Worldwide remittance and mobile top-up

Remittance flows to Romania and how Mobile Credit plays its role

Romania is one of the top receiving countries of remittance. In a study carried out in 2006 by the ifad, the total inflow of officially registered and classified remittance to Romania constituted of 3.9 percent of the total GDP of Romania. Since then the remittance has risen and reached its high in 2008 with 9.38 Billion US Dollars. It is estimated that over 50 percent of remittance flows to the rural areas of Romania. This is especially relevant since estimates show that only 23 percent of the population in Romania is using financial services, meaning that 77% don’t use any financial services, which is traditionally most common in rural areas. The costs of sending money to Romania can be relatively low when carried out between two banks, but if you don’t have a bank account this is insignificant. Furthermore, a bank transfer takes traditionally between 5-7 working days. It can be assumed that therefore most official remittance takes place through Money Transfer Organisations (MTO) such as Western Union, MoneyGram or Moneybookers, but it can also be assumed that a large amount of remittance is unaccounted for and is remitted through unofficial channels. The MTO’s tend to have better networks than banks and are much faster (claims of under-one-hour delivery). The downside of these companies is that they are very expensive when you want to send small amounts, of less than 100 euros. The fees are as high 21 percent (World Bank, 2013), which is very high.

A shift to mobile credit transfers in Romania

Increasingly Romanians working abroad are using mobile credit as a source of remittance. They buy mobile credit for Cosmote, Vodafone Romania and recharge Orange Romania prepaid phones online. By sending money through this channel, the credit is delivered instantly and received on the mobile device. The costs are much lower for small amounts ranging from 7 to 25 percent (On Fonmoney between 7 and 10 percent), depending on the amount of mobile credits purchased. Mobile credits becomes particularly interesting for people who are unbanked, are on-the-go or lack the availability to collect cash from a partner of one of the MTO’s. Since the mobile saturation in Romania lays around 114 percent (New Media Trend Watch, 2013), it is safe to say that mobile credit has the potential to reach the whole population of Romania.

Remittance vs. Mobile Credit – the pattern reoccurs

When analysing the remittance sent to Romania (World Bank, 2011) with the amounts of mobile credits sent to Romania, it becomes clear that the remittance-flow and the top up flow show a lot of similarities. The highest remittance flow and the highest mobile credit flow into Romania stems from Italy with 29.33% and 37.15% respectively. Other countries such as Spain, Germany, the United Kingdom and France are also well represented in both flows into Romania.


What needs to happen in the future of remittance?

Romania benefits from all levels and varieties of remittance that enters the country: money is being saved and invested, consumption is increasing and general wealth is increasing. The trend needs to shift towards cheaper remittance and a wider array of possibilities. The needs of the sender and receiver are not fully met and need to be fulfilled to increase and facilitate remittance. The World Bank estimates, that when prices for remittance fall by 5 percent up to 16 million USD could be freed up to be send back home. It can be assumed that mobile credit is working as a supplement of classical remittance. A study conducted by Berg Insights predicts that the mobile money transfer market constituted of 350 million USD in 2011 and is growing at a rapid pace. For remittance levels to increase further through official channels, such as MTO’s and mobile credit organisations, Romania needs to further facilitate these flows and impose less laws that constrain the private sector to find further solutions to send and receive remittance. This would free up more and increase the flows of remittance that would enter Romania.