The growth of remittances is crucial not only for the remittance industry but for the economic development of many receiving countries as well. It is one of the reasons that the United Nations Sustainable Development Goals (SDG) include remittances as one of its top goals. Remittance volumes have been on the growth path, having recovered from the temporary blip in 2016, when they slid from $598 billion to $573 billion. In 2018, however, remittances jumped back to $689 billion. This growth is expected to continue, with $715 billion expected in 2019. Much has been speculated about the future dynamics of the remittance industry, given the rapid technological advancements.
The digital impact on remittances
One of the significant contributors to the continuous surge in remittances has been digitisation, leading to digital remittances gaining momentum in the last few years. The pace at which digital remittances are growing outnumbers the overall growth rate observed within the global remittance industry. In fact, digital remittances are expected to have a compounded annual growth rate of 23.8% until 2025. Reasons for this growth are factors such as convenience, competitive fees, faster adoption of digital cross-border money transfer options in emerging countries, user-friendly website and app design and efficient customer service.
In spite of the continued digitisation drive, traditional remittances continue to hold their own in terms of market share. In the last 24 years, global remittances have increased almost seven times and more than doubled in the last 13 years with traditional remittances forming a major chunk of this. However, the suburban and rural landscape of developing countries are beginning to see digitisation, and this phenomenon is likely to give a major impetus to the digital remittances during the coming years.
Other factors that drive remittances
It is essential to understand who is remitting money, to analyse the factors driving remittances. The majority of those who remit are expats, living away from their homes and loved ones. These are the people who are continually driving remittances in a big way. It explains why $528 billion out of the aforementioned $689 billion went to developing countries. Notably, India, China, Mexico and the Philippines received $215 billion in remittances last year; that’s 2% of countries globally contributing to 31.2% of the overall remittances.
The migrant population
The UN estimated that migration has risen at an average of 2.3% since the turn of the millennium. In terms of statistics, the number of migrants increased from 173 million in 2000 to 258 million in 2017 (United Nations Department for Economic and Social Affairs figures). With migration being one of the key drivers of growth in the remittance industry, the rising graph of migration is interwoven with the growth of the remittance industry.
Reducing the cost of remittances has the effect of putting the money back into the pocket of the consumers. Under the UN Sustainable Development Goals, the global target is to reduce the cost of remittances to 3% by 2030. It currently stands at 6.8% (in Q2 of 2019), down from 9.8% in 2008. Reducing the cost is also crucial for increasing the volume of remittances, which in turn can aid the development of countries like Haiti, Kyrgyzstan, Tajikistan and Tonga, where more than 30% of GDP comes from remittance inflows.
Also Read: The Feminization of Migration
Digitisation in the remittance industry is led by online and mobile-based transfer platforms, which are reducing the cost of transactions by operating without an extensive branch network and using technology in the transfer process. The impressive growth is heavily dependent on fintech and telecom infrastructure and is flourishing in regions where these are sufficiently available. Inversely, the absence or lack of financial and technological access and awareness among recipients, or even senders, can pose a challenge to digitisation. While the cost advantage of digital remittance has certainly helped overall remittance volumes, customers also value the overall experience and add-on services.
Improving the entire remittance experience and a robust network, too, can be an important growth driver in the future of remittances. Money can now be transferred to bank accounts, collected in cash, delivered in cash at the doorstep or even added to a mobile wallet, thereby enhancing the convenience of the customer. Similarly, instant transfers, added safety measures and transaction tracking are facilities that enhance the customer experience. A promise of increased synergy, transparent revenue sharing, strong compliance and a technological edge can result in successful partnerships and help further improve the remittances outreach.
International money transfer organisations will undoubtedly harness these growth drivers and build on their market presence and brand value to break new grounds. Disruptive ideas are essential triggers that help an industry break inertia and achieve a higher level of excellence.
