More than just a financial transaction, these cash flows are one of the cornerstones of the growth and emergence of many developing countries.
Every year, more than 280 million migrants around the world send money earned in developed countries to their relatives. Last year remittances to low- and middle-income countries exceeded $ 600 billion, far exceeding the aid provided to these countries by development agencies and governments alike. For many developing countries, remittances contribute over 10% of GDP. In the case of Nepal, remittances account for 27% of GDP. For the Samoa Islands they contribute 32%. Money transfers are considered so critical that during the pandemic they were declared an essential service in France for customers to continue sending and receiving money, despite various confinements.
Remarkably resilient in the face of the crisis, remittances have even increased despite the recession. COVID-19 has hit the economies of developed countries so hard that analysts have predicted remittances will drop by 20%. In fact, the opposite happened. Globally, remittances to low- and middle-income countries increased nearly 1% in 2020 and 8% in 2021. Flows jumped 9.7% in the Middle East and North Africa, to reach 62 billion dollars, thanks to the return to growth in the host countries of the European Union.
For the countries concerned, even the money of the exiles is a substantial boon. First, because it directly contributes to their growth. This year, the countries with the highest volume of migratory remittances as a percentage of GDP are Gambia (33.8%), Lesotho (23.5%), Cape Verde (15.6%), Comoros (12.3%) ), Liberia (10%) and Senegal (9.5%). Secondly, because the amounts sent by migrants sometimes exceed the amount of development aid. In 2017, according to the African Institute of Remittances (AIR), remittances from the African diaspora reached $ 65 billion. This is more than double the official development assistance from African donors, at 29 billion.
For families, these remittances are a real “lifeline”, which essentially allows them to feed themselves, take care of themselves or pay for their children’s schooling. This is because international migrants know that the money they send home is important to their families who depend on it for health care, housing and education, among other things. When the crisis strikes, migrants reduce their consumption or tap into their savings to continue supporting their families. Remittances put food on the table during economic downturns.
Forced arrests and travel restrictions during the pandemic led to a huge increase in technology adoption around the world and reduced barriers to entry in terms of inclusion and access to financial services.
Technology and mobile portfolios drive financial inclusion globally
Rapid technological advances and the rise of mobile solutions, even in the most remote parts of the world, are helping to reduce costs and improve the speed of these money transfers. Technology also helps overcome key development challenges such as access to education and health services and contributes to financial inclusion.
But for people in developing countries, with limited access to traditional financial services, mobile wallets bring dramatic improvements to living conditions. Widely available today, even in countries where most people don’t have a bank, mobile payments have become so robust that they can replace bank accounts. With a mobile wallet, users now have access to a wide range of financial services, including receiving money transfers, paying bills, obtaining loans or withdrawing cash from authorized points.
Bridging the technology gap in financial services
Digital expansion is essential for the future of the cross-border money transfer industry, but today 70% of customers continue to rely on physical channels. Being able to offer both digital and physical services will continue to be essential for money transfer operators around the world.
The World Bank estimates that international remittances will increase by 3.8% this year. They are an essential development tool that contributes to poverty reduction. Unsurprisingly, the United Nations has included reducing the cost of remittances in its Sustainable Development Goals for 2030. With the current global average price of sending a cross-border transfer above 6%, there is still work to be done. to reduce the costs of international remittances and ultimately reach the 3% target set by the United Nations.
The high demand for technology that has resulted from the pandemic has driven the adoption of the technology around the world. This means that the technology that already existed but was not implemented on a large scale was suddenly in high demand due to the various lockdowns. This has accelerated several trends in the payments ecosystem as a whole and changed what people expect from digital payment services.
More than just a financial transaction, these cash flows are one of the cornerstones of the growth and emergence of many developing countries. However, much remains to be done to speed up cross-border payments and to give everyone access to a better future.