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Digital Remittances and Global Financial Health

John Kunze's picture
In 2015, there were 244 million international immigrants – the highest number ever recorded and up 12 million from 2013. The 2016 numbers will no doubt be higher. Many immigrants move to new countries in search of a better life. Some are escaping poverty, war, or famine; others are seeking an education; and some simply want to start anew. These immigrants often sign a social contract with their families to send back money – remittances – for support or to invest in local opportunities. 
These remittances serve as lifeline for many people around the world. In 2016 alone, the World Bank estimated that immigrants would send more than $600 billion in remittances. Remittances have historically been expensive due to the security involved and inefficiencies in managing and moving money across borders. However, for the first time, we are seeing a direct link in how digital solutions not only help make moving money across borders more affordable for individuals, but also how they have the potential to reduce global poverty levels on a macro scale.
Just 10 years ago, the notion that you could send money to a family member across the world safely and securely in a manner of minutes using just your phone seemed impossible. Technology, in particular mobile technology, has since evolved to allow for faster, more convenient, cost effective and more secure remittances.  
A recently published Xoom/PayPal research paper compares the costs associated with digital remittance services with World Bank data on traditional global remittance prices. The study reveals that sending money overseas digitally cuts costs by nearly one-half. Moreover, because digital remittances are linked with existing banking systems in each country, money is transferred and received securely throughout the process. 
Other study findings include:
  • The average cost of sending a remittance through a digital service like Xoom/PayPal costs nearly half (3.93%) of the amount sent compared to the average cost of traditional remittances services (7.45%).
  • With global remittances expected to be $600 billion in 2016, a 3.52% savings from switching to digital services is equivalent to $21 billion in cost savings.
  • The World Bank estimates that 767 million people live below the international poverty line of $1.90 per day. The additional remittances provided by cost savings from digital could lift nearly 30 million people out of poverty according to estimations by the UN Center for Trade and Development.
The positive findings on the impact of digital remittances extend beyond Xoom/PayPal.  The GSM Association (the trade association of mobile operators) released a study on the cost of remittances sent over mobile phones in Africa, finding that mobile technology cut remittance costs in half. The key is digital and mobile technology enabling efficiency and cost savings for senders and receivers of remittances.    
The UN has a Sustainable Development Goal of lowering costs of remittances to less than 3% by 2030 to decrease global poverty levels – digital technologies have nearly achieved this goal in 2017. 
We’ve seen that with digital solutions, transactions are now faster; more secure and transparent; offer more consumer choice; reach a far greater audience (through the use of mobile phones); and ultimately enable remittance providers to charge lower fees and offer enhanced services. 
The opportunity presented by digital remittances is currently limited to those who have access to these solutions. Therefore, it’s critical for the public sector, private sector, and non-government organizations to work in tandem on issues like making it easier for people globally to obtain government issued I.D’s; increasing access to the Internet; innovating in online and offline banking; and raising awareness and understanding of digital tools. With the current state of socio-economic unrest and the global refugee crisis, the time is ripe for digital remittances to play a larger role in providing enhanced economic opportunity for those who need it most.


Submitted by Christophe Lassuyt on

Paypal is one of the most expensive online options to send money between countries. +300 other ways are compared in real-time on
The WorldBank could easily use Moneytis reports, if needed.

Submitted by chris williams on

The foreign exchange conversion costs are where the pricing becomes too hard to assess, particularly as banks and operators such as PayPal have been increasing their margins, rather than reducing them. (A recently announced increase - to a 3% margin - by PayPal still is lower than major banks which have increased margins to around 5%).
So, part of the answer is to collect all remittances into a domestic clearing service, rather than do individual FX conversions. This has a considerable extra value in lowering transfer fees as well; a domestic ACH is a few cents (if anything) as against at least $10 for international wires.
Linking personal donations, charitable support and family remittances - along with payroll deductions - can reduce costs on the sending side by a large amount. At a time when there is increasing pressure on aid, both by reductions of support in North America and Western Europe, as well as increases in need, with 65 million in grave danger, we need to work together to optimize the value of the funds.
The FATF guidelines give clear help as to how to ensure such funds do not go to enable criminal networks, as well as what limits can be established for family remittances to be permitted - as long as there is confirmed ID of both parties and ongoing real time auditing to avoid any repetitive flows that exceed stated limits.
Managing this through a domestic clearing format is already available as a technology, meaning the only requirement is to register the parties in a reliable manner. While there can be various ways to do this, the proven usage of iris scanning by UNHCR and WFP is perhaps the most obvious methodology for this.
Working with recipient countries on domestic settlements through established debit networks is the same factor. The linkage of secure biometric IDs for recipients of remittances with local ID services to support education and health (as well as national ID requirements) is already happening, or being studied in many parts of the world.
Linking all of this with offsetting currency flows for eCommerce and other approved hard currency purchases, is also under way. This then incorporates the other new trend for real time VAT collection in the buyer country.
In summation, the time is right for digital solutions to change the whole dialog for personal support programs; lowering the cost of remittances to below 3% is now technologically available, increasing its value by up to $25 billion pa.

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