Introduction: The global remittance market is worth over USD 600 Billion as of 2017 and is expected to be worth over USD 6 Trillion by 2030 based on information revealed through various Remittance Industry Market Research Reports. The growing requirement for remittance services, especially to facilitate economies in low and middle income nations is a top priority for financial service providers across the globe. Despite the increasing importance given to remittance transactions, there have been barely any measures working to curb the cost incurred for remittance based services with the remittance cost globally being around 7.3% against the targeted 5% globally. While there has been major cost reduction in selective regions with Russia having a remittance charge of about 1.7% and countries like Mexico and India having less than 6%, the major issue is for poor economic zones, primarily located in the African Subcontinent like Tanzania, Nigeria and Angola having rates up to 23%. Aside from these staggeringly high global averages, even in developed economies, there are instances of high remittance charges, for example, bank based remittance charge from Japan to China can go up to 38% of the transaction cost. Aside from the high cost, there is the increased risk of devaluation due to the foreign currency volatility when having the amount transferred being traded into local currency which can devalue the remittance amount if there is a increase in the value of the domestic currency relative to the foreign currency or vice versa which is based on the time and exchange rate indicated of the currency conversion process. These factors lead to devaluation of the amount received which cannot be afforded in low and mid income economies.
FinTech: The emergence of financial technology services has integrated technology into consumer side financial transactions exponentially. The companies which work as financial technology service providers have found easy ways of online payment, money transfer, verification of identity and have helped consumers in understanding the financial services market better. Online platforms have eliminated the physical need of a financial institution significantly. Even procedures regarding bank accounts can be handled through a digital device allowing bank account holders flexibility and accessibility like never before. This technology has major application into the remittance market.
Market Shift: The global market around remittances is estimated to generate USD 616 billion in 2018 according to the World Bank. There is a multitude of financial service providers using technology to redefine the application into the remittance market. One such company, WorldRemit, a London-based, mobile-first remittance startup valued at about USD 670 million, which competes with the likes of Western Union and wants to grow its current customer base of 2 million to 10 million by 2020. The firm offers instant transfers to over 130 million, mainly “unbanked” individuals through mobile money accounts in emerging markets. More than 65% of its transactions are currently sent from smartphones, from about 50 countries to over 145 receiving destinations. Investment into remittance based development has grown significantly topping USD 800 Million in 2017 and reaching a value of over USD 350 Million for the first half of 2018 alone. Another major example of the Financial Technology disruption is the evolution of technology based remittance service in Malaysia. Remittance service provider MoneyMatch Sdn Bhd with 5,000 registered users has dealt with about USD 12.6 Million in transaction volume so far. The company’s key benefit being the lowest remittance rates in the market for Malaysia. Traditionally, one would have to pay about 3-4% of the transaction cost for remittance services in Malaysia to Australia, with countries like South Korea, the rate goes up to 7% and more. The company changes this by charging a flat rate of USD 2 for all transactions to Australia, for example. Effectively the rates of the financial technology provider become on average, 10 to 12 times cheaper than traditional remittance providers. This is a major factor that driving growing adoption of mobile, fin tech based remittance in Malaysia and similar markets. The average transaction cost made through non-bank remittance service providers in Malaysia has been lowered to 2.96% as of April 2018. This is compared with the remittance cost of 12% in 2016. Another example being UAE where due to high service charges, about 80% of the inhabitants of the UAE are outside the financial system.
Conclusion: Curbing of costs is a major issue that exists in the remittance market which needs to be addressed and financial technology seems to provide an applicable solution. The integration of financial technology can effectively save over USD 15-20 Billion in transaction costs each year which would play a major role in assisting low and middle income countries which rely heavily on the money received through remittance to manage their basic expense and to grow their economy
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