Money transfers, remittances made digital
As the world becomes more and more connected, the spike in globalization fuels migration. Recent estimates show that over 250 million people currently live outside of their country of birth. According to UN figures, Asia and Europe each host over 75 million migrants, while North America is home to more than 56 million migrants. The United States has close to 48 million migrants alone. On the other hand, India, Mexico, Russia and China are countries with the largest diaspora, with 17, 15 and 12 million respectively, according to the World Migration Report 2018.
For many of these migrants’ families all over the world, remittances are a vital source of income and provide a financial lifeline for their communities. Low- and middle-income countries have grown rapidly in the past decade, and many families depend on these inflows to sustain their future. This financial inflow often lifts migrants and their families out of poverty, improve their access to health care and nutrition, and increase opportunities for education, housing and entrepreneurship. In 2018, annual remittance flows to low- and middle-income countries reached a record high of $529 billion, according to the World Bank.
This has led the players in the industry to further promote sustainable development and financial inclusion in the developing world. However, this cash-heavy emphasis on sending and receiving money is something that the rest of the world has yet to catch up with. There are a lot of inefficiencies in the traditional way of doing things. The costs associated with the traditional way of processing money transfers are rather high due to the investment in physical infrastructure to accommodate money transfers, such as the opening of branches and hiring of agents. Remittance companies pass these costs on in order to recoup their investment.
Migrant workers also have a need to physically go to a location in order to send money. Depending on the extent of the money transfer company’s network and the popularity of the corridor in question, there can also often be very high transactional costs in terms of foreign exchange and transaction fees that may not be clear to the sender. In the worst possible scenario, in some particular regions, migrant workers may come across unlicensed and unregulated rogues and put their hard-earned money in the hands of fraudsters.
These problems largely arise because of issues of financial illiteracy, where consumers are not made aware of the alternative solutions available in the market. It
also does not help that, according to World Bank data, almost 1.7 billion adults in the world are unbanked and operate solely on a cash basis. These problems can easily be addressed by improving access to affordable financial services.
The digitalization of cross-border money transfer companies has greatly helped address this issue. New remittance platforms have enabled both fully and semi-online transfer services that are entirely functional and aligned with emerging digital wallets and mobile money applications. Money can be transferred quickly and securely using
a mobile device or computer, without having to physically visit a branch. In some sectors, money transfer companies are also exploring the use of cryptocurrencies and blockchain to enhance the overall process.
New high-tech players are capitalizing heavily on this trend and are increasingly disrupting the remittance industry with not only low fees, but also virtually instant mobile transactions, eliminating the many friction points experienced by migrant workers in the past. Overall, the digitalization of remittances has helped intensify competition and increase transparency, and as it continues, inefficiencies in cost and time will be a thing of the past.
The continuous digitalization and innovation of remittances will be key to driving more sustainable developments globally. By ensuring that consumers can fully leverage the services provided by money transfer companies, and improving financial education around the technologies available in this growing industry, those in the forefront of digitalizing remittances can help to bridge worlds and build a better and brighter economic future for all.
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Alberto Guerra is chief executive officer of UniTeller Financial Services.
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