Payments/Remittances

The movement of people across international and domestic borders has enormous implications for growth and welfare. According to the United Nations, more than 232 million people lived outside their country of birth in 2013, and over 700 million had migrated within their own country. Given these demographic forces, there is significant worldwide demand for services that enable people to send payments and remittances. 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 more than three times the size of official development assistance and represent a lifeline for the poor, particularly in fragile and post-conflict nations. The World Bank estimated that remittances totaled $436 billion in 2014, an increase of 7.8% over the 2013 volume. Typically, remittances are the largest source of external finance for developing countries. Remittance flows are expected to continue growing, with global remittances to developing countries estimated to reach $516 billion in 2016.

Global average remittance costs have fallen steadily in recent years, but further reducing the cost of remittance transfers could produce significant benefits to migrants and their families. Although the ability to receive or send money across borders 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. It could also support the development of financial sectors in receiving countries. Significant innovations to further enhance cost effectiveness and scalability already seem to be occurring (see this and this and this).

Today, thanks to branchless banking and banking partnerships with mobile operators, remittance services can reach people in remote, rural areas more cheaply and at scale. On a practical level, being able to send funds directly to a recipient’s mobile wallet can be a game-changer, cutting down on the need to travel long distances to a bank. A number of technology-based newcomers have recently entered the landscape with new business models that have the potential to change the way domestic and international remittances are sent. However, for these efforts to be successful, some factors may need to be present: mature domestic mobile money infrastructure and activity levels, access to a wide remittance sender market, agile business models in light of rapid changes to the landscape and to customer expectations, and a longer term outlook to reap the full benefits of associated investments.  

Progress on cross-border remittances is threatened by so-called “de-risking” behavior by global financial institutions: large-scale withdrawal from markets and lines of business, such as closing accounts of remittance providers and terminating correspondent banking relationships, where these are perceived as presenting too great a risk of financial crime (and enforcement action) relative to their profitability. This complex global policy challenge calls for better evidence on the risks of financial exclusion – in the remittance context and more broadly – so that these risks, as well, are factored into policy making and enforcement. 

Resources

Contact: Wameek Noor

Publications

23 January 2014
This Brief provides information about Bitcoin and contrasts Bitcoin with e-money to avoid alarm about the former to the detriment of the latter.
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Mobile Formats
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18 June 2012

Interoperability of retail payment instruments is not an objective in its own right; rather it is a means of achieving other desirable objectives.

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From Our Blog

07 July 2015
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For migrant workers, the costs of remitting money remains high. However, three trends that could disrupt the remittances status quo are emerging.
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16 April 2015
3 comments
A convergence of forces offers the opportunity to rethink the traditional remittance model, promising more money, time, and peace of mind for customers.