Up your remittance game with wallets
Nora Asha Gurung, Product
Often considered a bank that sells coffee, Starbucks’ app is one of the most used payment apps in the US with 31.2 million users in 2021, second to Apple Pay. It holds deposits more than many banks in the US (USD 1.5 billion in Q4 2021). All of this is even more mind-blowing when the Starbucks app is a closed wallet that allows users to load funds into it and only spend it within the Starbucks ecosystem. Whereas with Apple pay and banks, you can spend at multiple locations and withdraw funds when needed.
The success of Starbucks boils down to its informed user experience and customer loyalty strategy. In 2009, Starbucks launched its mobile card app in 16 stores. The success of this led to a rapid expansion nationwide. The app was linked to their loyalty program to allow users to track their “stars”. It was more convenient and fast to pay with the mobile card barcode and now even “Shake to Pay” but the fact that it was integrated with their loyalty program incentivized users to embrace it.
Not unknown to most coffee lovers, users can preload their wallet from their account or card and use it to buy coffee. For every dollar spent using the app, Starbucks users are awarded two stars. For every dollar spent directly from other payment methods like cash and card, users are only awarded one star. These stars can later be used for rewards.
While you are standing in line waiting for the person in front of you to order their Pumpkin Spice Latte with almond milk, 2 pumps of pumpkin spice sauce, with light whipped cream, and extra cinnamon, mobile pre-order lets the Starbucks devotee skip the line. And when you get your drink from mobile pre-order, there are more chances that they will also get your name right! An ecosystem built around their integrated digital wallet to exactly meet users’ needs.
That’s good for Starbucks but, how can wallets help your remittance business?
Similar to the lines between banking, retail, and payments, the lines between banking, remittance, and cross-border payments have also started blurring. In this wave of technology adoption and battle for customer loyalty, digital wallets are the next step to add additional value to your hot potato remittance platform that competes with mushrooming remittance providers across the globe.
Faster remittance transfers
Remittance transactions once debited from the sender, need to be collected by the licensed entity before being pushed for payout to the destination country where the amount is credited into the receiver’s bank account and wallet or handed cash in person. Although receivers can be provided funds instantly through a pre-fund model, transactions are settled over a few days depending on the payment infrastructure of the involved countries.
When you introduce a wallet into this equation, funds travel from the sender’s account to the licensed entity when a user loads their wallet. The funds are held in their wallet until the user decides to use them. Initiating a remittance transaction from a wallet involves the held amount being pushed for payout, hence, the remittance transaction in itself settles faster at the first leg of the funds’ journey has already been completed. This eventually translates to faster payments for your users, or if using a pre-fund model, a lesser cost of prefunding.
Seamless user experience
Many users abandon payment flows due to cumbersome payment processes. Wallets can be used to build the equivalent of one-step checkouts for remittance. Moreover, the wallets can afford the users peace of mind that the remittance transactions do not touch their precious bank accounts directly, similar to using a temporary card with a balance limit.
The collected data, such as funds in the wallet and the length of time the amount is held in the wallet, can also be used to assess risk to create seamless experiences for low-risk users while identifying high-risk ones.
Building an ecosystem
Along with remittance, wallets can open doors for the wallet to wallet transfers within your ecosystem. This could mean real-time transfers amongst wallet holders and for business value, customer acquisition at both sending and receiving ends. You can further expand your horizons by partnering or acquiring wallet licenses in other countries to build a cross-border wallet ecosystem.
Within your application, users could facilitate cross-border wallet transfers or even open wallets in different countries for local use. While you facilitate cross-border payment linkages between local wallets, each in itself could be equipped with local value-added services such as bill pay and ticketing.
Manage operational cost
Users can load funds using their bank account or card into their wallet and remit the funds to multiple different receivers or the same receiver in intervals. As the service provider, this will reduce the cost you incur as you now only have to bear one ACH or card processing fee as opposed to multiple. These fees add up, especially when payment processors charge 1-3%. These cost benefits could be used to drive better user experiences or even passed on to the user in monetary value.
Similarly, in case a remittance transaction needs to be refunded, the funds can easily be transferred back into the wallet of a user. Many times the account where the transaction is settled and the account where the wallet funds are held is within one ecosystem which could lead to faster settlements and low to no cost of refunds.
Dealing with chargeback and return risks
One of the major challenges with remittance transactions is chargebacks and returns- there are chargeback risks when creating remittance transactions directly using a bank account or card. These risks also remain while loading funds into a wallet directly from a bank account or card. Yes, there are multiple ways to reduce the risk of chargebacks (blog for another day).
However, when remittance transactions are created from your digital wallet, the chargeback risk of the transaction itself is reduced as the funds are held within your ecosystem and you can control its flow. This closed ecosystem also eliminates the risk of returns due to NSF without paying additional fees for real-time balance check. All in all, more transparency and control for you.
At the end of the day, like Starbucks, you need to cater the wallet to your customer’s needs to realize the maximum benefits a wallet product can offer. But, setting up a digital wallet for your business requires significant investment and resources to cover licenses, compliance, and technology, unless you can find a partner like Machnet. We provide all the necessary banking, regulatory, and compliance tools through a single API so you can build and launch your wallet for remittance in just 4 weeks. Shoot us a message.