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
For more information, click on the
link below:
Contact Us:
Ken
Research
Ankur
Gupta, Head Marketing & Communications
0124-4230204
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