Annually, workers send hundreds of billions of dollars to their home countries. Global remittances totaled $706 billion in 2019, establishing a new high. Over the last several years, digital remittances received a boost from the entry of digital-“first money transfer organizations (MTOs), and the established MTOs have responded by rapidly introducing digital initiation and funding capabilities in response. The digital-“first MTOs are seeing rapid growth, and the established MTOs have seen nearly a third of their remittances become digital, with the pandemic accelerating digital trends considerably over the last year.
The VISA Economic Empowerment Institute (VEEI) study team presents “The rise of digital remittances: How innovation is improving global money movement”, which examines remittance trends, the advantages of digital remittances, and offers recommendations to improve global money movement.
Digital remittances have several advantages. The entry of digital-“first MTOs, with their lower “fixed costs, helped spur competition and promoted intense digitization efforts by the established “firms. This reduced costs for consumers. Digital remittances are also sent increasingly outside the traditional correspondent banking system; they increasingly take advantage of new global networks that offer fewer “handoffs,” better transparency, faster transfers, and lower costs.
In as much as remittance innovation, is achieving faster speed, better transparency, and lower costs for people, the majority of remittances, even the digital ones, are still received in cash. It adds costs borne by the sending charges and individuals who must go and physically pick up the cash. In addressing this, the report suggests the following improvements:
- Begin with digital enabling infrastructure like electricity, if it does not exist.
- Focus on digital enablement, considering consumers and businesses in the equation in achieving digital ubiquity.
- Aim for an open digital economy. Policymakers should adopt a principle-led and outcome-based approach, giving payment service providers and payment networks the flexibility to innovate to deliver on their goals.
- Streamline the regulatory environment. Remittances and other cross-border payments go through several regulatory regimes that currently add frictions and can be reduced by harmonizing and aligning rules as much as possible.
- Simplify the licensing process by introducing innovations more quickly and with less burden by reducing the barriers to market entry. Even increased consistency of licensing requirements would help FinTech operate across multiple countries with less friction.