The Remittance – Money Transfer Business

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May 30, 2019 by
The Remittance – Money Transfer Business

There are about 164 million migrant workers around the world, who have left their homes in search of work. Having found some manner of income, the migrant workers send a large portion of their earnings to their families back home.

These remittances that make up the money transfer business form a considerable part of GDP incomes for many countries experiencing economic hardships. This includes countries like the Philippines, which has one of the largest migrant worker populations in the world.

Given the scope of the migrant worker issue around the world, the global remittance industry is flourishing. Not only is the industry large but it is also very competitive and challenging. It is also rapidly developing as new technologies are emerging that are capable of significantly reducing all of the hurdles involved in the remittance process.

As the main customers of the remittances business are migrant workers seeking to send money back home to their families, any reduction in the commissions and times needed for the funds to reach their destinations will be of immense help in alleviating their situations.

Global Dependence On The Remittances Industry

In developing nations, remittance inflows influence gross domestic product, as they can impact consumer spending and economic growth. The example of the Philippines is a shining example, where the GDP income from remittances has been steadily growing at 10-12% annually and ranges from $3.3 to $4 billion.

Growing migration, wage growth and more disposable income, along with lower remittance costs and a growing variety of digital money transfer platforms, are expected to boost the global remittance market and positively affect the economies of many countries dependent on remittances, such as the Philippines, Ukraine and many Arab states.

According to the World Bank, migrant workers from developing countries sent more than $441 billion back to their home countries in 2016 and that number increased on average by 20% by the end of 2018 with the deterioration of the global geopolitical and economic situation.

In 2015, the top 5 countries receiving remittances were India, China, Mexico, the Philippines and France, while the top source of remittances by a large margin was the U.S., followed by Saudi Arabia, Russia, Switzerland and Germany.

The Challenges Faced

Though it may seem simple at first glance, the remittances industry is a vast and sprawling network of various intermediaries. Multiple parties are involved in processing remittances, and at the most basic level, these parties include:

  •  The sender
  • The receiver
  • Local/Originating Agent
  • Money Transfer Operator (MTO)
  • Foreign/Disbursing Agent

There may be other potential parties involved in the remittance process, such as third-party identification firms that handle the various Know-Your-Client (KYC) and anti-money laundering tasks required by each jurisdiction’s regulators.

The best-known global remittance service providers include Western Union, PayPal and MoneyGram. But the given services are costly as the commissions they charge are significant. Western Union is renowned for their commissions, but their availability worldwide makes them a go-to solution for many migrant workers who have low levels of information access and poor education. PayPal emerged as a competitor and has been operating on the remittances market successfully for a number of years, but it too is losing to more advanced technologies that are making their way onto the remittances market.

The issues are aggravated by the fact that banks and financial institutions find themselves dealing with ever-increasing regulations to prevent financial crime and funding terrorism. Building and enforcing a robust KYC/AML program is essential and all of the major players on the market have long implemented the necessary measures and are enforcing them quite diligently. The process starts with hiring an experienced compliance officer to develop the program, as financial organizations must know if their customers have a criminal record, if they are on some kind of watchlist and if they have any kind of political exposure.

Many companies outsource these functions to third-party vendors that specialize in artificial intelligence. Doing so can help reduce financial crime by identifying potential risk, since failure to comply with KYC/AML regulations can result in stiff penalties for the company.

Looking Ahead

Mobile-optimized technology is a must in the remittances industry, especially in developing countries, where more people own cell phones than have bank accounts. According to Juniper Research, international remittances conducted via mobile and online services accounted for 36% of formal remittance by value in 2018, and the figure is expected to grow to 44% by the end of 2021.

The leading remittances services providers have long introduced advanced mobile versions of their applications, but the advent of new technologies is shifting their positions as global leaders. The appearance of blockchain and cryptocurrencies has significantly tipped the balance of preference in their favor as more people are starting to realize the advantages of the technology. Lower commissions and faster transaction times are becoming the main selling points of blockchain and associated technological developments, and given the low wages earned by migrant workers, even a penny saved is a penny earned.

Everex is one company striving to lead the charge towards the creation of a more efficient economic support system. Everex is a financial technology company that provides blockchain-powered solutions for financial service providers and their customers. Everex’s advanced technological solutions enable cross-border money transfers, direct payments, crypto/fiat currency exchanges and lending over the blockchain with all of the inherent benefits.

More Opportunities For Customers

Everex opens new business opportunities for its customers, such as international remittances, national/cryptocurrency exchange, and trading and cross-border lending for individuals, non-financial and financial services companies without using legacy payment systems, such as SWIFT. Near instant access to funds and transaction times in under a minute are guaranteed by Everex, leading to a faster turnover of funds, and ultimately – economic growth.

One of the most lucrative directions in the remittances industry that Everex is targeting is the provision of access to security tokens trading, or those backed by assets, like precious metals, equities, crowd-investing, and cross-border loans are also being developed to cater to a broader range of clients.

Financial inclusion is the inseparable duo that exists in parallel with the remittances market as millions of people are being categorized as unbanked or underbanked in their own countries. Giving this gigantic strata of people the opportunity to use financial services and improve their wellbeing is one of the main goals being pursued by a large number of projects around the world.

The goal of remittances services is business, not helping the downtrodden, but every business can be improved to serve larger masses of people. And financial inclusion is one area that is being targeted by companies like Everex, as the solutions offered speed up access to financial services for large strata of society, including those known as the unbanked. Such an approach will instantly open new financial opportunities for individuals previously deemed outcasts in the financial services industry due socio-economic factors.

The Outlook

Though it may be harsh and blunt to say that migrant workers are being exploited by many remittances services, but it will taste a lie to say that they are not. Stripping high commissions from those already suffering from injustice and hardships is an unfair and immoral undertaking when there are technological alternatives that can well cater to their needs and improve their wellbeing along with the economic situations of their home countries.

A few extra dollars in commissions may not seem much on an individual level, but when magnified by the hundreds of millions in the scope of the global migration problem, the impact is significant. It is therefore high time for the remittances services industry to look to new technologies not only to improve their quality of services, but also to remain competitive on a rapidly developing market before companies like Everex inevitably take over.

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