How technology is disrupting the global remittance industry

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Through Alexander jones, International Banker

This article originally appeared in the Fall / November 2021 edition of International Banker

Thank you @remitly for joining us for the @Nasdaq opening bell! $ RELY transforms immigrants’ lives with financial peace of mind, ”Nasdaq tweeted on September 23 to mark the start of trading in Remitly on the US stock exchange. The mobile remittance startup is part of an exciting new wave of companies looking to leverage the latest technology to radically transform remittances, a space in dire need of disruption.

Remittances, that is, the transfer of money made by a person working in one country to family and / or friends in another country, is a massive activity around the world. According to the World Bank, the officially recorded remittance flow reached $ 702 billion in 2020, slightly less than the total of $ 719 billion in 2019 due to weak business activities resulting from the COVID-pandemic. 19. Millions of people around the world, especially in low- and middle-income countries (which accounted for $ 540 billion of the 2020 total), depend on remittances normally sent by high-income countries, which they use to fund. maintain or improve their standards. of life. This activity is also the largest source of foreign exchange activity in the developing world.

And yet, for far too long, the process of receiving remittances has been painfully slow, inconvenient, and expensive. The World Bank recently reported that the average international money transfer fee is still 6.8 percent, with sub-Saharan Africa the most expensive region at 8.9 percent. It also takes two to three business days for the average payout process to complete. The traditional remittance market is “dominated by banks, physical location operators and informal channels” which use distinctly archaic methods that lead to “a poor customer experience and additional operating costs which are passed on to the client, “Remitly recently argued in its investor prospectus, adding that the technology traditionally used in this space does not scale particularly well and does not meet the” cultural and local market demands of various immigrant communities. “.

But thanks to digitization, the remittance landscape is undergoing a radical overhaul. According to a Facts & Factors (FnF) research report released in April, the global digital remittance market is expected to grow from $ 14.5 billion in 2019 to $ 35.8 billion by 2026 at a rate of compound annual growth (CAGR) of 13.8% over the end point. “Digital remittances, or the electronic transfer of funds from foreign workers to their home countries, is a powerful engine of economic growth. Improving the capabilities and reach of this money transfer channel has a huge effect on people’s lives and represents a significant business opportunity, ”the report notes, while also acknowledging that many money transfer companies had to learn to work in a digital environment first as the pandemic slowed cross-border cash flows. “They need to keep costs under control in order to offer lower prices to their customers while remaining profitable. They also need to ensure that they fulfill their legal responsibilities and prepare for long-term success.

With these concerns in mind, Remitly’s mobile technology was developed to enable people working in high-income countries, such as the United States and the United Kingdom, to support their families at home in countries like India, the Philippines and El Salvador without having to face the usual obstacles that have long hampered the process of transferring money across borders, including agents, forms and codes. Its mobile app makes the process of sending money much more convenient, transparent and inexpensive for immigrant communities. The company has raised $ 301 million and is valued at $ 6.9 billion.

Revolut is another name among this innovative generation of money transfer companies. The UK fintech (fintech) firm was recently valued at $ 33 billion, providing a range of services including digital banking, payments, cryptocurrency and stock trading, travel insurance and splitting of invoices. But it’s the company’s recent expansion into the Americas that suggests it is looking to establish a major presence in the remittance market. In particular, he acknowledged his intention to create a payment corridor between the United States and Mexico to facilitate the flow of money between the two countries. Revolut USA CEO Ron Oliveira recently said that “sending cross-border peer-to-peer payments should be easy” and that Revolut is committed to providing customers with simple money transfers no matter where. they are in the world. “The launch of this remittance corridor is a major milestone for Revolut, a milestone that we believe will improve the financial lives of clients in the United States and Mexico. “

Given the ‘crossover’ nature of remittances, it’s no surprise that many of the more exciting developments involve a crossing into the world of blockchain and cryptocurrencies. For example, it was reported in early October that Qatar National Bank (QNB) had launched a money transfer service in conjunction with Ripple, one of the largest cryptocurrency projects. According to Gulf time, the bank aims to improve its cross-border payment capabilities and expand its money transfer services to more countries using RippleNet, Ripple’s global financial network technology.

“QNB is always innovating[s] to provide the best service to its customers, and this partnership is another fintech initiative of the bank to improve product offerings for our customers, ”said Heba al-Tamimi, general manager of retail banking of QNB Group. Ripple’s Managing Director for South Asia and MENA, Navin Gupta, explained, “We are delighted to be a strategic partner with QNB, bringing together innovations in banking and finance to enhance the experience. cross-border payments and ultimately expanding QNB’s money transfer service on RippleNet into additional markets.

Indeed, RippleNet now includes a large network of financial institutions using Ripple’s distributed ledger technology to enable more efficient, cost-effective and faster cross-border payments than existing technology, such as SWIFT. In January, for example, it was announced that RippleNet would connect Malaysian mobile finance company Mobile Money with Bangladeshi mobile financial service provider bKash, which has 45 million customers to its credit.

Another notable name in the remittance space is Valora, the peer-to-peer payment and remittance mobile app based on the Celo blockchain project, which focuses on increasing the adoption of cryptocurrency. among smartphone users. According to data provided by the company, Valora already has 53,000 monthly active users in more than 100 countries and recently raised $ 20 million in a Series A led by Andreessen Horowitz (a16z), who is also a major backer. by Celo.

In June 2020, the microfinance institution Grameen Foundation, whose mission is to empower the world’s poor, launched a project to help women micro-entrepreneurs meet the needs of their families through an aid program. emergency in cash. Grameen provided 3,500 women in the Philippines with digital access to grocery and medical packages as well as vouchers for their household needs, with those who successfully downloaded Valora receiving the full peso equivalent of Celo’s stablecoin, Grameen’s cUSD (Celo Dollar) directly into their Valora digital wallets. “Valora provided a safe and easy platform for receiving and using aid,” Celo noted in a blog post. “Through our interviews, many of our women entrepreneurs have expressed an interest in using Valora as their digital wallet of choice. They want to send small amounts to family or friends, or even use Valora in their own business.

Digital asset technology may also soon feature prominently in Singapore’s money transfer plans, with Sopnendu Mohanty, director of financial technology at the Monetary Authority of Singapore (MAS), recently confirming that a digital currency is the response to reducing transfer costs between Singapore and Thailand. The city-state led the Dunbar Project, which, along with MAS, brought together the Reserve Bank of Australia (RBA), Bank Negara Malaysia (BNM), and the South African Reserve Bank (SARB) with the Bank for International Settlements ( BIS) Innovation Hub to test the use of central bank digital currencies (CBDCs) for international settlements.

“And it’s going pretty well. And all the learning that we had from different central banks[s] on the bilateral corridor will be absorbed into this program. So that’s a part, ”Mohanty recently told cryptocurrency analyst Raoul Pal. “Well, the question remains, when are we going to see this go into production rollout? My best guess is that it will always be a bilateral implementation. Whenever we are ready to go.


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