The challenges of remittances in a world that’s on the move

The need for reliable and secure remittances services has never been higher. According to the United Nations High Commissioner for Refugees (UNHCR), there are now more than 110 million displaced people in the world, forced to flee their homes because of things like war or famine.

The problem has been exacerbated in the last couple of years by Russia’s invasion of Ukraine, the return to power of the Taliban in Afghanistan, and the military coup in Niger – the West African nation once a bastion of peace on the continent, now a clear demonstration that conflict and unrest are rapidly becoming part of everyday modern life.

Refugees and asylum seekers present their own challenges when it comes to remittances: the countries they are fleeing are, more often than not, relatively unstable with little or no payment infrastructure. They may present a patchwork of different payment cultures – from mobile payments to wire transfers. 

And, of course, even without the nation-by-nation idiosyncrasies that make remittances more complex, there are the usual hurdles that come with moving money across borders. This is without even touching upon the additional demographic of economic migrants – people who move for work, rather than fleeing war or persecution, who inevitably want to send money back home to friends and family.

What are the challenges in cross-border payments?

Speaking to FinTech Magazine at Money20/20 Europe in Amsterdam earlier in the year, Global Head of the Wise Platform Abid Mumtaz explained to us some of the challenges that persist when it comes to cross-border payments.

“Moving money generally across borders has always been a very difficult thing when it comes to businesses and consumers,” Mumtaz told us. “Three or four things stand out to me. One is the speed at which money moves. People today need money to arrive with the beneficiary as fast as possible and as instantly as possible, more than they used to. 

“Secondly, they want it to arrive as low cost as possible with as few fees as possible. Thirdly, [they want it] as transparent as possible; they want to know when their money will arrive, how much will arrive, and they want a high level of accuracy. 

“The fourth thing really comes down to convenience – so moving money generally speaking is quite a cumbersome process, especially when it comes to doing that cross border. They want that to be as easy as possible, as convenient as possible, within a few steps or a few clicks – just as we’re seeing across most of the banking and financial journeys we’re seeing today.”

Maintaining that level of service when the picture on the ground is changing so rapidly, and to such an extent, is a dilemma that keeps remittances professionals awake at night.

Is the developing world geared up for remittances?

Shanker Ramamurthy, BIAN Board Member and Global Managing Partner for Banking and Financial Markets at IBM Consulting, claims developing countries still face a host of challenges when it comes to banking, transacting and personal finances.

“A lack of financial inclusion leaves them vulnerable to exploitation, limited opportunities for savings and investments, and, importantly, a lack of access to credit,” Ramamurthy says.

“Low levels of financial literacy hinder people's ability to make informed financial decisions, which can perpetuate poverty and economic inequality; while the cost of completing financial transactions in developing countries can be high, making it difficult for people to access financial services and for small businesses to operate profitably.  

“Many developing countries lack the infrastructure necessary to support modern financial services, including reliable telecommunications networks, banking infrastructure, and secure payment systems. Some developing countries have weak regulatory frameworks, which can lead to a lack of consumer protection and low levels of trust in financial institutions.  

“And gender inequality is prevalent in many developing countries, which can limit women's access to financial services and economic opportunities. These challenges can make it difficult for people in developing countries to access financial services and participate fully in the economy. 

“Addressing these challenges requires a multi-faceted approach that involves building financial infrastructure, promoting financial literacy, improving regulation, and addressing social and economic inequalities.”

Ramamurthy suggests that “financial institutions who want to be part of the solution to improving financial inclusion around the world should consider adopting the architecture standards put forth by the Banking Industry Architecture Network (BIAN)”. They should be “embracing a hybrid cloud approach to their technology infrastructure and leveraging the power of a robust, regulatory compliant ecosystem of fintech partners,” he adds. 

“By taking these steps, banks and other finance providers are better positioned to implement innovations quickly.”

Looking ahead to the future of remittances

Despite the challenges that unquestionably still exist within remittances, there is nonetheless still cause for optimism. The global remittances market is expected to grow to a valuation of US$107.8bn by 2030, achieving a compound annual growth rate (CAGR) of more than 10% between 2022 and 2030, per forecasts published by Research and Markets.

And Wise’s Abid Mumtaz retains a positive attitude when he looks ahead to the future of remittances, and where he expects it to be in the next decade.

“5-10 years from now, we’ll probably be in a world where instant is very much adopted,” Mumtaz says. “Today with Wise, we’re proud to say that 55% of our payments moving around the world are settling into the beneficiary’s bank within 20 seconds, but the market still has a way to catch up and we still have plenty of work to do to get to 100%. I think that’s where we’re going to be spending a lot of time [in the coming years].”