Beirut-based financial company OMT is a family-owned and managed enterprise that has morphed from being simply a ubiquitous sight – the yellow and black logos of OMT agencies are scattered around Beirut, urban centers, and Lebanese villages in all of the country’s provinces – in an overbanked country to an existential supply channel of stable currency. An unknown but decidedly growing number of Lebanese families today depend on their relations in the Lebanese diaspora for inflows of handfuls of dollars every month to withstand the country’s insane inflation, capital controls, and the physical impacts of the 2020 Beirut Port explosion. In this regard, OMT, which started in the late 1990s as the agent of international money transfer corporation Western Union and today offers over 100 domestic and cross-border services to Lebanese residents, says it has facilitated about USD 3.5 billion and 10 million transactions (both numbers being in terms of OMT enterprise totals) by volume last year, while providing 150,000 families with cash through inbound money transfers during each of the past seven months.
To find out more about the OMT company’s operation, business model, and plans, Executive sat down with executive board member Naji Abou Zeid.
How did the money transfer volume in 2020 differ from one period to the next, especially when comparing the period before the August 4th Beirut Port explosion with the months following the catastrophe?
Before the blast, the Central Bank of Lebanon [BDL] had issued, in April [of 2020], a circular obliging all money transfer players to pay out transactions in [Lebanese lira] LBP at the rate set by the BDL Exchange Electronic platform At that time, this rate was LBP 3,600 [for USD 1], less than the rate of LBP 3,900 [that was subsequently decided by BDL]. The black market rate at that time was around LBP 4,200, so basically quite close to the payout rate that we would be adopting. We started paying in LBP from April until the blast happened in August. But as you know, the black market rate had reached [close to] LBP 10,000 in July, and the whole market was collapsing. Comparing with the same period in the previous year, we had about an 80 percent drop in our inbound transactions between April and August. It was a disaster.
The blast was a game changer for the entire [money transfer] industry, besides being an unfortunate turning point for the whole country. This is because the BDL issued another circular after the blast, allowing and obliging all players to pay out [inbound transactions] in US dollars. [The first week after the decision] was a hell of a week. We paid during that week what we usually pay in a month. From August until the end of December 2020, we had a 50 percent increase in transactions when compared to the same period last year. On a monthly basis, more than 150,000 families are receiving money through OMT.
In your view, how much of the change in the stream of inbound transfers witnessed by OMT was related to this economic crisis and the problem in banking relations, rather than to the Beirut Blast?
It has been definitely related to the economic changes, because until now we are still witnessing an increase in volume of inbound transactions. The spike was after the blast. But for the following months, we have been back to the numbers seen before the revolution [in the latter part of 2019].
Would inbound transfers today be at the same level or higher than during the economic shock of late 2019?
We don’t know yet. 2021 will be the indicator; 2019 was bad, and more than half of 2020 was very bad; the last four, five months of 2020 were good and we are still in good shape; we now will see how this [year goes].
It is known from studies on financial responses and donations after many types of natural catastrophes that financial support and humanitarian aid transfers usually peak shortly after a catastrophe but that this tends to wane soon after. Are you seeing this kind of pattern in money transfers to Lebanon?
The inbound service that we offer internationally, is mainly person to person. It cannot be used by an international organization to engage directly for sending humanitarian aid to recipients. Most of our transactions are family support, where family members living abroad are sending some dollars to their families to sustain their living. Employing OMT for [institutional] humanitarian aid plays a very big role, but it is not related to Western Union and so we categorize it under “cash out” services. We have applied for eight or nine [requests for proposals] from international donor organizations during the last six months, and OMT was able to win seven of them. Thus we have a cash out service that is totally independent from Western Union [transfer services], whereby the humanitarian donor can transfer to a list of beneficiaries through our locations.
Are you in humanitarian aid partnering with the National Poverty Targeting Program or emergency social safety net (ESSN) program that has recently been winding its way through the administration and Lebanese Parliament?
Currently we are dealing with international donors and UN-based [humanitarian aid]. We applied to all of these organizations such as UNICEF, UNHCR, UNRWA, and so forth.
That means that people who are receiving support from these organizations, can cash out through OMT?
Civil society activists in Lebanon have voiced concerns that it would not be easy for the poor to use electronic transfer services, because many poor are unbanked and the experience of these families is more based on cash. Do you see this as a problem?
We have two solutions for the cash-out services. In the first, the beneficiary receives an SMS with the payment number and related OTP (OTP= One Time Password), goes to any OMT location and provides this number along with the OTP and legal ID, and takes the support in cash. The other option, and it is basically the donor who selects the option, would be to upload the aid to a payment card. We have the OMT card, which is of course powered by a system and banking system, and the beneficiary can use this card to buy food [or necessities]. Sometimes [donor organizations] may specify specific goods or locations where this card can be used.
How have you adjusted operations to challenging circumstances such as the aftermath of the Beirut Blast?
In the first week we had a shortage of US dollars for about four or five days. Since the crisis, we are shipping our dollars from abroad. As you know, we have an international service with Western Union. There are inbound transactions and outbound transactions. Since the crisis started, the outbound business is down more than 50 percent; the number of foreigners in Lebanon decreased and the dollars available in Lebanon decreased. All people are saving them at home for later. Thus the outbound dropped drastically. The inbound is much higher than the outbound. We pay on behalf of Western Union all transactions and they reimburse us on the second day. Before the crisis, the process was made through banks. Now, we do this manually: we receive the cash in our bank accounts outside of Lebanon, and there is a money shipper who gets the cash. Then we distribute to the network. The whole process takes three to four days.
Is the cost of transporting cash and delivering it to Lebanon on a daily or weekly basis leading you to increase fees? You are charging a two percent cash fee to the customer, right? Is this roughly equal to the added cost of operations under current conditions?
This fee is mainly for the cost of the whole [distribution and money disbursement] operation. It is pretty much equal to the total cost. Sometimes you lose and sometimes you win but these are very small margins. We have a direct cost of minimum 1.85 percent but this can change. Whenever you have a lockdown, the cost of shipping doubles because of airport closures. We had six months of ups and downs.
To give you some numbers about how the situation of inbound transfers looks, before the crisis, 15 to 17 percent of the inbound flow of money was with money transfer companies. Lebanon used to get roughly USD 7 billion per year in remittances and our industry formed 17 percent of that in 2019. Now, in 2021 this is expected to increase. [This could be] because the business is growing; we will see in the coming months, but it is mainly because the banking sector is shrinking. I think we will this year see about 25 percent of total remittances but let’s hope that the numbers will be growing and not stagnating at the current level.
In presenting an introduction to OMT, you said that you have 71 percent of the market. Is that the total market or the inbound market of the industry?
It is for the total market of money transfers, for inbound it is much higher; I guess we are about 80 percent of total inbound in Lebanon.
Viewing this under a scenario of the total Lebanese economy today, the value of inbound transfers as share of overall GDP is today very high.
It used to be around 20 percent a few years ago. We predict that this number is going to grow for the coming three, four, five years. It all depends on what plan we will see implemented. So far, nothing has been done. People will rely on transfers.
How is the situation in terms of your overall profit mix and overall transaction numbers? You mentioned in the presentation that the average transaction since the blast was around USD 600.
Yes, it actually dropped. In previous years, it used to be around USD 650 and this average principal of inbound dropped by 7 percent in 2020 compared to 2019. This shows that the purchasing power of the Lebanese emigrant has also been affected by the pandemic, the global crisis, and everything. Also, they don’t need to send the same amounts anymore. They can exchange more Lebanese pounds for a lower amount of USD. It is also good to mention that over 60 percent of the transfers for the whole year of 2020 are in average for equal or less than USD 300 dollars, although the overall average is USD 600.
Does this mean that in the 40 percent of transfers that exceed USD 300, you have a significant share of amounts that are higher?
Yes, not very high but they dwell perhaps between USD 2000 and USD 5,000. I personally expect this segment of the business to grow in the inbound, because banks are not there. Unfortunately, we cannot handle large amounts. The maximum is USD 7,500 per transaction, and there are compliance rules and regulations.
Could there also be a correlation between the number of inbound transactions and the average value? If a Lebanese living in the US heard that the family back home needs monthly support to survive, but that the transfer of USD 300 might provide the family with 2.8 or 3 million LBP, might he or she remit money more often but in lower amounts per transaction?
It could be. We could do such an analysis in my opinion in June because then we will have almost a full year of knowledge. Right now, the picture is not yet clear, especially since January and February are usually slow months after Christmas and the holidays. The three months from March onward will be significant.
Moving further in thinking about the ease and diminishing cost of transactions, the Fintech disruptions of the past seven years have had vast impacts on the international money transfer industry. How do you at OMT approach this issue?
I will tell you a few words about our OMT digital platform, which is what we have been [working on] for the last two years and hopefully will launch in phase 1 in April. We have been developing this digital platform and we also had systems that were not compatible with [other] platforms. We had to change many things that were existing before even thinking about starting our mobile presence or digital presence. Now, the whole exercise is almost done and OMT will hopefully launch the first application of this kind in the Middle East.
You have many agents. How is the revenue proposition for an agent, how much money can they make?
Nowadays everything unfortunately has changed. Inbound is the only service that is still flourishing and revenue is generated mainly by inbound transfers from Western Union, because [they are] in fresh dollars. Even the commission that [agents] earn, they earn them in fresh dollars. All other services, from outbound [transfers] to services in Lebanese pound such as paying bills and even transferring money inside of Lebanon, have been losing a lot of revenue in the past two years, because of the devaluation. Our fees [for these services] are in LBP, so we lost about 80 to 85 percent of their revenue for OMT and for our agents. So far we did not change the fees, because putting added pressure on [customers] right now is a sensitive issue.
You have five revenue streams in OMT, inbound international, outbound, intra-Lebanon services, governmental services, and cash-out for donor organizations abroad. What are the shares that each service contributes to your revenue today?
We have four strategic business units: Money Transfer (WU and Intra for local transfers), Governmental Services, Payment Services (Telecom, Payments to Banks and other companies in the private sector), and Cash Out (Cash disbursement to individual beneficiaries). Inbound Western Union is number one, intra, the money transfer inside Lebanon is number two, then payment services for the private sector and then the public sector.
Are you then planning to at some point increase your fees for intra-Lebanon transactions, either to businesses or for governmental services?
We are actually studying this but nothing has been decided yet [Some fees are too low to cover cost] and this has been the situation for one-and-a-half years, but we are still hesitant about adjusting the fees, because [our services affect] all people.
From yet another angle, this brings the question of your social commitment and responsibility to the table. As you say, you deal with everyone. Is it correct that you undertook several steps in this regard after the blast?
We were able to cover 1,000 houses with an instant financial support of one million [liras] per household. We were on the ground with [the NGO] Caritas and got all the data from them, because we don’t have the database.
Wasn’t there also an action with Western Union, of waving the fees for inbound transfers for a whole week? Between direct CSR and aid to the 1,000 families and the waiving of the fees, how much was the total financial support of Western Union and OMT for Lebanon after the blast?
We did a lot for this because with Western Union it was a worldwide thing. It was a joint effort between OMT and Western Union for sending money from everywhere in the world.
What was the total value of the corporate contribution to Lebanon after the port explosion?
We actually have not made this calculation. What I can say is that during that one week, just six or seven days, we paid out around USD 25 million worth of inbound transactions. This was free of fees. Usually we do this in a month.
In going forward, how do you see the role of OMT in terms of responsibility as a financial services provider that many people rely on in a time when banks are not at the forefront of social commitments and corporate citizenship?
It is a tricky role. We have a responsibility to keep things moving and becoming one of the pillars of the daily economy of the Lebanese citizen. This is a big responsibility, because we have to be there and up to the level, provide the right resources.
Talking about compliance, do you have any pressure from the US treasury?
No pressure whatsoever, but I am sure they ask questions to the [BDL]. We deal with the [BDL] because we are regulated by [it]. We receive requests from the Banking Control Commission (BCC) and from the Special Investigation Committee (SIC). We are in very good relations with both of these.
With your ceiling of USD 7,500 per transaction, one might think that you are not high on the anti-money laundering radar.
Actually we are, because some customers tend to split transactions and play some games. But for this we have a special compliance system that screens transactions to spot such suspicious cases.
How many red flags do you have each month?
The [number of] red flags could be very high but the number of referred red flags is much lower. Transactions that we investigate are clean and nothing to worry about 95 percent of the time. Our suspicious transaction reports (STR) have about 100 cases per year.
As far as your company’s future, I assume that you are not intending to list OMT in Lebanon or anywhere else in the foreseeable future. Is that correct?
We are still a family business here. Maybe in the future, who knows?
For governance of OMT, I understand that you have four board members. Do you have major non-family investors?
No. The company is 50 percent owned by my brother and me, representing the Abou Zeid family, and the other 50 percent are owned by my uncle, Toufic Mouawad, and his daughter. The four of us are on the board. My uncle is the chairman of the board.
Combining the families that are relying on OMT as employers and the families that are in the agencies, how many people are depending on the business for their livelihood?
As OMT we create direct and indirect jobs, for about 4,000 families. This is the whole ecosystem, including agents, their employees and their families.
Are you thinking of expansion, in terms of your profile or in terms of geography?
We are so far in Lebanon and it is better to be the master of your market before even thinking about moving to other markets.
Does that mean that you are thinking about it?
For the time being, no, but maybe in the future. Why not? I believe that [once we] have the digital platform, we can reach every Lebanese around the world. Today we serve four or five million Lebanese here. With the digital platform we are perhaps going to serve 10 million outside. It is a big market.