Remittance Services Market Overview, Trends and Outlook

International Remittance – IR or Cross border remittance – CBR the way it’s called.  In todays time IR/CBR has proven from the manifesto from decades on  how money transfer can fuel an economic engine. Remittance from migrant workers to developing countries helps not only their own house hold but also the country economy itself.

 

International Remittances and World Bank

There are many different ways in which remittance transfers can be made, including cash, goods & services, bill payments, online shopping, Uberification of services. This come with using individuals who provide this service to their local immigrant communities and services from specialised global money transfer operators.

The World Bank estimates for year 2016 remittances was over USD 440 billion. More than twice that of foreign aid across the globe. Migration and Remittances represents numbers and facts behind the stories of international migration and remittances. Remittance has impact across the globe. Africa is still lagging behind compared to other regions though.

The importance of the remittances by the African diaspora and its problems are very different compare to the rest of the world. African per capita income is now increasing in tandem with other developing countries as African immigrants are highly skilled workers. In comparison with Asian migrant workers African migrants are much educated and skilled.

AILabPage’s Financial Services Series – Financial Game Trap

Drawing on authoritative, publicly available data-

Some interesting facts: More than 247 million people, or 3.4 percent of the world population, live outside their countries of birth (2013 December Data as per study from internet). Although the number of international migrants rose from 175 million in year 2000 to more than 247 million in 2013 and surpassed 251 million in 2015.

 

Migrant workers & market share

The share of migrants has remained just above three percent (of world population) for the last fifteen years. The top migrant destination country is the United States, followed by Saudi Arabia, Germany, Russia, United Arab Emirates, UK, France, Canada, Spain, and Australia.

The top six immigration countries, on population, are outside the high-income OECD countries: Qatar (91 percent), United Arab Emirates (88 percent), Kuwait (72 percent), Jordan (56 percent), and Bahrain (54 percent).  

According to data collected by the World Bank as recently as 2015. The global average cost of sending remittances was >7%. From South Africa, it was >=17%.

Why remittances to Africa are not growing in accordance to international standards. However, many developing countries struggle to leverage these remittances. Though we are able to see through many reports and studies on internet that early shifts in global migration patterns and changes in global currencies.

 

Impact of International Remittances

The impact of remittances are extraordinary. According to available official data, the Mexico–United States corridor is the largest migration corridor in the world, accounting for 13 million migrants in 2013. Russia–Ukraine is the second largest corridor, followed by Bangladesh-India, and Ukraine–Russia.

For the former Soviet Union corridors, many natives became migrants without moving when new international boundaries were drawn. One of the major impediments is the cost and ease of sending remittances.

Remittances are part of an individual’s access to financial services. Good remittance product improves value to the user in the short-term and access to other financial products in the long-term. It also increases competition and could move transactions to the formal sector. Remittances play a critical role in supporting the welfare for many people and households in developing countries.

There are many questions which needs answers to find out “Whats happening & why” for now we can focus on below questions

1. Why remittances to Africa are not growing accordance to international standards?
2. How to evaluate the impact of remittance on the households?

These two questions are our agenda for this post. Moreover, remittances can give high economic growth. AILabPage’s research indicating that it can have a greater impact than ODA and FDI. This might suggest that remittances serve as a social safety net for those people who are not the poorest but who would be in need of targeted social assistance without remittances.

 

Few Records of Remittance Flow

In 2015, the top recipient countries of recorded remittances where India, China, Philippines, Mexico, and France as a share of GDP. However smaller countries such as Tajikistan (42 percent), Kyrgyz Republic (30 percent), Nepal (29 percent), Tonga (28 percent); Tonga’s economy is weak – based to a large extent on remittances from expatriates & on foreign aid and Moldova (26 percent) were the largest recipients.

Why there is no African country in this hit list. Are we really sure African remittance outlook is in Plug and play mode and not plug, pay and then pray! Main issues in Africa is around government policies, lack of financial literacy for migrants. Major challenges is  cost of remittances as most of hard-earned money is been eaten by money transfer agents or banks etc. This is where Mobile Money comes in as an angle to reduce the speed, time, cost and even energy.

Machine Learning, branch of artificial intelligence is now really helping financial savings chapters for cheaper remittances, such as the improvements in their capabilities to be informed customers. Potential savings from other aspects of financial management, such as choice of debt levels and instruments are key success factors here. Regression analytics indicates that remittances are negatively correlated with receiving any type of government benefits. Remittance corridors between South Africa and the rest of the Southern African Development Community (SADC), which are among the most expensive in the world.

 

Technology for Remittances – Remittance Intelligence

When we will stop reinventing the wheel as remittance are not new. All eco system around it i.e channels (digital or traditional), systems, methods, infra, issues, regulations and policies on sending & receiving side are-done deals.

From learning prospective, Asia Pacific has too much to learn and adapt for giving any remittance business to a flying speed. No big changes in final outcomes – migrants avoid switching to more expensive or less transparent remittance channels, but do not change the amount or frequency of remitting. Need is to change and designing policies to reduce the transaction costs, strengthen the formal financial infrastructure, leverage remittances to improve access to financial services. Experimenting further with adding additional content on budgeting, saving, and debt management seem fruitful areas for policy refinement in this area.

As a remittance service provider one needs to take care of exchange rate and their need & greed for margins, transfer fee & charges and reputation in market, speed of processing, methods & options to transfer and after & in service customer support.

 

Remittances impact on normal people lives

Our second question here is “What impact remittance have on people lives/household? then can be answer simply by evaluating the impact of remittance on the households / people lives through some interviews and real data on ground. The impact for receiving house hold are very much visible here in this video. A small heart touching video on The Power of Remittance.

Please click to watch it full. It’s very clear from the video that recipient households spend more on education and healthcare and urban recipients also report higher subjective health status and educational enrollment. The effect on inequality and poverty is not straightforward because households in the middle-income range benefit disproportionately from remittances.

However in those months when remittances increase, the monthly inflation rates, typically, decrease. Still, the regions with the higher rates of recipient households do experience lower levels of poverty, while people from recipient households have higher subjective and objective perceptions of welfare.

Remittances arguably create moral hazard, at the public level, as the elderly and the poorest are less likely to be remittance recipients. Most transfers take place via formal money transfer systems, but informal channels, such as a career or a family member travelling to or from source market (Across the globe trend) accounted for nearly one-third of transactions. Informal remittances seem to be higher in rural areas, probably because of the undeveloped financial infrastructure in rural areas.

 

Remittances & Political Economy of social welfare

Remittances arguably play an important role in the political economy of social welfare. Regulation which allowed for non-bank formal providers to offer cross-border remittances independently of a bank. This was intended to spur innovation that would bring down the cost and improve the ease of sending remittances and indeed it did the job.

Neoliberal economic and social policies, founded on the idea that the private sector should drive the country‘s advancement, intended to cut public involvement in private lives by reducing regulations and the size of the civil service in the country. Remittances were most likely viewed as one of the components of that private sector.

The elderly and the poorest are less likely to be remittance recipients than the younger and the better-off. At the same time needs to carry out more inclusive migration policies by effectively allowing dual citizenship and granting a number of political and economic rights to expatriates. Further, due to identification requirements and distribution challenges, many adults rely on informal channels. The barriers faced by many migrants when accessing formal transfer services, including affordability and access to documentation.

 

Books + Other readings Referred

• Open Internet – NewsPortals, Economic development report papers of  world bank
• Personal experience of  @AILabPage members.

 

Conclusion – As research has shown in case with cross-border remittances, even total amounts remitted are sensitive to price. A giant step forward for governments, policy makers, regulation controllers together with the remittance services providers and sender & receiver should be extra ordinary education on financial literacy. This will enable literally hundreds of millions of people to have and use the power of remittance, a bank account, get financially included, start and grow businesses and prevent fraud. Transactions will then be safe, quick and easy. As research has shown to be the case with cross-border remittances, even total amounts remitted are sensitive to price. An efficient domestic payment system infrastructure is key to reduce costs of remittance services, especially in receiving countries.

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