The movement of people across international and domestic borders has enormous implications for growth and welfare in both origin and destination locations. According to the United Nations, more than 215 million people live outside their country of birth, and over 700 million migrate within their own country. In the coming decades, demographic forces, globalization, and climate change will increase migration pressures both within and across borders, and this in turn will increase the demand for payments and remittances worldwide. There is a growing consensus that a well-functioning payment and remittance ecosystem plays a critical role in enhancing financial inclusion and poverty reduction. Remittances sent home by migrants to developing countries are three times the size of official development assistance and represent a lifeline for the poor, particularly in fragile and post-conflict nations. They were estimated to total $401 billion in 2012, an increase of 5.3% over the previous year and are typically the largest source of external finance for developing countries.
Despite the global financial crisis and current global economic weakness, remittance flows are expected to continue growing, with global remittances to developing countries reaching $515 billion in 2014. Although costs have fallen steadily in recent years, reducing the cost of remittance transfers and payments produces significant benefits not only to the migrants and their families, but also to receiving countries.
Technology can play a pivotal role in offering payments to people who were previously unbanked. Branchless banking and banking partnerships with mobile operators can extend remittance services to millions of people in remote, rural areas. For example, in countries like the Philippines, G-Cash and SMART Money serve the Filipino diaspora by providing remittances over their mobile money platforms. Although the ability to receive or send money doesn’t guarantee financial inclusion, it is an important step in the right direction as it provides a cost-effective infrastructure for providing other financial services. In countries like Kenya, mobile money platforms are being used to design financial products which ride on the rails of this new payments infrastructure, and as a result are having a remarkable impact on financial inclusion.
Further, a recent CGAP study found that a number of brash technology-based newcomers have recently entered the landscape with new business models that could have the potential to change the way domestic and international remittances are sent. However, further work is needed on the operational and regulatory challenges in offering cross-border remittances as flows continue to rise.
Topic Contact: Wameek Noor
- International Remittances through Brancless Banking (CGAP)
- Demand Study of Domestic Payments in the Philippines (Bankable Frontier Associates)
- Migration and Remittances during the Global Financial Crisis and Beyond (World Bank)
- Outlook for Remittance Flows 2012-14 (World Bank)
- Payment Systems Worldwide: a Snapshot. Outcomes of the Global Payment Systems Survey 2010 (World Bank)
- Remittance flows in 2011 – an update (World Bank)