Micheal Olamilekan
Remittances, essentially referring to money sent by workers abroad to their home countries, have been widely recognized as key drivers of economic growth in low- and middle-income countries (LMICs).
In fact, in the past ten years, migrant workers sent over $5 trillion to LMICs, supporting about 800 million family members annually, according to UN estimates.
However, some age-old problems still plague the broader remittance market.
At 6.4% of the total transaction amount, the average cost of sending remittances, for instance, is still more than twice the SDG target of 3%.
With banks, the average cost rises as high as 14.55% , making banks the most expensive channels for sending remittances. The cost problem is further worsened by long transfer times and a lack of transparency in the systems.
In the past few years, digital solutions offered by fintech companies have been paving a way out of these problems, and the outcomes are already redefining how the world approaches remittances going forward.
For context, mobile platforms are the cheapest channel for sending remittances, at an average of 3.5% of the transaction amount. With some global fintech service providers like BOSS Money, the cost of sending remittances drops even more drastically, costing as little as $0 for the first few transactions.
In a nutshell, fintech innovations and efforts towards transforming how money moves across borders are making remittances faster, cheaper, and more accessible, championing the shift to a new remittance era.
This article explores the key fintech innovations driving change and their impact on global remittance experiences, starting with a look at the driving forces behind the shift.
The Forces Driving a New Remittance Era
The key drivers of the new remittance era include:
Global Migration at Historic Levels
In 2024, about 3.7% (304 million ) of the global population lived in a country other than their home country, 29 million more than in 2020. Compared to the 1990 figures of almost 154 million people, it is clear that the global migrant population has nearly doubled in just three decades.
The historic levels of migration in recent years put a huge strain on existing remittance-facilitating systems. More so, the demands of the modern population, in view of technological advancements across industries, tend towards faster, cheaper, more convenient, and accessible services.
Where old remittance systems are unable to meet these new demands, new systems emerge to make things better.
Demand for Real-Time Money Movement
The situations often necessitating that migrant workers send money back home are sometimes time-sensitive or outright emergencies. In such and similar situations, unnecessary delays in getting money across to the family could lead to devastating outcomes.
With such demands in view, fintech service providers have done a lot to reduce delivery times from the traditional 1-5 business days to near-instant transfers that get to the recipient within a few minutes.
Mobile-First Financial Behavior
Since the late 2000s, the world has witnessed a dramatic increase in the use of smartphones and mobile apps for nearly everything, including accessing financial services. This trend is a result of the convenience, accessibility, and real-time control that mobile devices offer.
Therefore, it made sense for service providers to develop web and mobile applications to specifically address common customer challenges with sending remittances.
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The Push for Financial Inclusion
Financial inclusion, as a global agenda, has been crucial to bringing financial services closer to people in rural areas and underbanked communities.
Within remittance contexts, there is an urgent need to ensure that money gets to underserved families as quickly and as steadily as possible, irrespective of their location.
Digital remittance providers have risen up to the task by taking a hybrid (digital + physical) approach to ensure migrants can send money to their loved ones, even in shrouded corners of the world. Flexible delivery methods, such as cash pickup and home delivery, enable families in rural areas worldwide access money directly from their loved ones abroad, without traveling long distances.
Regulatory Evolution and Openness
Also in line with the global financial inclusion agenda, alongside related development goals, countries are taking extra steps to evolve their remittance market’s regulatory landscape.
Efforts in this direction are often entrenched in national policies and plans, such as G20 National Remittance Plans , that aim to push for transparency and reduced costs in the remittance market while aligning national remittance goals with broader national development goals.
As a result of these regulatory improvements, remittance markets have become more robust and competitive, enabling migrant workers to send money across the world easily and affordably.
Key Fintech Innovations Driving Change
The major drivers of the new remittance era all, in a sense, create windows of opportunity for remittance service providers to define and strategize how best they can improve remittance experience for their target customers.
Harnessing these opportunities for growth has yielded and attracted some game-changing innovations in the remittance market:
Digital-Only Remittance Platforms
Fintechs are revolutionizing the market with a digital-first approach that focuses on providing all the remittance services customers might ever need in convenient, intuitive, easily accessible mobile apps.
No physical branches. Lower overhead. Seamless services. This approach greatly streamlines remittance services, removing all the fluff to deliver faster, cheaper, more transparent, and convenient peer-to-peer remittance services.
Blockchain and Distributed Ledger Technology DLT
Distributed ledger technologies, such as blockchain, have been instrumental in upholding transparency and data security in payment processing and contractual scenarios across numerous industries.
In remittances, blockchain reduces the need for intermediaries and their service fees, enabling faster, cheaper, and more transparent cross-border money transfers. It also paves the way for parallel remittance markets by supporting cryptocurrencies and cryptocurrency platforms, which migrants sometimes use to send money home quickly.
API-Driven Infrastructure
Broadly speaking, APIs serve as digital bridges that allow traditional banks, fintech service providers, and even non-financial platforms to interact and share data with each other.
Fintech remittance companies use APIs to connect to a wide network of financial service providers and international payment rails worldwide, enabling them to quickly access all the services they need to meet the varying needs of their customers in different regions.
It also helps enhance remittance security and compliance, and improves user experience greatly.
Artificial Intelligence and Automation
AI tools and technologies, including machine learning algorithms, biometric authenticators, and natural language processing algorithms embedded in remittance platforms, play different roles in enhancing user experience.
Across the global remittance market, service providers are widely embracing AI-powered technology for real-time fraud detection/prevention, regulatory compliance, and personalized 24/7 customer support.
Mobile Wallet Ecosystems
The laudable success that fintechs have recorded in driving financial inclusion to rural areas can, in part, be largely credited to the proliferation of mobile wallets for quick transactions in various regions. This is especially the case for emerging markets in the Asia-Pacific, Africa, Latin America, and the Middle East.
Mobile wallet ecosystems in the global remittance market allow for direct mobile-to-mobile cross-border transactions that are settled and delivered in real time.
Impact on the Global Remittance Experience
These fintech innovations meaningfully change outcomes for users in various ways:
- Lower fees: Fintechs have made the cost of sending remittances a lot cheaper than ever before, bringing costs closer to SDG’s 3% cost ceiling. In fact, people can now send money to Mexico, the Philippines, Nigeria, India, and other countries, even in the most distant parts of the world, for low or $0 fees.
- Speed: Fintech remittance services are proof that cross-border transfers can be completed within a few minutes.
- Transparency: Leveraging APIs, DLTs, and AI-powered systems, fintechs are able show users the real cost of their services (including conversion rates and service fees) upfront, enshrining transparency and building trust with customers.
- Accessibility: With multiple flexible delivery methods, including cash pickup, home delivery, mobile wallet, and bank deposit, now available on fintech platforms, migrants can easily send money to their loved ones anywhere in the world.
- Convenience: Fintech remittance platforms are typically available as mobile apps that registered customers can use at their convenience at any time, totally eliminating the need for bank visits.
Most importantly, fintech remittance services leverage modern technologies to protect user accounts and transactions in real time, ensuring that money gets to the intended account securely.
Regional Transformations
As the world witnesses a high volume of migration from LMICs to high-income/developed countries, the effects are reflected in a similarly high volume of remittance flow from developed countries to LMICs. Of the $857 billion in global remittances in 2023, $656 billion went to LMICs .
This converse relationship further translates to unique remittance dynamics across different regions.
For instance, on average, $90 billion in remittances flowed into Africa between 2018 and 2022 , placing remittance flows to the continent well below that of:
- Europe & Central Asia ($196 billion)
- South Asia ($150 billion)
- East Asia & Pacific ($111 billion)
- Latin America & Caribbean ($114)
Despite having relatively low remittance inflows, remittance flows as a share of Africa’s GDP in 2022 stood at 3.4%, second only to that of South Asia (3.9%). This signifies the impact remittances can have on regional economies.
Conclusion
Fintechs have made it faster, cheaper, and more convenient for migrant workers to send money to their families in their home countries, positioning fintechs as champions of global financial inclusion.
Although fintechs still have a long way to go to fully expand their regional networks and dominate the formal remittance market, adopters of fintech remittance platforms always stand to gain from the fierce competition and innovation they bring to the market.
Overall, the impact of fintech in reshaping the global remittance experience is categorically positive, promising an even better future for both remittance senders and receivers.
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