Remittances have many remarkable contributions to the economy. In some countries, the gift of remittances is more amplifying than the country’s Foreign Direct Investments (FDI). Remittances are considered as the first form of aid to reach at the time of disaster. Remittances also play a crucial role in improving financial inclusion by encouraging more people to have bank accounts and preaching financial knowledge.
According to experts, high technological advances have created various opportunities to modernize money transfer methods worldwide. However, strict bank regulations and their rigidity make the remittance process strenuous to many migrants.
The Sustainable Development Goals developed by the UN has recognized remittance as the critical method to achieve Global Development. The authorities are trying to reduce the average cost of sending money from 7.4% (average) to below three percent.
Migrants send back the money to their families. These remittances sent in the developing countries, sum up to approximately $440 billion every year. According to experts, the market will be more profitable if the authorities can track the remittances through informal channels.
Besides, around $32 billion remittances fail to reach the recipients as the transaction fees involved in sending and receiving money are high.
In this blog, I will discuss the points that highlight the trends affecting the remittance industry.
According to the International Association of Money Transfer Network chairman, de-risking is a menace to the remittance industry. De-risking or de-banking is the practice of financial institutions to exit the relationship with and close accounts of the clients that they perceive as risky. This method developed into a trend, and it turned out that they were de-risking an entire sector, including money transfer services. According to the World Bank, the money transfer operators and other remittance companies were severely affected due to this de-risking habit.
Due to this appetite for declining risks, many financial institutions were choosing not to work with sectors associated with risk. Consequently, there was a diversion of the medium of remittance flow to informal channels. The chairman also mentioned that the remittance flow through informal channels could not be stopped or tracked without the change in this de-risking trend.
Regulators and Banks are catching up.
The migrants need as a customer and their socio-economic profile are changing with recent years. In the early days, migrants were getting lesser payments. However, currently, their wages are also increasing with the competition. Hence they search for better services to send money back home other than a cash transfer.
For sustaining new customer demands, the regulations and banking technology also need to develop accordingly. Experts believe that implementing AI & ML can better identify a person for making the transfer than physical ID proof or documents. And this might require some changes in legislation.
With the blessings of technology, the remittance industry should move forward. They should take advantage of technology to develop their services such as automated identification, real-time transaction scanning and many such.
Many fintech firms have hopped in and made user-friendly software with all the high-tech features. With recent technologies, they meet all the customers’ demands, making global money transfer word of mouth.
Migrants spend a lot of money on transfer fees. Around $44.6 billion is the average sum of fees paid to transfer money from one country to another. There are two ways of money transfer, that are banks or regulated remittance providers and private remittance channels. As suggested by the experts, the key to managing this system is interoperability. In other words, different information technology systems can exchange data with each other.
Different technological companies are looking forward to creating interoperability within financial institutions. Many fintech firms with the support of technology have already achieved greater interoperability in recent years.
According to experts, depending on these trends remittances will be primarily dependent on digital format. Migrants are gradually shifting to less expensive platforms that offer multiple services other than a cash transfer.
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