Digital remittances are one of the main forces driving financial inclusion. Over 200 million migrant workers send money home every year. FinTech as a force for good can create positive changes for individuals and businesses; remittances are a prime example. Their role in facilitating financial inclusion cannot be underestimated. By increasing people’s purchasing power, raising per capita incomes, and feeding into local and national economic growth.
By 2027 remittances could reach $1.2 trillion, with the potential to unleash profound transformations in their recipient societies. Many factors are driving this growth. These include increasing waves of migration, none are as influential as the proliferation of innovative technology making remittances easier to send and receive. And at much lower cost than traditional money transfer channels beset by high FX fees and sluggish settlement times.
For decades, remittances were dominated by a few players including Western Union and MoneyGram. They have enviable global reach and networks. However, recipients – especially those in rural and remote locations – were faced with a lack of physical offices on the ground where they could collect their remittances. It was common for recipients to have to travel long distances to get their money. The loss of time and convenience is obvious. These often arduous journeys also came with increased risk of theft or loss of funds along the way.
The lack of physical infrastructure soon became a problem that tech was perfectly placed to solve. It did so in a way that allowed mobile payments to leapfrog legacy infrastructure issues with ease.
What’s powering digital remittances?
The tech behind digital remittances is a complex ecosystem that has evolved significantly over time. Furthermore, the pace of innovation shows no sign of slowing down. There are several key technologies and methods involved in advanced remittance solutions.
Electronic Funds Transfer (EFT) is a method of transferring money from one bank account to another electronically. Remittance services often utilise EFT to move funds between the sender’s bank account and the recipient’s bank account or designated payout location.
Payment gateways are another crucial component. These online platforms facilitate the transfer of funds between parties. They securely process transactions, verify payment information, and transfer funds between the sender and the recipient.
Remittance providers often integrate with banks, payment gateways, and other financial institutions via APIs (application programming interfaces). This facilitates access to banking infrastructure and fund transfers. The APIs enable real-time transaction processing, status updates, and seamless connectivity between the remittance platform and other financial services.
Security is paramount when it comes to remittance transactions. Remittance platforms employ encryption tech to secure data transmission and storage. This protects sensitive financial information and prevents fraud. Secure Socket Layer (SSL) encryption, Transport Layer Security (TLS), and multi-factor authentication are commonly used to safeguard transactions and user data.
These technological advances have all played their part in helping remittances to proliferate. People who were out of reach can now access a wide array of sophisticated financial services all from their phone thanks to the neobanking revolution.
Three tech trends taking digital remittances to the next level:
Super Apps
The main innovation that has sent remittances skyrocketing is the phenomenal adoption of smartphones, which has paved the way for the rise of money transfer super apps.
The importance of the smartphone in the global remittance market cannot be understated. By necessity, apps need to be user-friendly and easy to navigate to succeed. Apps play a crucial role in improving the remittance process. They offer the speed, cost efficiency, and security that users have come to expect. Furthermore, remittance apps often provide features that allow users to track their transfers in real-time and manage their transaction history easily. This helps in budgeting and financial planning, especially for those who send remittances regularly.
Most importantly, 4G or 5G networks mean such apps can reach users in remote or underserved areas where access to broadband internet infrastructure or traditional banking services is limited or non-existent. This accessibility is in turn driving inclusivity and promoting financial participation and empowerment among a broader segment of the population.
Eastern Europe serves as a good example of where this technology is particularly life changing. Across the continent, banking penetration rates range between 44% in Albania to 92% in Croatia. So, a key challenge and focus for banks, governments, and tech solution providers is driving greater financial inclusion, and improving remittance flows are key to this.
Blockchain
Just as cryptocurrencies use blockchain technology to track assets, some remittance providers are now leveraging the same technology to streamline the transfer process and enhance security.
Blockchain technology enables secure, transparent, and immutable record-keeping of transactions. This reduces the risk of fraud, enhancing trust between parties. Cryptocurrencies like Bitcoin and stablecoins are sometimes used for remittance purposes, leveraging blockchain technology for fast and low-cost digital cross-border transfers.
It’s easy to see the attraction of blockchain technology for remittance providers. Moreover, it is a fully encrypted, decentralised, and immutable ledger, and as such cannot be altered in any way. Also, because blockchain technology is decentralised, no intermediary bank or financial institution can get involved. For these reasons, blockchain could become crucial to the remittance industry in the coming years.
Artificial Intelligence & Machine Learning
There are few industries not being impacted by AI and ML technologies. Both are increasingly being employed in remittance services to detect fraudulent activities, improve compliance with regulatory requirements, and enhance user experience. Furthermore, these technologies analyse transaction patterns, identify anomalies, and provide insights to prevent fraudulent transactions and ensure regulatory compliance.
Why all of this digital transformation matters
Remittances play a vital role in both individual livelihoods and broader economic development efforts. This makes them an essential aspect of global economic relations and poverty alleviation strategies. Additionally, we can see the tangible, life-changing differences that payment technology evolution can achieve. Moreover, through increased household purchasing power, accessing formal and cheaper financial services, and indirectly through increased revenues for remittance service providers and the businesses people buy from.
Clear Junction is a global payments solutions provider that was established in 2016. The company was founded by a veteran team of financial professionals with many years of experience in cross-border payments and banking. Over the years, we have worked tirelessly to build and develop our own proprietary technology to facilitate an end-to-end regulated payments solution. We are licensed and regulated by the Financial Conduct Authority and have offices in multiple locations across the UK and Europe, including London, Poland and Latvia.
- Neobanking
