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value for your money

Working on low margins and overheads, money exchanges are able to pass on rate benefits to their customers
Nazia Khan

Walk by Ruwi High Street at just about any given time on any given day and you will see that there is no dearth of money exchanges, or crowds moving in and out of them. In fact, this is a phenomenon you will observe all over the sultanate. Both in Oman and beyond, the numbers that customers generate and which exchanges handle are a force to reckon with. According to a 2005 World Bank estimate, expatriates officially remitted US$230bn to their countries of origin; double the figure five years ago. For exchanges, providing official channels for remittance, among other services, these figures translate into growing business.

All about the money
Money exchanges offer bank and non-bank money transfers, currency exchange, sale and encashment of travellers cheques, as well as sell bullion. They are doing their best to diversify their services as much as possible, particularly considering the intense competition from other exchanges as well as banks. Says Muhammed Naimuddin, general manager, Modern Ex-change, "Among their other services, banks can offer guarantees, letters of credit, investment banking advice and trade finance. We deal with remittances and the buying and selling of cash as well as gold, which is a commodity. As per the licence given by CBO, exchange companies can deal in gold. It is just that some choose to, while others don't."

Of course, gold does not make for the bulk of the exchange business. Remittances do. Exchanges make their money from the diffe-rence in the cost at which they buy currency and the rate at which they offer it to customers. And what makes customers choose money exchanges over banks for remittance needs is that the former offers better rates. They are able to do this as they work on higher volumes, lower margins and smaller overheads as compared to banks. Their work involves constantly tracking the currency markets, in order to buy at the best possible rates and pass on the rate benefits to their customers. There are myriad forces at work affecting the rates, from the release of data about home loans in the US to the strengthening Indian economy. Exchanges that anticipate both cause and effect are the ones that can keep their customers coming back to them.

Meanwhile, the traditional products that made up an exchange's remittance repertoire – rudimentary demand drafts and telex transfers – are now backed by speedier channels. Exchanges now have arrangements with banks for electronic fund transfers (EFT). Under EFT, through tie-ups with different banks, exchanges are allowed to remit directly to the beneficiary's account through their network. Then, companies like Western Union and MoneyGram have brought with them the culture of quick transfers. With all this has come a whole new way of doing business. Says Naimuddin, "Drafts are slowly losing their place to EFT, though requirement for the former still exists. This is mainly when customers feel that they need documented records– such as fees paid to an educational institution or monthly EMIs."

Tonny George Alexander, country head, Oman UAE Exchange, talks about the growing strength of non-banking instant transfer systems. "Funds can be transferred in seconds through these. All a beneficiary has to do is go to one of the outlets, show proof of identification, and collect the funds. The convenience and reach is what makes these channels popular." Western Union, for example, has over 245,000 agent locations in 200 countries and territories around the world. Alexander adds that Express Money, which is an associate company of their exchange, offers similar services.

While these instant money transfer systems come at a price for customers (on an average, the charges for these are RO1.5, compared to 200-500bz for a draft), most exchange companies see them as the way of the future. V S Kumar, general manager, Mustafa Sultan Exchange, which is managed by the State Bank of India (SBI), says that their focus is on the existing fast remittance products. And they are working to add value to services attached to such products. "When a customer uses our product, SBI Express, through which remitted funds reach the account in 24 hours, he also gets an SMS when the money is credited. There are no additional charges for the SMS communication." The SMS facility is also available with Money Trans, a product the exchange offers through SBI associate, State Bank of Travancore.

By association
Technological advances and growing networks aside, the remittance business of exchanges is largely and fairly accurately perceived as one that mostly caters to a subcontinental clientele. Within that demarcation, there are further divisions, depending on the arrangements and agreements that exchanges have with banks in different countries.

Wasif Ali Khan, chief executive, Gulf Overseas Exchange, which is managed by the National Bank Limited, Bangladesh, informs that, apart from their Western Union association, the exchange has agency agreements with three banks in Bangladesh and one in Sri Lanka. He adds that Bangladeshi expatriates make up 90 per cent of their customers. "Our business can only grow as the number of Bangladeshi expatriates grows, so our growth has not been remarkable. But we are now in the process of entering into agreements with more banks in Bangladesh, as well as banks in India and Pakistan to increase our business." This year, Gulf Overseas Exchange will also increase its branch network to six from the existing four, with new outlets planned in Sohar and Barka.

Oman UAE Exchange, which started oper-ations in Oman in 1993, now has 19 branches. Alexander says that more branches are on the cards, even as he adds that competition is very tough. In a scenario where the difference in rates offered by various exchanges is non-existent or miniscule, what makes a customer choose one exchange over another?

Kumar believes that it is a combination of rates, service levels, and familiarity that keeps customers coming back. "People remitting small amounts of money are not that conc-erned about the rate they get. What they do want to ensure is that the money reaches safely and in time."

When there are large amounts of money involved, an exchange usually offers discounted rates. Exchanges get their rates through live quotes from Reuters screens, but there are those who follow rates in the local market and improvise what they offer. To attract customers, some exchanges change their rates after observing their competition and sell at a loss. They survive since their loss is not that big.

To keep ahead of the growing competition, exchanges are now offering more and more customer convenience. Explains Alexander, "We have something called a Gold Card, which allows a customer to have multiple beneficiaries on it, and track their instruments on the web. There is a one-time RO1 charge for the card. The response to the Gold Card has been good as the transactions become much easier at the counter. Customers need not fill an application each time. They can produce their card, choose from the list of beneficiaries, inform us of the amount, pay the cash, and the transaction is over. The instrument is genera-ted." He adds that they also have a tie-up with BankMuscat, whereby if a customer has an account with the latter and is also a gold card holder, he can use BankMuscat's call centre to transfer funds through Oman UAE Exchange.

Know your business
With the advantages of a growing cashless economy, money exchange business also has its perils. Irregular and informal channels of money transfer prevail, mainly because they are a lot cheaper than the proper channels. While that is a source of additional competition for money exchanges, they also have to be on guard against being used to circumvent the law. And that is where the Know Your Customer (KYC) policy comes in. Simply put, this is a customer identification policy that checks the credentials of the remitter and the source of the funds.

As an exchange manager points out, "We don't deal with anyone who comes into our shop. We have to verify the genuineness of the customer, and ensure that nobody is using our services to fund terrorism, drugs, arms or any other contraband items."

But for the average customer wanting to remit funds to his home country, the options are varied and simplified. Money exchanges are aware of the competition next door as far as retaining their clients is concerned and they are working at broadening both their services and their associations. As Khan of Gulf Overseas Exchange says, "There are a lot of exchange companies and we offer similar services, so the customer is really king in this business."