Facilitating Remittances in an Age of Change

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Millions of people leave their home country each year to improve their lot in life. Whether it be for work, study, or to escape natural disaster or conflict, the world has witnessed a steady flow of people picking up roots and moving on since the beginning of time.

Since 1970, the number of international migrants has increased threefold to 281 million, the United Nations’ most recent estimate, dated 2020. That’s less than four of every one hundred people.

Before COVID-19 acted as a brake on the movement of people, the number of international migrants throughout the world had been rising steadily. The United Nations estimates that the pandemic slowed the growth in the global pool of migrants by about two million by mid-2020, 27 percent less than the growth that had been expected.

Despite the pandemic, there are more migrants in the world today than there were 30 years ago. Different countries and regions have become more interconnected with the rise of a global economy and more people have been leaving their country of birth to pursue employment or educational opportunities abroad.

According to the World Bank’s most recent report on migration, Europe is currently the largest destination for international migrants, with 87 million, followed closely by Asia with 86 million international migrants. North America is the destination of 59 million of the world’s migrants, or 21 percent of the total.

At Ria Money Transfer, we are committed to helping families remain connected no matter how far apart they may be, by providing a cross-border money transfer service that is affordable, fast and safe. This report provides a snapshot of the factors that are impacting the international migrants who are our customers and the remittances they sacrifice to consistently send home, contributing to development abroad.

  1. Remittances’ global impact
  2. Progress on reducing the cost of sending remittances
  3. COVID-19’s impact on remittances
  4. Technological adoption boosts financial inclusion
  5. Governments deliver support through digital channels
  6. Connecting the world faster each day with real-time payments
  7. Filling the educational gap through remittances
  8. Migration and conflict
  9. Conclusions

1. Remittances’ global impact

Many international migrants feel a deep obligation to consistently support the people they leave behind. The money they send back home – remittances – is often a critical lifeline for their families. International remittances to low and middle-income countries were over $600 billion last year, far exceeding development aid provided to those countries.

The remittances received from family members abroad keep food on the table for families, improve the educational opportunities of many children in the developing world, allow people access to healthcare, broaden resources available to small farmers, and help support small-scale businesses whose growth would otherwise be limited due to credit constraints, among other benefits. In developing countries where workers are abundant but have few opportunities for formal employment, remittances get people started on the path to self-employment. The evidence is strong that remittances help alleviate poverty for recipient families.

The impact of remittances goes further and can even improve the economic prospects of entire countries. In extreme cases, such as Nepal and Samoa, remittance inflows represent nearly 30 percent of GDP. For many developing countries, remittances contribute more than 10 percent of GDP.

2. The cost of sending remittances

The World Bank estimates that international remittances will grow an additional 4.2 percent this year to $630 billion. They are a crucial development tool that helps alleviate poverty. But is the cost of sending remittances commensurate with the critical needs they often help address?

Cutting the price of sending remittances by just a few percentage points would save remittance senders billions per year, according to development analysts. It’s no wonder that the United Nations has made reducing the cost of sending remittances to 3 percent an important factor in helping to reach the Sustainable Development Goals it has set for 2030. The UN recognizes why remittances are so important, and the impact they have on SDGs such as reducing poverty and hunger while promoting better health care and access to quality education.

The global average cost of sending a cross-border remittance stood at 6.04 percent at the end of last year, down from 6.8 percent In 2019. As the World Bank reports in its most recent Remittance Prices Worldwide report, the number of corridors with average costs of less than 5 percent is steadily increasing and mobile money options are helping reduce the cost of sending remittances in many markets. Still, some remittance corridors remain slow to take up the trend, such as Sub-Saharan Africa where fragmented payment systems, burdensome regulatory requirements and legacy non-compete clauses are keeping average remittance costs at nearly 8 percent.

3. COVID-19’s impact on remittances

More than 100,000 COVID-related travel restrictions were put in place by countries or territories during the pandemic. Aside from the far-reaching effect it had on international mobility, COVID slammed the economies of many developed countries. The majority – 64 percent – of the world’s migrants are living in G-20 countries so COVID’s economic impact had the potential to produce devastating consequences for many people in low and middle-income countries.

Convinced that the economic slowdown would mean that migrants simply would not have money to send, analysts initially forecast a 20 percent drop in remittances in 2020. Not only did remittances hold up, they increased by nearly one percent for that year and rebounded eight percent to low and middle-income countries in 2021.

International migrants know how important the money they send to their families back home is so they will go to extraordinary lengths to continue to send it, cutting back on their own consumption or drawing on savings to continue to support their families. Remittances are remarkably resilient in the face of crisis.

The resilience of remittances has been especially surprising considering the difficulties many international migrants have faced due to restrictions on mobility and lockdowns. At the start of the pandemic, migrants around the world not only became stranded in destination countries, but also while in transit. Migrants faced not only loss of jobs and employment, but the loss of residence permits and social services that are often tied to employment. Others were without resources to return home or faced restrictions on movement or closed borders that left them in limbo.

Many of the migrants who had maintained their employment throughout pandemic lockdowns were typically health or frontline workers exposed to a higher risk of contracting the virus. Many high-income countries depend on foreign-born healthcare workers, including the U.S., France, the U.K., and Germany (OECD).

4. Technological adoption helps boost financial inclusion

The pandemic brought incalculable suffering and loss to people around the world, but it also forced the adoption of technology at an unprecedented rate. Technology that already existed but had not been implemented at scale was suddenly in high demand due to lockdowns and social distancing. This accelerated several trends in the payment ecosystem overall and brought unprecedented technological adoption. Some analysts estimate that five years’ worth of technological adoption took place in less than a year due to COVID.

Suddenly, not only did businesses need to provide a lot more goods and services online to survive, but the sheer volume of digital payment transactions meant that investment in payment infrastructure would pay off much more quickly both for businesses and the entities that provide them with financial service solutions, strengthening real-time payment networks. This helped pave the way for faster processing speeds as more processes became automated and more technological advances were implemented. 

Not only have the digital payment services of traditional businesses improved since early 2020, but the number of customer-facing applications, and their adoption by consumers, also grew rapidly. There were 230 billion downloads of mobile applications in 2021 alone to serve the estimated 6.3 billion smartphone users worldwide. 

5. Governments deliver support through digital channels

According to the World Bank, there are 1.7 billion people in the world without a bank account. Improving access to a basic account is a crucial first step in reaching broader financial inclusion goals and the digitization of aid payments can open a door to the financial system for many people. Before the pandemic, progress had been gradual. In 2017, about 63 percent of adults globally had a bank account, up from 54 percent in 2011.

The efforts of a number of countries made during the pandemic to encourage the use of digital services have made an impact on financial inclusion. In fact, most of the growth in the recent uptake in mobile wallet use has been in markets where governments provided substantial pandemic relief.

Nearly 60 low and middle-income countries have used digital payments to deliver emergency relief during the pandemic. One example is Brazil, which used its new real-time payments system, Pix, to distribute COVID-19 relief aid, resulting in 70 million new accounts in a country that has an estimated 34 million unbanked adults.

Access to mobile money payments and solutions is also pushing more people in low and middle-income countries to open bank accounts. This is due in part to the efforts of authorities in countries such as Colombia which is promoting the financial services sector and improving regulation and monitoring. The number of Colombians with a bank account grew to 86% in the first half of 2020, up from 82% at the end of 2019.

International relief organizations and NGOs are also using digital channels to disburse aid. The UN Refugee Agency, UNHCR, sent $700 million in cash and value assistance to 8.5 million recipients in 100 countries in 2020. The organization has established digital payment programs in 47 countries, 15 of which use mobile money. The digitization of cash assistance has the potential to foster financial inclusion.

In general, mobile money adoption continued to rise in 2021 globally, reaching $1 trillion transactions for the year. Registered mobile money accounts have grown 18% since 2020, reaching 1.35 billion globally by the end of last year.

In the case of remittances, mobile money platforms make the cross-border transfer of remittance payments cheaper and faster than traditional cash and bank transfers. The Global Average price to send an international remittance decreased from 6.3 percent to 6.04 percent in the last quarter of 2021, an encouraging sign that costs can come down quickly when conditions are right.

6. Connecting the world faster each day with real-time payments

Real-time payments (RTP) allow the whole payment process to occur seamlessly and instantly. Offering remittance payments in real-time is an attractive draw for remittance senders. Knowing that the money sent to loved ones far away arrived safely, in an instant, offers convenience and invaluable peace of mind for both the sender and the recipient.

Currently, 60 markets have a real-time payments infrastructure with Canada, Peru, New Zealand, and Indonesia launching in 2022, according to FIS Global. That means that by the end of this year, nearly three-quarters of the world’s population will have access to instant payments in their domestic market.

The appeal of RTP is extending beyond consumer and retail use cases to include business and corporate applications, such as instant salary payment, accounts payable, and bulk payments. The public sector is also turning to RTP for fee and tax collection, as well as benefits and pension payments.

One important hurdle RTP has yet to overcome, however, is enabling instant payments between countries as bank payment systems and infrastructure are not standardized throughout the world. Ria Money Transfer overcomes that obstacle because we maintain our own global payments network in more than 160 countries with mobile wallets in 61 countries and 3.6 billion connected bank accounts. Thanks to the quality of our international network, we can deliver cross-border real-time payments to bank accounts 98% of the time.

Technology streamlines cross-border payment processing

The integration of technology in payments processing is part of what makes cross-border RTP possible, particularly since compliance regulations can vary from country to country. RegTech, as it’s called, puts technology to use to speed customer onboarding and transactional processing. Technology is used at the backend to score transactions and filter for compliance checks.

Ria has its own internally developed RegTech tools, like its consumer risk assessment, that scores clients’ behavior each day based on their activity over time as well as an independent compliance culture that is a reference in the industry. This allows for more automated processing because the system does most of the checks, flagging only situations that appear high risk to a specialist for human review. This improves speed and convenience for customers.

Mobile money systems’ effect on the formal economy

Mobile money systems and payments are helping promote financial inclusion throughout the world, but they offer other benefits as well. Since mobile money creates a recorded financial history for every deposit, withdrawal, or transfer made, it can help protect consumer rights, build trust in business, and foster efficient payment networks. Digitizing government benefit payments also reduces the risk of fraud and theft, making the system more cost-effective and sustainable.  

The data records generated by mobile transactions help facilitate oversight and supervision of money laundering and terrorism financing activities, particularly since mobile money systems have strong safeguards built in.  

Strengthening the formal financial system through increased use of mobile money can help governments build more effective monetary policy by channelling more money and assets into the system, contributing to economic stability. By producing transaction records, mobile money encourages a shift to the formal economy which fosters contributions to social security, taxes, and secure wage payments, helping make it easier for the public sector to finance itself.

7. Filling the educational gap through remittances

At the peak of nationwide lockdowns due to COVID-19, the education of more than 1.5 billion children ground abruptly to a halt, causing an unprecedented global learning crisis. For children in the developing world, however, the crisis was already in full swing. Half of 10-year-olds in middle and low-income countries couldn’t understand a simple written sentence and more than 250 million children were not in school.

The pandemic intensified educational inequality because children in poorer countries have less access to the technology that allowed learning in rich countries to continue. More than half of the world’s households are connected to the Internet, but the share of students without Internet access varies from 15 percent in Western Europe and North America to as high as 80 percent in sub-Saharan Africa.

Remittances play an important role in providing educational opportunities for the young members of migrants’ families in low and middle-income countries. In 18 countries across Sub-Saharan Africa and Asia, remittances boost education spending by an average of 35%. Increased resources dedicated to education can create opportunities that last a child a lifetime.

8. Migration and conflict

The war in Ukraine has brought to the fore an often overlooked factor that impacts international migration flows: conflict. There are more people displaced by conflict and political turmoil today than at any time since World War II. Not only is the situation in Ukraine causing massive displacement of people, conflicts in Syria, Yemen, the Central African Republic, and the Democratic Republic of the Congo as well as instability in Venezuela and Afghanistan are forcing many people to leave their homes to ensure their safety. In the case of Ukraine, more than 6 million Ukrainians have fled the conflict in their country.

According to the National Bank of Ukraine, remittance flows to Ukraine amounted to more than $19 billion in 2021, a 28 percent increase for the year. That accounts for around 12 percent of the country’s GDP and is nearly three times the size of foreign direct investment. The World Bank expects remittances to Ukraine to increase 8 percent this year.

Beyond Ukraine itself, the conflict is also impacting Central Asian countries which depend on remittances sent from Russia which is cut off from the international financial system because of the war. In the case of the Kyrgyz Republic, where remittances make up 30 percent of the country’s GDP, the World Bank expects remittances to drop overall by a third this year. The country derives 80 percent of total remittance receipts from Russia and although international sanctions target Russian companies, they also affect the ability of individuals to send money outside of the country.

Ukrainians have fled the violence in their country, but another impact the conflict is having on the movement of people, is the number of Russians leaving their homeland as a result of the war and the gradual deterioration of civil liberties in Russia since it began.

The Russian Federation was already a major origin country for international migrants. In 2020, it ranked among the top 10 origin and destination countries for international migrants, with the third largest number of Russians living abroad after India and Mexico.

Since the start of the war, however, tens of thousands of Russians are reported to have arrived in Georgia, Armenia, Turkey, and Central Asia. In many cases, these migrants are young, urban, tech, or creative professionals who can work remotely from almost anywhere in the world. Since Canada, the European Union, the United Kingdom, and the United States have closed their airspace to Russian flights, these educated professionals are heading to countries like Armenia and Turkey, and to Central Asia because they are against the war and are fearful of what the future holds for them if they remain in Russia. 

9. Conclusions

The mobility crisis brought on by the pandemic will have lasting effects on the cross-border money transfer industry.

The digital expansion of money transfer operators means a greater number of mobile wallets can be reached through bank payment systems, other wallets, fintech apps, ATMs, debit cards, and traditional over-the-counter cash points, bringing financial services like cross-border, real-time payments to more people than ever.

Along with accessing financial services through mobile money systems, a rising number of people throughout the world are opening bank accounts. This is due in part to the efforts of authorities in countries like Colombia who are promoting the financial services sector and improving regulation and monitoring.

Digital expansion is critical for the future of the cross-border money transfer industry, yet today, 70% of customers continue to rely on brick-and-mortar channels. These are people with digital skills that use other digital solutions but prefer to transact across multiple channels, sometimes digital, sometimes physical.

According to a World Bank report published last October, nearly 50 million adults took up in-store digital payments during the pandemic in Latin America and the Caribbean, but about half of new digital payment adopters surveyed in the region prefer a return to cash.

Many of these people are interested in omnichannel solutions that allow them to modify orders, change beneficiaries, track their activity across physical and digital channels, find physical locations, and access other self-service solutions. Being able to offer both will continue to be key for money transfer operators.

Important advances are being made that will lay the groundwork for increased financial inclusion throughout the world. Access to financial services is expanding along with the ability to move money around the world quickly, easily, and safely. Further progress is needed to lower costs for cross-border money transfers so that this essential service is affordable for everyone.

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