Dubai: Will the cost of remittances from the United Arab Emirates and other Gulf countries go down? Or be completely eliminated?
More in the financial services industry are convinced that this is the direction, and that the fee of Dh20 more per transaction on deposit will be reduced. And the UAE’s all-digital banks and remittance-focused fintechs could be leading such a shift.
“Over time, transaction fees will approach zero as infrastructure costs go down,” said Olivier Crespin, co-founder and CEO of Dubai-based digital bank Zand. “Additionally, digital banks have the opportunity to offer many ancillary products to their customers and explore other potential revenue streams.”
This is the key point – remittances will be part of a wider package of services offered to customers, and in this way the costs involved can be spread.
Jayesh Patel, CEO of the UAE’s other new digital-only bank, Wio, said: “This (remittance) continues to be a competitive space. We could see a drop in fees, especially with the introduction of blockchain and other technologies that could help reduce the cost and efficiency of this process.
Can cryptos dictate the future of remittances?
The idea is that it is possible, especially with blockchain, which so far has been used more in the context of Bitcoin and other volatile cryptocurrencies. But there is a digital future where blockchain can be deployed across multiple layers within financial transactions – and help reduce costs for consumers.
Using the underlying technology can settle transactions instantly and reduce capital costs associated with the current remittance settlement system. The technology promises to address some of the shortcomings of traditional payment systems such as speed, access, transparency and – most importantly – transaction cost.
International transactions present the most risk when it comes to disruption, says Mustafa Domanic, partner at Oliver Wyman. “The current system is seriously inefficient, so a new alternative would be welcome,” he said. “The obvious choice here would be cryptocurrency as it is both transparent and instantaneous. However, there are hurdles in the form of regulation and control.
Domanic believes that if regulators came on board, international transactions would become much cheaper, and with players offering discounts, it’s possible the fees could drop to zero.
Currently, most transfers are made via SWIFT and are converted into dollars before being converted back into the final currency. This process naturally entails costs.
“Cryptocurrency would bypass that, meaning an international transfer could one day cost as much as a domestic transfer,” Dominic said. “But because it is a protected system and an entrenched part of the banking system, it will be many years before we see any change and it will depend on the speed of global disruption.”
Push to reduce transfer fees
Some of the pressure on the financial services industry is already there. The UN has set the ambitious goal of reducing the transaction costs of migrant remittances to less than 3% and eliminating remittance corridors with costs above 5%. But by 2030.
Until then, fintechs could still force old remittance companies to change course by then.
“As more expats start using digital services for remittances, primarily mobile platforms, this offers banks as well as traditional money changers in the UAE the opportunity to downsize their physical branches. , which is a major cost,” said Alok Kumar, co-founder and CEO of Zywa, a UAE-based fintech focused on teens.
“That way they can spread their fixed costs over a wider set of products (and services), which can increase their revenue and therefore have more leverage to offer competitive pricing.”
As more fintechs enter the market with the promise of increasing/accelerating the delivery of financial services, remittances would become a commodity/characteristic of this market. This means that tariffs would be the determining competitive advantage.
The financial institutions offering the most affordable rates will bring with them a competitive advantage. That, plus the combination of blockchain and pressure from the UN, should be what shippers in the UAE and around the world should watch out for.