PICTURE THIS. YOU NEED TO SEND MONEY HOME from the U.S. In the good old days, you would mail a check from your account in the U.S. to your home in India. The check would get there. But there is one problem. It invariably gets there too late. And you are another victim of the vagaries of the postal or courier system.

Take the example of Shiv Raghuram. Needing to send a certain amount home in a hurry, he opted to post a check for the amount through the U.S. Mail. Not only did the check get delayed in reaching India, the instrument subsequently got caught between correspondent banks and transaction processes and Raghuraman and his family were at the receiving end.

Despite the technology-savvy of Indians, most people, however, seem reluctant to rely on money transfer agents. “Many people are perfectly willing to risk the fluctuations of the international postal or courier system, yet they find it difficult to use the services of a money transfer agent,” says Raj Kapoor, chief executive officer, Times Online Limited.

Remit2India is the money transfer service division of Times Online Money Limited, incorporated as a public limited company in 2000. The company is promoted by Times Internet Limited (TIL), (a subsidiary of Bennett Coleman & Company Limited), Citicorp Finance (India) Limited (CFIL), and I-flex Solutions Limited (I-flex).

In spite of the presence of a sizable Indian population abroad, people still have not woken up to the idea of online money transfer. “There still is a lot to be achieved in the Indian context. People in India still receive money from family and friends living abroad through demand drafts or checks,” Kapoor feels.

Money Transfers: BIG Business
Various surveys peg total remittances into India per year through official channels to be more than $15 billion. Industry estimates of the hawala (unofficial) market are approximately of the same size. With an estimated 22 million people of Indian origin spread across the world, the remittance volumes are expected to go only one way-up. Market estimates of the growth rate are around 7 percent.

The margins are relatively high with some money transfer agencies charging as much as 5 percent of the amount as fees plus foreign exchange commission, with very little capital exposure. Customer knowledge about various modes of money transfer and various hidden charges has been limited and until now everyone has been able to get away with it. With the proliferation of technology allowing more remittance options, better service, and opportunities for transparent comparison, the market is up for a shake-up. And ICICI bank and Remit2India are two companies poised to lead the market.

P. Gopakumar, Head of NRI services for ICICI says, “We saw a trend towards technology-based money transfer as early as 1999 and launched our remittance brand, “Money2India.” It started with its online remittance products, “PowerTransfer,” in the U.S., U.K., Canada, and Singapore. Over the past 6 months, it has been working on a number of innovative remittance offerings and have already introduced a number of new products in the market.”

Traditional vs Modern
The geography has also proved to have an effect on the modes of money transfer preferred by people. Says Gopakumar, “In the Gulf and South East Asia, the traditional mode of money transfer has been through the purchase of a rupee draft across the counter from an Exchange House or Bank and couriering it to the beneficiary in India. This process has multiple disadvantages; the draft would take time to reach India, it might get lost in transit, and the beneficiary has to deposit the draft to his local bank and wait for a few days before the amount gets credited.”

In countries like the U.S., Canada, U.K., and the rest of Europe, traditionally, wire transfer through the local bank account of the remitter to the beneficiary bank account in India has been the most common way of sending money back home. However, even this method is fraught with inordinate delays. “Also international wire transfer charges are quite high (between $25 to $50 depending on the bank of the remitter) and becomes extremely significant for low value transactions,” says Gopakumar.

Indian public sector banks have traditionally been strong players in this market because of the vast network of branches in India and high brand awareness.

The other traditional way of sending money back home, which is common across all geographies, is sending a check in local currency (i.e. dollar check for a remitter located in U.S., etc.) to the beneficiary in India. The beneficiary deposits the check into his bank account in India. However, this is a very time consuming process (the Indian bank could take anywhere between 1 to 3 months before crediting the beneficiary), as the check is sent back to the country of the remitter for local clearing.

The other popular method is through global money exchange companies like Western Union. Here, the remitter walks to a Western Union agent and gives cash. The beneficiary in India can then go to the closest Western Union agent and collect the money in cash. However, as per RBI guidelines, the amount that can be taken as cash is only Rs. 50,000. Also, though theoretically the money can be transferred within 30 minutes, due to the time zone difference (especially in the U.S.), it takes a day for the beneficiary to receive the money. In addition, the transaction charges can be as much as $50 for every $1000 remittance. Moreover, the exchange rates offered may be far lower than what banks offer.

Online Money Transfer: Poised for the big leap
Companies like Remit2India and ICICI effectively plug the gap in these traditional channels of money transfer with a suite of online transfer products. By providing customers with the option to transfer their money in the comfort of their home through a number of online money transfer products, companies like these are eating into the profits of agents who practice the traditional channels.

So, what are the biggest advantages of a good Internet money transfer system? Simply put: A mix of speed and convenience. Add to this the most important factors of trust and reliability and you have an unbeatable combination.

“Thousands of Internet-savvy Indians in the U.S., Canada, the U.K., and Germany rely completely on Remit2India to send money to their families home in over 6000 locations through a purely online mechanism. The convenience of not having to wait in queue or travel to a bank or money transfer agent is unbeatable. Owed to efficiencies brought in by the Internet, the pricing is also the friendliest, making it possible to send home money for as little as $3,” Kapoor says. “People will just need to connect to the Internet from the comfort of their home or office, and directly debit their account in their country and credit the account of their receiver in India.”

Indians abroad who have families in rural India have greatly benefited from this channel of money transaction since education, logistics, and banking infrastructure is much below par compared to the rest of the country. Also, the fee is all-inclusive and the receiver pays nothing for the transaction. Additionally, if the receiver has accounts with the 9 premier banks in the country, or is banking with any bank in the top 12 cities of the country, Remit2India even credits the receiver's account directly, making it truly online, end-to-end.

Online money transfer services estimate that the market will see a significant adoption of modern technology-based options vis-a-vis conventional modes of money transfer such as demand drafts, money transfer agents and telegraphic transfers. “The landscape will change with technologically superior and secure money transfer firms becoming the preferred choice of remitting money into the country by Indians globally. The shift is on,” Kasturi says.

But it remains to be seen whether these services will mark the decline and eventual demise of the neighborhood money transfer agent.