Despite a predicted decline in remittance flows at the beginning of 2020 due to the COVID-19 Pandemic, the international money transfer market has surprised the industry by showing the utmost resilience. In April 2020 the expected decline was recorded at about 20 percent, especially for low and middle-income countries. This was believed to be largely due to economic downturn negatively affecting wages and employment for migrant workers. By October 2020, figures were adjusted to reflect a potential total decline of 7.2 percent, to USD $508 billion.
Latest data shows that global remittance flows for low and middle-income countries in 2020 fell only by 1.6 percent to USD $540 billion – this is a smaller decline than reported during the financial crisis in 2009. Remittance flows register a robust 7.3 percent growth in 2021 and this is predicted to be sustained, albeit at a slightly lower rate of 2.6 percent in 2022. India continues to be the world’s top remittance recipient country, while the United States remains the number 1 sending country in the world (USD $70 billion).
The remittance industry is vital to the global economy and arguably matters more than ever, particularly in rural areas where fast, secure payments create opportunities for rural transformation. An estimated one in seven people worldwide are involved in remittances, either by sending or receiving and more than 70 countries rely on remittances for more than 4 percent of their GDP6.
Variety is the spice of life when it comes to remittance
On the surface, the remittance ecosystem is reasonably straightforward, with four key considerations for money transfer businesses: funding, payout, compliance and foreign exchange. The global payments ecosystem is incredibly complex and fragmented – no two countries are alike when it comes to preferred pay-in and pay-out methods, currency or compliance. So, the burden to navigate and cater to this multifaceted industry, often falls on money transfer business themselves.
Hundreds of payment methods exist in the global ecosystem today. Where credit and debit cards dominated payments for over 50 years, the rise in digital transformation across all areas of our lives has inspired a shift in customer preferences and led to a growing number of new, alternative payment methods – often tied to the convenience of using mobile phones.
This has had a significant impact on remittances, and money transfer businesses must now adapt to offering their customers the pay in and pay-out capabilities they are familiar with and often, these payment methods differ depending on country. While in the US, card rails are still prominently used, albeit increasingly via mobile wallets such as Apple Pay or Samsung Pay, in the Netherlands for example inter-bank system iDeal is the frontrunner while in China it’s WeChat and AliPay. This goes hand in hand with foreign exchange services – pay-ins and pay-outs often take place in the sender and recipient’s local currency. So, catering to a broad variety of payment methods and currencies stretching across the globe should be a key consideration to money transfer businesses.
Remittance businesses are unique in many ways
Unlike in any other other online or eCommerce business, when remitting, the consumer is not using money to pay for goods or services. Sending money to loved ones abroad incurs an additional layer of complexity for money transfer businesses because both the source and destination of the funds must be appropriately verified. Identity management should be a key consideration for remittance companies as they must be able to conduct Know Your Customer (KYC) checks and comply with Anti Money Laundering (AML) regulation. AML, KYC and proper due diligence procedures can ultimately make or break a money transfer business.
Due to the intricacies that make up the global remittance industry, it’s paramount that money transfer businesses work with a payments partner who demonstrates a deep understanding of the industry and is well placed to alleviate some of the burden.
In the past 5 years Blockchain projects and their associated cryptocurrencies have begun to provide opportunities to bypass existing infrastructure for global transfers of funds enabling remittance merchants to make their corresponding banks whole, more quickly. There have been several companies who have begun to fill this need although we are yet to see an end to end “remittance-as-a-service” solution available that utilizes this emerging technology, so worth keeping an eye on developments in this space.
At Nuvei we offer peace of mind to remittance businesses when it comes to funding, as our pay-in capabilities range from traditional cards and ACH to over 550 alternative payment methods – that’s more options than any other payment provider on the market can provide. We also have direct local acquiring licenses in 46 markets around the globe and can accept funding in over 200 countries globally.
Global identity verification will continue to be an integral part of worldwide remittances, as will KYC checks and compliance with AML regulations. Our system is built with identity verification in mind, enabling business to onboard customers quickly and easily and keep up to date with the latest regulatory compliance requirements.
Don’t miss out on the opportunity to ride the wave of growth in remittance – learn more about how you can accelerate your remittance business, with one integration.