Fin Tech Potential for Cost Reduction in Remittance Market: Ken Research

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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https://www.kenresearch.com/tag/banking-financial-services-and-insurance/remittance/177.html

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Ankur Gupta, Head Marketing & Communications

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The Biggest Issue with Remittance: Ken Research

Introduction: The Global Remittance Market has been valued to be at approximately USD 600 Billion based on Market Research Reports for Remittance. The market has had a growth rate of about 4.5% between 2012 and 2017 due to increasing reliance on remittance amounts in low and middle income countries. Close to 70% of the remittance amount transferred is used for the basic expenses of the recipient families in developing economies. The increasing reliance of remittance has caused a growth in the contribution of remittance to the GDP of emerging economies with countries like the Philippines, Senegal and Guatemala having remittance amounts which exceed 10% of the GDP. The issue is that in developing economies there is high importance that the cost of remittance be as low as possible

Global Scenario:  While the global cost of remittance has gone down from roughly 9.8% in 2000 to about 7.3% in 2017, the cost of transferring money to developing nations has tripled since 2000 and has become 5 times what it was in 1990. This increase in cost cannot be sustained by developing countries. The basic cost of transferring USD 100 ranges from anywhere between USD 1.2 to USD 34. In the case of developing markets where every cent counts, this causes major financial distress. The cost of sending money in 2017 has been calculated at USD 30 Billion for global money transfers. This amount is the entirety of non military foreign aid provided by the US for the year 2017. There have been repeated meetings describing initiatives from the G8 countries to bring the cost of remittance to below 5% of the total cost but they’re not even halfway there. The costs play such an exponential role in the loss of finance that a reduction of 5 % points could lead to savings of about USD 16 Billion.

Market Scenario: On the whole, the cost of remittances has remained stable in most regions. At an average of 5.31%, Southeast Asia was the cheapest region to send money to, whereas Sub-Saharan Africa was quite a bit more expensive at 9.48%. Eastern Europe and Central Asia has also stayed fairly constant at 6.3%. The one region which recorded an increase is the Middle East and North Africa, jumping to 7.63% in the fourth quarter of 2016 from just over 7% in the previous quarter. The Global Average remained stable at 7.45 percent in 2017, compared to the 7.40 percent recorded in 2016. This is the same figure recorded for this Index in 2016.  Banks still remain the most expensive Remittance Service Provider. Although there is not much of an issue for outbound remittance in the G20 countries, with the majority of the countries having a rate of less than 10%, excluding China, inbound remittance charges are significantly high and are the highest in the African regions. The average cost of outbound remittance as a % of the amount transferred for the major G20 countries is given below:

Brazil -6.98%,India-6.14%China -10.26%,Indonesia -7.84%,Mexico-4.85%,Turkey -7.62%,South Africa – 7.56%.

While the cost for outbound remittance is not high in any of the above countries, the cost of sending to developing countries in Africa is extremely high with highest inbound remittance rates: South Africa-17.70%, Ghana -16.65%, Tanzania-18.41%, Nigeria -21.39%, Angola -23.02% with key players in the remittance market being PayPal Holdings Inc., Western Union, MoneyGram International and Euronet.

Conclusion: remittance based money transfer works for the developing nations as there is a steady source of foreign income. The increased strength of the foreign currency usually allows for an adequate amount of local currency to be withdrawn but the global foreign exchange volatility combined with the number of intermediaries have led to costs for money transfer staying consistently high. There is an emerging need for low cost money transfer services which minimize the cut taken away by intermediaries thereby lowering the cost of remittance to developing economies as much as possible. The high rates of inbound remittance in African and the few vulnerable Asian nations is skewing the global average and is the major cause for the lack of reduction of remittance rates globally. Understanding how to address this issue could help in increasing the value of the remittance market, saving money and boost the economy for low income nations

For more information, click on the link below:

https://www.kenresearch.com/tag/banking-financial-services-and-insurance/remittance/177.html

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Ankur Gupta, Head Marketing & Communications

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0124-4230204

Business Finance: Can Cryptocurrency Be the Future of Remittance: Ken Research

Introduction: There has been an increasing trend by migrant workers in foreign mature economies like North America and Europe to send money back to their families in their home country in the form of Remittance. Research predicts that by 2030 there will be an inflow of USD 6 Trillion with about half being sent to Asia. The biggest recipients of this fortune would be to developing countries with high rural population – India was the largest remittance market in the world in 2017 with USD 69 Billion being sent back to India alone. India was followed by China with a remittance amount of USD 64 Billion and Philippines with USD 33 Billion being the three largest remittance markets in the world. Aside from these three, more Asian countries like Pakistan and Vietnam were also on the list with remittance amounts of USD 20 Billion and USD 14 Billion with all of the mentioned countries being in the top 10. This helps explain why the Asian remittance market for 2017 was at USD 256 Billion.

The Issue: Although there is a significant amount of money being sent to these economies, a major portion is lost through transaction and service fees. In many developing economies, every penny counts as most families receiving remittance money use about 70% of the money received to cover their basic expenses. Transaction costs eat away a major chunk of the money with margins ranging from 2% to over 15% in developing markets. Although the global average is around 7% the number is majorly skewed with far higher rates in lower economic countries. This loss of funds as the cost of sending money home is causing a major dent in the role remittance can play towards the development of the global economy.

Opportunity: The implementation and growth of the peer to peer network for financial transactions and the growing need for a decentralized currency has led to the explosive increase in demand for crypto currency, mainly Bit coin. Although Bit coin is the most prominent there are other crypto currencies that exist which are gaining popularity and increasing value like Ethereum, Litecoin, Ripple, etc. The major growth, while positive for the future outlook of the economy and for crypto currency has had a large portion owing to people buying crypto currency without fully understanding the concept and its application. The second roadblock has been the level of adoption by vendors and companies owing to the skeptical nature of crypto currency. These factors have led to Bitcoins being worth USD 0.09 per bitcoin in July 2010 to USD 17,549.67 by Dec 2017. Although the volatility of the currency has yet to be addressed due to the lack of a law regime for regulation and due to a waving market sentiment. The security and validation offered allow for bitcoin or any solid crypto currency to be the most stable medium for the future of finance. Having all transactions done using crypto currency would result in a completely decentralized and open financial system which would completely be controlled by the network using it ensuring no one party gains through an unfavorable or unsavory method. Given these advantages, there are major applications for remittance through crypto currency. This trend has already started to see growth in South Korea and China with companies aiming to use crypto currency for remittance transactions and the trend is also expected to be implemented soon in Malaysia. Given that financial technology companies have had a major growth rate in Asian markets there is a major scope for a strong, well branded and trusted crypto remittance company to ensure that maximum remittance amounts reach the families that need them. Start-ups such as Bitspark in Hong Kong, and Bloom, Payphil, coins.ph and Satoshi Citadel Industries’ (SCI) remittance unit Rebit in Philippines, are trying to turn that into a business model. There is an even bigger advantage for developing economies: Reduced demand for crypto currencies in smaller economies often can lead to lower bitcoin prices, so sending $100 to Indonesia or the Philippines via bitcoin would result in the equivalent of more than $100 at the other end. Without the bank fees, the shops say they can charge their customers 25 to 75 percent less. This means a great deal to countries where the majority are in poverty and need every bit they can get. The introduction of Crypto currency has led to easier and safer transactions and while there are still security issues which need to be resolved, they are expected to be sorted out in the near future as research indicates that by 2030, Bitcoin will become the 6th largest global reserve currency leading to it having a mainstream place in society and therefore the economy

For more information, click on the link below:

https://www.kenresearch.com/tag/banking-financial-services-and-insurance/remittance/177.html

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Ken Research

Ankur Gupta, Head Marketing & Communications

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0124-4230204

Malaysia Remittance Industry is Expected to Reach US$ 28.8 Billion by 2019: Ken Research

·         Malaysia Remittance Industry is expected to record outflows of USD 28.8 billion by 2019

·         Rise of international and domestic migration to lead the way for the industry in the coming years.

·         Bill Payment industry in Malaysia expected to reach USD 94.0 billion by 2019

·         Mobile Payment Industry in Malaysia is anticipated to reach USD 2.9 Billion by 2019.

Ken Research announced its latest publication on “Malaysia Remittance Industry Outlook to 2019”
 which provides a comprehensive analysis of Remittance and Bill Payment Industry in Malaysia. The report covers various aspects such as market size of Malaysia Remittance and Bill Payment industry and segmentation on the basis of major flow corridors, payment channel, interstate and intra state migration and outflows and inflows of remittance. The report will help industry consultants, potential entrants, vendors and other stakeholders to align their market centric strategies according to ongoing and expected trends in the future.

Malaysia Remittance Market

The report focuses on the various factors affecting the Malaysia Remittance industry such as the MSB Act, GST and Migration Patterns in Malaysia. Growing presence of multinational corporations in Malaysia has made international migration prominent in the country. Along with international migration, the increasing rate of urbanization within Malaysia has made the number of internal migrants to soar in the recent years. The market for both inward and outward international remittances is expected to increase in the coming years owing to the large number of international migrants moving toward Malaysia in the coming years.

The Malaysia Remittance Industry inflows are anticipated to grow at a CAGR of 22.6% during 2014-2019. 

Malaysia is primarily an outward focused remittance country with the outward international remittance flows leaving the inward international remittance flows far behind in terms of market size. This large migrant population has fuelled the growth of a robust outward international remittance market in Malaysia with a large number of migrants coming from Indonesia, Bangladesh, Myanmar, Nepal and India among other countries. The Bill Payment Industry in Malaysia will also increase significantly owing to the increase in the spending patterns and high standards of living of Malaysia citizens which will lead the industry to grow at a CAGR of more than 15% in the next 5 years.

“The increasing international and domestic migration, rise of living standards and increasing spending patterns of Malaysian citizens will further the growth of remittance and bill payment industry in the coming years.”, according to the Research Associate, Ken Research.

                        

Key Topics Covered in the Report:

Malaysia Remittance and Bill Payment Industry

-          Market Size by International and Domestic Remittance Flows (inflow and outflow)

-          Market Size by Bills Paid

-          Market Segmentation by

o   Major Flow Corridors

o   Payment Channel (Banks and MSBs)

o   Inter and Intra State

o   Mode of Payment

o   Purpose of Payment

o   Payment Component

-          Mergers & Acquisitions

-          Global Remittance Market Size

-          Competitive Landscape and Average Transaction Fee in major flow corridors for leading remittance service providers

-          Future Outlook

-          Macro Economic Parameters

Key Products Mentioned in the Report

International Inflow Remittance

International Outflow Remittance

Domestic Remittance

Bill Payment

Mobile Payment

Recharges

Companies Covered in the Report

Maybank

Hong Leong Bank

Western Union

Moneygram

Prabhu Money Transfer

Maxis

Celcom

Related Reports:

China Money Remittance and Payments Market Outlook to 2018 - Driven by Rising Migration and Effective Government Policies

India Domestic Remittance, M-Wallet and Bill Payment Market Outlook to 2018 - Driven by Government Support and Rising Banked Population

The US International, Domestic Money Remittance and Bill Payments Market Outlook to 2018 - Tie-ups and Mobile Remittances to Foster Future Growth

Contact:
Ken Research
Ankur Gupta, Head Marketing & Communications
Ankur@kenresearch.com
+91-9015378249