The Evolution of the remittance industry (blog)

xenpay remittance

This blog is written by Paresh Davdra, Co-Founder & CEO of Xendpay/RationalFX

The remittance industry is a constantly evolving one, morphing from a simple cashless bartering system to the more technologically advanced developments that we see in the 21st century, which ironically seems to have taken the industry full circle back to an increasingly cashless society with the advent of fully virtual ‘crypto-currency’ platforms such as Bitcoin.

For centuries, communities have developed and implemented tangible mechanisms for transacting money between themselves, from the earliest form of money remittance, thought to have originated with the Chinese ‘flying’ money system in the early 9th century (whereby travelling traders would safeguard themselves against robbery by offering merchants paper vouchers as proof of payment), to one of the earliest forms of money transfer occurring by mail in 18th century Russia. In the east, the Hawala method developed an elaborate informal value transfer system uniting a complex network of brokers. However the forbearer of modern remittances is said to be the telegraph wire system developed in the USA in the early 20th century, which heralded however rudimentary, a basic digitised money transfer platform.

Today, modern money has advanced beyond all expectations, as peoples’ monetary needs have become ever more sophisticated and fluid.  We are increasingly seeing young migrant populations living and working across the globe, thus ferrying not just their sought-after skills and talents across borders, but also making a substantial financial contribution back to their home economies to aid international development. To give an example, World Bank predicted ‘global remittances in 2016…to accelerate by 4.1 percent, to reach an estimated $610 billion, rising to $636 billion in 2017. Remittance flows to developing countries are expected to reach $459 billion, rising to $479 billion in 2017’. And post Brexit, the case for the fluidity of the movement of people has never been greater.

Such marked societal changes have given rise to a variety of financial needs and in response, a host of integrated financial solutions. The array of financial services now available ranges from traditional banks dealing with the day-to-day transactional needs of customers through such mechanisms as Swift, to detailed P2P lending networks and the birth of money remittance companies.

Remittance companies began as a much needed alternative to the more traditional methods for transferring money between individuals, and are constantly developing the range of services and products that they offer. From humble beginnings, whereby transactions could just be carried out through static website portals or through a physical presence at a bank or money remittance kiosk, today customers have a plethora of options, from apps to mobile money wallets and virtual currencies.

One of the pivotal ways in which the remittance industry has evolved over the years is as a key driver of humanitarian aid rather than just being a means of adding to peoples’ bank balances. Remittance can help impoverished communities, thus providing essential assistance to prop up government foreign aid budgets. Examples include in the aftermath of the Nepal earthquake, Indian floods and the Asian tsunami. In addition, remittance can help economies in other practical ways such as supporting students and young graduates, or remitting money back home to help families and friends.

The way forward for the remittance industry lies in its ability to not only innovate and gauge the changing needs of customers, but also to remain competitively priced and value for money. The industry needs to move away from the dominance of just a few market players to include more companies offering real choice. In addition, remittance companies need to ensure that they offer their customers a service that doesn’t overcharge in terms of fees or incorporate hidden costs, ensuring that more of the money reaches its intended recipients.

The future of the remittance industry lies in the continued development of the fintech sector, as customers become increasingly savvy in terms of financial appetite and companies rising to the challenge of meeting need through a plethora of services. Money has shifted its focus from years gone by, when cash was a tangible product with limited uses, to a commodity that is transacted across borders without confinement to particular conventions or limits.  Thus the more than 3,000 year bond between people and money is set to shift once more, with exciting results.

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