Telcos are having a heyday participating in the lucrative remittance market, capturing a surprising 20 percent of flows through the use of their facilities.

Interviews with officials of Globe Telecom and Smart Communications Inc. showed that their combined deals at P123 billion, ($3 billion) last year represent roughly 20 percent of total remittances for the year.

Some 2.2 million OFWs roughly one-fourth of the estimated 8 million OFWs worldwide use the telcos’ virtual wallet.

How they do that? You may want to ask.

Globe through GCash and Smart through Smart Money offer "virtual wallet" services to OFWs giving them fast, cheaper and reliable means of sending their dollars home.

The two telcos course the money through banks but they have found means to offer a cheaper service appreciated by "text-happy" Pinoys.

Smart introduced its e-money in 2001, followed by Globe in 2005. Smart Money offers the service in partnership with a bank, while in GCash, the funds pass through G-Exchange Inc., the Globe Telecom unit that handles the transaction. GXI then deposits the funds in a bank.

Since May 2006, monthly remittances run above the $1 billion mark. The central bank traced this development to the deployment and of higher paid workers at that, to the expansion of banking remittance channels and use of technologies such as those of telcos.

The central bank estimated that banks now capture 90 percent of total remittances up from 80 percent a couple of years ago. . Last year, total remittances were estimated to have reached $15 billion, seven percent more than the previous year.

Of that, $14.3 billion were seen passing through banks. Of the $14 billion, Smart said it handled P56 billion or $1.33 billion and Globe a higher P67.2 billion or $1.6 billion.

Rizza Maniego-Ella, president of GXI said three factors – remittance charge, convenience and security – make remitters choose the virtual system.

For the Smart Money model, Lito Villanueva, head of new business solutions of Smart Money Group, explained how the service operates.

Smart always operates with a bank so it doesn’t offer the service on its own. With Land Bank of the Philippines, for instance, it offers the service to overseas workers through the Smart OFW SIM (subscriber identification module) card, which comes with two debit cards – one each for the remitter and the beneficiary.

The avail of the service, the remitter needs to enroll with the bank, in this case Land Bank.

The remitter loads money into his card, then informs his beneficiary of the remittance through the short messaging system or text. The receiver, in turn, withdraws the money using his own card at a Land Bank ATM or any Bancnet or Megalink ATM.

The remittance is quick and convenient, done in a matter of minutes. An automatically generated text alert informs the remitter of the fund transfer and the withdrawal from the receiver’s account. The alert is free of charge.

In terms of cost, sending remittance through text is cheap, based on a comparison between a Land Bank remittance and Land Bank-Smart text remittance.

A remitter from Dubai is charged a fee of P230 when he makes a remittance with a Land Bank partner-bank or partner-remittance company in that city. Land Bank, meanwhile, charges a fee of P50.

When the remitter makes the actual fund transfer from his card account to that of his beneficiary, Land Bank again makes him pay P50. Plus the roaming fee of P22.50, the remitter spends a total of P307.50 for the whole transaction.

That’s P122 less than what it costs to send a bank door-to-door remittance (P430) because while there is no fund-transfer fee, Land Bank charges P200 for the transaction.

Meanwhile, Globe would not disclose its remittance charges but Eala said remitters benefit from "economies of scale."

"The system is running on a telco infrastructure designed for high transaction volumes and extended coverage reaching even the most remote areas. The economies of scale afforded by the telco infrastructure translates to lowered costs that are passed on to our partners and eventually are passed on to the subscribers," Eala said.

How does a telco gain from the text remittance? Villanueva said they don’t earn from the remittance charges, which are all for the bank and its partner-remittance firm to take, but from the P22.50 roaming fee when the remitter uses his cellphone plus P1 for every text message coming from the remitter or receiver.

Despite the convenience, the market is, however, still to catch up with the use of e-money to transact business including using the card to make remittances.

Smart has an existing tie-up with Banco de Oro Universal Bank for the use of Smart Money.

A total of 7.2 million of Smart’s more than 30 million subscribers have activated their Smart Money feature but only 1.8 million are actually using it to transfer funds or make payments for goods and services.

Smart handled a volume of P56 billion from these transactions in Smart Money last year, Villanueva said. The telco generates an average of 1.2 billion SMS or text messages daily, he said. There were no comparative data provided.

Meanwhile, GCash handles about P5.6 billion transactions per month through its network of 6,000 domestic partner outlets, 400 foreign partner outlets, 1,800 exchange outlets and 7,000 ATMs, Eala said.

Of Globe’s 20 million total subscriber base, about 500,000 are active users of Gcash. On average, Eala said Globe’s subscriber base has been growing at around 75 percent annually.

"Mobile commerce an an industry is still at its nascent stage. If we recall the ATM experience, it took somewhere between 8-10 years before ATM use became pervasive," Eala said.