8 Ways You Can Transfer Money to India

Earn, save, send, repeat. Indian expats send more money back home than anybody else.

According to the World Bank, India received USD 69 billion in 2017 (expected to increase to USD 80 billion) through inward remittances. That is substantially more than the USD 44 billion received from foreign direct investments, as reported by the Department of Industrial Policy & Promotion, a division of the Indian Ministry of Commerce.

Indian diaspora like to maintain strong ties with their families back home. This is true for the unskilled and semi-skilled laborers in the Gulf countries, as well as the high-skilled workers in North America. A wide array of channels is available to migrants to send money to their loved ones. The preferred channel is usually determined by rates, fees, or access of the receiver, which can be quite limited for majority of the population living outside of urban cities.

We will describe some of the most common channels used by migrants to send money to India. They are different from each other in on/off-ramp options (bank transfer or cash), regulations, fees, transfer times and underlying infrastructure. In the end, we will also talk about a nascent channel for money transfers – cryptocurrencies.

1. Commercial Banks

Banks are the major players in the formal Indian remittance market. The biggest banks – State Bank of India and ICICI Bank – dominate this sector, thanks to their domestic and international branch networks. Private banks have taken the lead in building technology platforms to provide convenient services to their clients. In April 2018, ICICI Bank’s remittance app, Money2India, started allowing expatriates to send money using social media platforms such as WhatsApp and email.

Indian banks have also started dabbling with blockchain solutions for faster transfers. Axis Bank, a large Indian private bank, announced in 2017 that they would join the Ripple blockchain platform. Earlier, ICICI Bank had announced a similar partnership with Stellar, a rival platform to Ripple.

Banks also source remittance business from money transfer operators. In this case, banks act as principal agents, allowing receivers to collect money from their branches.

2. Money Transfer Operators (MTO)

MTO’s such as Western Union have been providing the pipelines for global money transfers since the 1870s. Western Union, a US-based company, has over 60,000 agents in over 7,000 cities in India. MoneyGram and UAE Exchange are the other major MTO’s operating in India.

Trying to keep pace with tech innovations, all of the above-mentioned MTO’s have announced early trials with Ripple’s enterprise blockchain, which has over 100 banks and financial institutions worldwide already signed up.

Fun Fact: Today, Western Union is near-synonymous with money transfers. However, the company began in 1851 as a telegraph services provider. The company didn’t start its money transfer business for another 20 years. Eventually, the invention of the telephone killed the telegraph business and Western Union shifted focus to money transfers.

3. Foreign Exchange Bureaus

Companies specializing in foreign exchange, such as Travelex, are also allowed to conduct money transfer services in India. They need to be licensed from Reserve Bank of India, the country’s central banking institution. They are usually present in areas such as airports, malls and tourist centres, and tend to be costlier than other channels.

4. Cooperative Banks

Cooperative banks are smaller banking units usually prevalent in rural parts, managed by member-owned organizations. These (typically non-profit) banks help provide basic and cost-effective banking services to areas with limited commercial banking access. They usually tie-up as principal agents with MTO’s to provide remittance services in rural areas. These are highly beneficial for blue-collar workers trying to send cash to their families back home.

5. India Post

India Post, founded in 1854, is owned and operated by the Indian government. It is the word’s most widely distributed postal system, with over 150,000 branches all over India. Besides taking letters to remote corners of the country, it also acts as an agent of Western Union and MoneyGram to provide cash collection points for receivers. The average remittance amount processed through India post is smaller than other channels (USD 70 as reported by World Bank). Although India Post is already the biggest agent for the MTO’s by far, digitization of their delivery mechanism can go a long way in reducing the time and cost of their services.

6. Informal channels – Hawala/Hundi

Prevalent in the Middle East-South Asia corridors, Hawala is popular among traders and blue-collar workers. Hawala involves networks of brokers (called Hawaladars) that act as intermediaries. In simplified terms, the sender gives cash to a broker (A), who in turn will liaise with broker (B) in the receiver’s city through messages. Broker (B) will then give cash to the ultimate recipient, without money actually crossing borders. The brokers work on trust basis and settle net balances among their network.

It is estimated that the informal channels comprise about 30%-50% of total transfers. In many cases, customers find them to be faster and cheaper than formal channels. Although not legal in most countries (including India), they can be effective when the recipients don’t have access to banks or MTO agent branches.

7. Remittance startups

New startups have begun making their presence felt. AngelList, an online database for early-stage companies, lists 136 remittance startups worldwide. This is by no means an exhaustive list. Many of these are eyeing a slice of the massive Indian market. UK-based VC darlings TransferWise and WorldRemit have already started servicing some of the popular corridors to India, including US, Canada and UK. Others such as Google’s Remitly and Paypal’s Xoom are also making inroads, backed by enormous tech and funding support from their parent companies.

The startup space in remittances is so exciting, that we need to go deeper into it in another article!

8. Using Bitcoin/Altcoins for money transfers

This is a small and unregulated, but very interesting channel being used by pockets of crypto enthusiasts. This is also probably being used by people seeking illegitimate means to move funds across borders. While the latter shall always find ways to achieve their goals, the authorities have made it harder for the former to do so. In April 2018, RBI (India’s central bank) blocked access of cryptocurrency exchanges to banks and payment companies. This effectively made it impossible for regular users to exchange cryptocurrencies with Indian rupees on those exchanges.

This also merits a detailed discussion in a separate article on how money can be transferred using cryptocurrencies.

Conclusion

The remittance industry is still dominated by banks and global giants such as Western Union and MoneyGram. Additionally, the preferred route for many semi- and unskilled Indian migrants is the informal Hawala system, which predates western banking.

However, the industry is being infiltrated by novel business models. TransferWise, one of the hottest London-based tech unicorns, allows users to send money across borders through their smartphones. They even claim to be faster and cheaper than the incumbents. As mobile and internet penetration increases across India, we shall see more people ditching the queues at physical branches and receiving funds online.

In the next article, we will explore the other side and talk about how people like to send money from the largest remittance corridor to India, the Middle East.