Remittances: The world of fast tracking payments

Paresh Davdra, CEO and Co-Founder of Xendpay

The blueprint of the global economy and trans-national trade works in a clear cut pattern, which we have been familiar with, right from the emergence of the silk route to the now resurrecting ‘One Road One Belt’ initiative. The pattern that historically stands out here is the transfer of currency for the exchange of goods and services, amounting to several trillion dollars in today’s world. Global money transfers were heavily regulated under the reliance of national and private banks, before money transfer operators entered into the foray to offer a competitive and collaborative model that opened up the possibilities. Over the years, cross national trade and industry has flourished and the remittance space expanded multi-fold. In 2015 alone, the worldwide remittance flows were estimated to have exceeded $601 billion. Of this, about $441 billion, which nearly accounts for three times the amount of official development aid, was transferred from developed economies into developing countries including India, China, Philippines and Mexico.

Against this backdrop, the remittance industry has caught up with the market developments well enough to offer and expand their services through newer trends and business models such as digitally enabled disruptive ‘Pay What You Want’ money transfer companies and networks that use peer-to-peer transfer services. The near real time exchange facility they offer, along with lower operational overheads, means that the consumers stand to benefit from lower cost transfer rates than a traditional bank or money transfer operator would offer.

Now, as the industry evolves with the entry of new players on a multi-platform level, interesting trends have emerged, which not only highlight the opportunities but the challenges that lie ahead for the industry at large.

The pattern

The fact that four of the top five of the world’s highest remittance receiving countries are developing economies indicates the pattern which the payments industry follows. More often than not, these payments are initiated from economic migrant communities from the developed nations supporting their families back home in developing nations. In this process, the receiving nation stands to benefit from the injection of high value foreign currency flow into the country. As per the World Bank, India received over $62.7 billion in remittances in 2016 alone from its expatriates, consistently retaining the top spot as the world’s largest remittance recipient. Banks, financial institutions, money transfer operators and ‘Pay What You Want’ digital payment services are all competing for a share of this space.

The scope and limitations 

The FX industry hasn’t stopped evolving, upgrading its offers to tackle the fast paced currency fluctuations to offer the best competitive rates for its customers. As the developed world is almost reaching a point of stagnation, the entry of Information and Communication Technologies (ICTs) have facilitated a greater penetration into newer developing markets offering a swathe of new clients to service. While the developing markets are adopting the digital platform, the developed markets are trying to adopt efficient services to elevate the current operational systems. In the developing world, as more and more remittance recipients emerge to sign up and utilise basic financial services such as bank accounts and the internet, there is certainly no doubt why faster and cheaper online money transfers have become more popular. It would also be interesting to observe how the traditional money transfer operators and banks circumvent the change of business model.

One of the primary areas where the sector is currently facing minor turbulence is with regards to setting up digital money transfer services in developing markets which are traditionally reliant on banks and physical institutions. More often, these countries also have restrictive markets which scrutinise transferring money out of a country, which makes it difficult for digital payments providers to set up their remittance services. However, the limitation does not curb the scope for initiating operations as we can look at providing intra country payments systems instead of a remittance system.

Moving forward, the key point here is to gain market entry first, and adapt to or mould the system along the way. For the first one to move into a country, this would give a stronger pedestal and initiate the momentum to attain market leadership. It’s called the first mover advantage in marketing terms. The scope is therefore immense and the possibilities are limitless: after all, it’s 2017!

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