This is a guest blog by Justin Oliver & Dan Radcliffe. Justin is Executive Director of the Centre for Micro Finance in India and Dan is Program Officer with the Bill & Melinda Gates Foundation.

Imagine you’re a migrant laborer living entirely in the cash economy. How do you send money home to your wife and kids? How do you buy supplies from the next town over? How do you pay utility bills? In short, how do you move physical cash over distances? Without access to systems that permit transferring money conveniently, safely, and cheaply, hundreds of millions of domestic migrants face these dilemmas regularly.

To better understand just how costly making remote payments can be for poor households, the Bill & Melinda Gates Foundation commissioned the Centre for Micro Finance at the Institute for Financial and Management Research (IFMR) and the Reserve Bank of India’s College for Agricultural Banking to survey 274 domestic Indian migrants and their families living at opposite ends of four domestic remittance corridors. The researchers sought to understand how these households move money and to quantify the total end-to-end cost of these transactions. You can find the full study here.

The key take-aways:

57% of respondents most recently used an informal payment channel – most commonly hawala couriers – to transfer money. As shown in the table below, the average cost of making a typical domestic remittance of Rs. 2,000 (US $44) through a hawala agent was 4.6% of the transfer amount, including formal fees and indirect costs, such as paying a bribe or traveling to the nearest payment outlet.

Contrary to popular perception, sending and receiving money through India Post is expensive:  in addition to paying 5% of the total transfer amount in formal fees, respondents spend on average another 1% in bribes, tips, and other indirect costs. The Post, used by 13% of respondents, was by far the most expensive payment option used by respondents.

Banks offer the cheapest method for sending money, costing on average 3% of a $44 transfer. But only 30% of respondents use banks to send and receive money, largely due to the difficulty of traveling to the nearest branch, obtaining the documents needed to open an account, and waiting in line to send or receive a payment. And while banks may be cheap, they’re by no means convenient. As shown in the table below, making a transfer through a bank requires an average of 15 minutes of travel and 45 minutes of wait time for senders, plus another 40 minutes of travel and 50 minutes of wait time for recipients, for a total of 2.5 hours!

The upshot is that poor domestic migrants in India tend to be excluded from the formal payment system and are left with informal transfer mechanisms which tend to be inconvenient and expensive. Pent-up demand for safe and convenient e-payment services fueled the growth of successful branchless banking deployments in Kenya and Brazil. Could the need for e-payments also provide the “hook” to drive take-up of branchless banking in India?