Overview: Remittance is referred to the money
sent by foreign workers to their families living abroad. Developing countries
depend a lot on remittance received from workers abroad as it constitutes a
part of their GDP. This market is entirely dependent on workers working in
countries apart from their native homeland. GDP and economic growth can be
affected significantly by remittances received. However Remittance
Market Research Reports suggest that it can also result in adverse
macro economic impacts by increasing income equality and lowering labor supply
in recipient countries.
Outlook: The future holds two notable but
divergent trends in remittance industry: market consolidation by large existing
groups and disruption potential of technology driven startups. One of the major
factors that could disrupt the existence of established institutions is the
introduction of blockchain technology. Our current transfer mechanism depends
upon wire transfers that are supported by financial institutions. This is a
reasonably sound system however bockchain technology can provide a much safer,
faster and more reliable means of transferring money from one part of the world
to the other. Since traditional money transfer institutions have a monopoly
over the same, entry of block chain backed service providers releases the hold
on transfer fee, thus making it almost negligible. Block chain is very reliable
and secure thus prevents hackers from taking advantage of the system whereas
banks are centralized and hence vulnerable to fraud. It’s certainly true that
it’s harder to track where money is flowing to and from, but it’s also true
that both sender and recipient know exactly where their money is. Established
companies like Money Gram, Western Union are reluctant to adopt this new
technology whereas young technology driven startups are providing much cheaper,
reliable, faster money transfers using blockchain network. However most
regulators are divided to put this technology to its best use as it currently
lacks the robustness as compared to the present financial system. Industry
players are currently looking into reducing the average cost of transfer in
order to improve its user base.
Market Size: Developing countries, in 2015-2016
witnessed a fall in remittances received. However, Remittance Industry Analysis
suggests that in the past year, the amount of remittance to these countries has
gone up and expected to grow in 2018. Worldwide, transfer in remittances
(including developed countries) has grown mildly. The key drivers in this
industry are:-
· Increasing international migration: Worldwide, international migrations have seen an
increase due to factors such as easier documentation process, rising disposable
income etc.
· Cheaper, transparent, reliable: Blockchain as technology is much cheaper and is expected to
reduce the cost of transfer overseas. It is much more transparent or reliable
as it consists of a universal journal that can be easily accessed by users. It
is reliable as it prevents frauds and even reduces the risk of data breach by a
hacker due to its secure system.
· Growing Urbanization: Globally, urban population has observed a tremendous increase from 34%
(1960) to 54% (2016). (Source: World Bank)
· Rising employment opportunities: Globally, rising employment opportunities have increased
thus causing a surge in remittance sector.
· Accelerating Economic Growth: Global GDP is currently increasing at a rate of 2.5% which
contributes in speedy growth of the remittance industry. (Source: World Bank)
Competition: Remittances can be transferred in
two ways either through bank to bank transactions or through independent
agencies. Banks that support international transfer include Citi Bank, Bank of
America, HSBC, and DBS Bank etc. Independent agencies include Western Union,
MoneyGram, PayPal, Ria, Global Web Pay to name a few. Companies that involve
remittance transfer via block chain technology are Align Commerce (USA),
Bitspark (Hong Kong) Bitpesa (Africa) among many. Entering into the competition
is IndusInd Bank (India) in partnership with blockchain technology backed
company Ripple to introduce cross border transfer using the new technology. A
major remittance transfer house from UAE is also in talks with Ripple for
developing a remittance transfer mechanism that would be faster, efficient and
cheaper to the consumer.
Conclusion: Remittance industry shall grow
further due to high growth in key driving factors thus resulting in a greater
user base. However due to advent of technological changes it is unsure whether
current methods of transfer shall be continued or method of blockchain will
gain popularity, which will result in the entire industry witnessing a paradigm
shift.
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Ken Research
Ankur Gupta, Head Marketing & Communications
0124-4230204
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