Money-changing, allied services and products biz back with a bang

The fortunes of money changers have seen a dramatic recovery even as they reinvent themselves

Orient Exchange’s volumes have hit $350 million this year, back to its pre-pandemic level. “We are where we are even as delays in issuing visas continue to affect travel to the United States and the United Kingdom, and airfares are soaring,” says Bhaskar Rao, managing director (MD) of the Indian operations of Dubai’s Orient Exchange LLC, a leading money changer.

Presumably, had it been business as usual, Orient would have been in a much sweeter spot. At the systemic level, out-bound Indian travellers carried a total of more than $4 billion, twice the 2021 volumes. (Each individual is allowed to carry $3,000.)

EbixCash — a subsidiary of the Nasdaq-listed Ebix Inc — has just signed a partnership with Al Fardan Exchange LLC of the United Arab Emirates for the import and export of forex. “We have also joined the league of banks as card-issuing entities, and offer door-step delivery along with customised card programmes for business travel and students,” points out

T C Guruprasad, MD and chief executive officer of EbixCash Payment Solutions Division.

The buoyancy in money-changing — and allied services and products — is a far cry from the situation a year ago, when many of these firms had lobbied the government for direct benefit transfers for their employees. These entities are a key cog in the travel and tourism industry, and employ nearly 11 million people. The washout of two consecutive leisure seasons owing to the pandemic, dull corporate travel and fewer students enrolling for admissions abroad had meant that there was much less to live on.

Data from the Ministry of Tourism indicate that the number of departures from India’s shores grew at a compounded annual rate of 4.90 per cent between 1991 and 2021. Owing to the pandemic, this fell dramatically, but in 2021, departures rose 17.23 per cent over 2020, compared with a decline of 72.9 per cent in 2020 over 2019. These numbers can only get better.
 

Now, despite the billions of dollars it handles, the money-changing industry is largely faceless. Many of the early entrants had their roots in the old-world forex brokerage business targeted at banks. There’s been a shakeout here as well, with only 15 active brokerages now, down from 40-odd a few years ago (it was 125 in 1998). Also, five firms — Kanji Pitamber, F R Ratnakar & Co, Vrijlal Thakar & Co, Govindram & Sons, and Mecklai & Mecklai, many going back to nearly 70 years in vintage — control 75 per cent of the volumes.

If these firms had played it well, there’s no reason why they couldn’t have mirrored global players like Tullet Prebon, ICAP or EXCO; or the web-ba­sed FXall, FX Connect, Atriax, Hotspot FX and LavaFX. And in the case of money changers, into an Orient Exchange, Moneycorp, Unimoni, or a Travelex.

The point is: while being dour may even be a qualification in the forex brokerage area, given its wholesale nature, it doesn’t sit well in the customer-facing retail money-changing business. You have to be savvy, since it’s a big opportunity to let go given that the Indian economy is already the fifth largest in the world; and more Indians will be needing forex support services and products when they go abroad.

The new world

Take the $3,000 you are entitled to in foreign currency. Seasoned travellers stay well within this ceiling (which, by extension, also means that they will not be a big market for money changers who have to come up with better ideas to cater to them). You also have prepaid travel cards issued by banks; and, of course, credit cards. (Not many money changers issue prepaid cards, even though there’s nothing in the Reserve Bank of India, or RBI, regulations which explicitly bars them from applying for a licence for this.)

The bigger picture is that you have to keep up with the times; that’s why Orient and Ebix have extended their footprint from traditional physical “forex-carry” money-changing. Orient issues pre-paid cards in partnership with IndusInd Bank, Yes Bank and Thomas Cook. So, what’s the value pro­position here?  “We price it better for customers compared with banks. It’s not core to them,” says Rao. That said, prepaid cards issued by these players don’t privilege customers with discounts at outlets, or cashbacks — that’s strictly in the domain of credit cards.

As for the pricing of physical forex, money changers believe they can do still better when compared with banks, “if we have free play to import forex,” explains Rajneesh Bansal, MD of the Chandigarh-based Paul Merchants. The RBI allows only select money changers (Authorised Dealers Category-II) to import forex for their retail sales needs.

 

“Banks have no such curbs, and can sell it to money changers. This has created an uneven playing field even though our rates to customers are much lower,” Bansal says, adding that while “there may be a case for curbing such imports when the rupee is weak, given the extraordinary global situation as we are seeing now, over time this policy has to be revisited. Why should you pay more for forex when you travel abroad?”
 

He’s taking off from the fact that in all major global markets, forex is imported by money changers, and not by banks — just as there are wholesale bullion importers, or, for that matter, private firms which transport thousands of crores of rupees daily in cash to load automated teller machines.

Integrated players will survive

It’s clear that only integrated players offering tourism-related services, forex and cards will survive. Like Thomas Cook. Or Ebix, which purchased the Centrum Group’s forex business — Centrum Direct — for Rs 1,300 crore in 2018. Centrum Direct was into overseas remittances, prepaid travel cards and traveller’s cheques. It has also partnered tuition-fee payment aggregators for processing outward remittances, and claims to have a 40 per cent market share in this area.

Outside of money-changing, look at TripMoney — an arm of MakeMyTrip — which bought a majority stake in BookMyForex, an online foreign exchange services provider, in April. In the forex brokerage business, the last deal among voice-brokers was in May 2018, when Crest Ventures purchased the 48 per cent stake held by Prebon Holdings BV in Tullett Prebon (India) for Rs 4.52 crore. There are simply no takers for monoline businesses.

“Digital modes of on-boarding and servicing customers are key. We will shortly launch Foreign Exchange (FX) prepaid cards under the Instarem Brand, a digital cross-border payments service,” says R V Bhatt, executive director of Nium Forex India. Globally, on Nium’s Open Money Network (a collective of financial institutions, e-commerce platforms and travel companies), firms can remit money and build new products and services free from legacy-system constraints. Nium has also partnered with Visa’s FinTech Fast Track Programme.
 

Meanwhile, the RBI has found four entities viable after they completed the test phase under the regulatory sandbox scheme for remittances — Cashfree Payments, Fairex Solutions, Nearby Technologies and Open Financial Technologies. 

Nium’s entry into India and the route it took points to how fast things are moving. Nium has acquired the local business of Wirecard (which collapsed last year in Germany’s biggest post-war fraud); Wirecard, in turn, had made its foray into India by acquiring StarGlobal.

Clearly, money-changing and allied businesses are back with a bang.