Is fintech and the digital economy keeping remittances afloat?

Updated: Nov 16



By James Tall (IAMTN)


In April 2020, as the COVID-19 pandemic took a firmer hold of the world’s markets, the World Bank estimated that this year's remittances would fall by 20% in low and middle-income (LMIC) countries.


The projected fall was largely based on sharply-reduced wages and less employment opportunities for migrant workers, with many having to leave jurisdictions, such as the GCC countries, as infrastructure projects were paused or cancelled. Many economic migrants, already a marginalised group, lost their ability to send any money back to their families and home communities.


Following 2019’s record $554 billion flow of remittances to LMICs, the concern is that a loss of over $100 billion could hit some of the world’s poorest areas. Whilst a recovery of 5.6% is expected for 2021, direct foreign investment to LMICs is anticipated to fall by as much as 35%, making remittances even more critical.


On Thursday 5 November, IAMTN, which is leading the effort to mitigate the impact of COVID-19 on international payments and remittances, will be hosting its latest webinar, where Dilip Ratha, the World Bank’s lead on migration and remittances, will provide an update on the state of play and share the latest remittance data.


Ratha will be joined by Andy Jury, Group CEO of Mukuru, which is helping migrants to climb the financial ladder by providing services to those without access to formal bank accounts, and Peter De Caluwe, CEO of Thunes, a global cross-border payment platform.


As well as breaking down the data, the online panel will explore what accessible, fast, and reliable payment solutions actually mean in emerging markets, and discuss the opportunities and barriers they face in their fight to increase the availability of financial services.


A brightening outlook?


The pandemic has certainly had a profound impact, as is to be expected. According to the World Bank, for example, the UK, US, Italy, and France provide 49% of remittance inflows to Sub-Saharan Africa. These four Western markets have had their economies significantly disrupted by COVID-19, and it’s the migrant workforce that often loses out.


Meanwhile, remittances to some Latin American nations with close migrant ties to the US declined sharply in the first half of 2020. A report from Pew Research Center looked at six countries – Colombia, the Dominican Republic, El Salvador, Guatemala, Honduras, and Mexico – and found that remittances to the region were 17% (or $981.2 million) lower in April 2020 than in April 2019. Some countries were hit harder than others, with El Salvador experiencing a 40% drop in remittances.


That said, there are signs of a brighter outlook as the public and private sectors come together to collaborate and find solutions. In a recent virtual fireside chat with IAMTN’s Chairman Mohit Davar, FXC Intelligence’s Founder and CEO Daniel Webber said: “You have to go territory by territory, corridor by corridor, because the picture is so mixed, but, overall, it’s not been as bad as what was forecast because governments have provided fiscal stimulus packages and a lot of remittance providers have used the time to fast-track digital products and services.”


This view tallies with the findings of IAMTN’s recent report on the impact of COVID-19 on the remittance industry. Working with the UNCDF, we sent out a survey to over 150 money transfer operators (MTOs) and other remittance service providers to capture the full range of risks that the COVID-19 crisis poses to the international remittances sector. The findings revealed that scaling up digital channels was the top priority for providers, fuelled by physical closures and staff isolation.


In October 2020, MoneyGram announced a ninth consecutive month of triple-digit growth in cross-border transaction volume for its MoneyGram Online digital payments business. Western Union, meanwhile, highlighted that it's May digital business set a 10-year record high. Newer entrants, such as WorldRemit, Remitly, and TransferWise, have reported a significant growth in their digital businesses, driven by the widespread stay at home orders and the pandemic.


The future arrives with fintech


In an effort to take full advantage of the digital economy, many MTOs and remittance service providers are accelerating partnerships with innovative fintechs, which can help them to refine, redefine, and perfect their propositions.


WorldRemit, for example, is deepening its relationship with Mukuru, which is fast becoming one of Africa’s fintech powerhouses. Having initially launched their alliance in Zimbabwe, the two companies aim to expand their collaboration for cash remittances into Zambia, South Africa, Mozambique, Malawi, and Botswana. Until now, customers who received payments into mobile wallets in partnership countries like Zambia would ordinarily pay a cash-out fee when withdrawing cash from a mobile wallet. Now, when a WorldRemit customer sends cash to a recipient in Zambia, and that recipient collects their transfer at a Mukuru booth, the recipient will pay no fee whatsoever. This is a huge step for inclusion.


Mukuru, which focuses mainly on African remittances and allows its customers to send both cash and groceries, is benefitting from a boom for Africa-focused digital money transfer companies as the diaspora looks to help families amidst COVID-19. It has seen a 75% acceleration in growth compared to last year.


“We’ve seen an influx of new customers,” said Jury. “And we see them mainly coming to us from the informal market.” Jury believes that this shift is likely to last beyond the pandemic as digital remittance services are typically cheaper, faster, and safer than informal networks, which are difficult for governments to regulate.


A SWIFT for emerging markets


Singapore-based start-up Thunes, which is developing a cross-border payments network to make financial services more accessible in emerging markets, is also seeing a growth spike amidst COVID-19.


“You’d be surprised to hear that the banked population in many African countries is around 75%,” said De Caluwe. “But its largely in the form of telecom operators providing mobile wallets, such as M-Pesa, because the continent is underserved by traditional banks. We need to build the connectivity between wallets, telecom operators, and the banking networks.”

“Our primary mission is to build new network rails, acting like a SWIFT for emerging markets by connecting fintechs, telecom companies, banks, and so on, but also going a step further to move and disburse funds – acting as a full settlement house.”


Thunes provides remittance service providers, including Western Union and Ria, with a remittance API that opens up access to over 400 network members, allowing them to move money into mobile wallets and bank accounts. According to De Caluwe, the volume of remittance flows enabled by Thunes has doubled during the pandemic. Alongside remittances, Thunes is also expanding into other areas, such as salary and supplier payments – with further growth driven by the company’s Series B funding round that closed in September.


“We raised $60 million to help us to continue what we’re doing,” explained De Caluwe. “We want to build our network up to a couple of thousand members within a couple of years, and become embedded even deeper in emerging markets and other countries. We’re much broader than a traditional cross-border service; we now offer a free automated KYC process and we’re building out our capabilities with service providers so that, as an example, people in Kenya will be able to pay for Netflix with their mobile wallet. We have an addressable market of $15 trillion – if we can capture just a couple of percent of that, we can improve millions of businesses and lives.”


To find out more about the upcoming webinar and other IAMTN events, please visit: www.iamtn.org/events

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