan to gain a better understanding of the value chain and find options to lower costs." Until that happens, the primary benefit of mobile remittances will be convenience: Neither sender nor receiver will have to keep trudging to far-off transfer centers. For someone like Navas-Perez, that's a perfectly fine first step.