While reading the June 2009 issue of McKinsey on Payments, I encountered an article on remittance that got me thinking about remittances within Europe.

The McKinsey article discussed the lucrative but difficult remittance market.

“Global remittances can be analyzed by geographical “corridors” of money flows between countries.” The largest corridor is between the US and Mexico, with US to the rest of Latin America second. Other significant flows include Western Europe to Eastern Europe and to Africa, US to India and Middle East to India.

Although bank and telcos have attempted to enter this market, they are finding it hard to compete with money transfer operators (MTOs), according to McKinsey.

It is my contention that the profits in the Western Europe to Eastern Europe remittance corridor are drying up, with only banks potentially earning anything from the remittances. This is caused by SEPA.

A poll conducted by Niedziela.nl, a Polish community portal for Poles residing in the Netherlands, in December 2008 showed that of the respondents that transfer money back home, almost 70% use a SEPA Credit Transfer. The rest use MTOs, friends and family, or small bus and shop services.

The Single Euro Payments Area (SEPA) seeks to harmonize transactions in Euro. The SEPA Credit Transfer stipulates that a Euro transaction should be conducted in the same manner as a domestic transaction within the SEPA region. In the Netherlands domestic transactions from one bank account to another are free of charge for consumers.

So, transaction to Polish accounts from a Dutch account are, likewise, free of charge. (The only caveat is that, depending on local bank fees, the recipient might have to pay a small fee for receipt. But this will be a flat fee and not a percentage as with MTOs.)

If a transfer to Poland is  free of charge, why use the money transfer operators that charge a fee for their service? Or why use the shady shop and bus services that can charge up to EUR 50 per transaction, as one shop assistant told me? 

Most Poles, understandably, opt for a simple and free SEPA Credit Transfer. And as a result, the MTOs are loosing market share.

Dutch banks have begun to cater to the large number of Polish migrants in the Netherlands with Polish language banking websites. Meanwhile, the money transfer operators are advertising heavily in Polish community publications, hoping to retain a share of the market.

Tags: European Union, Poland, Remittance, SEPA, the Netherlands

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