Posted 4th Kasım 2021

How is FinTech shaping the Remittance Industry?

In a globalised world, money is rapidly becoming borderless. Heightened migration and commercial expansion on an international level have triggered a stark increase in remittance payments being sent, globally. Reports show that the bulk of remittance payments are being directed at developing countries by migrant workers. These payments ranked higher in their contribution to the recipient country’s economy than foreign aid. 

In 2018, The World Bank reported that remittance sent to low and middle-income countries reached a record high of $529 billion. Although the Covid-19 pandemic initially triggered a dip in remittance payments being made, trends show that they are, once again, on the rise. While the reliance on remittance is not the all-purpose built solution for emerging economies, remitted payments have drastically increased the GDP of these countries. 

What is a Remittance?

When transacting money, we expect that a fraction of that sum will be lost to the central banks or the institutions we are transferring money to. However, the fees incurred from remittance payments are notoriously high, as many will have noticed when trying to take out money from an ATM abroad. 

Whether you are a company owner or a migrant worker, fair remittance payments are crucial; not only will that increase the recipient’s fiscal spending power, but it will often serve as an emergency response fund for individuals experiencing a natural disaster or political conflict. 

Fair remittance means that money can flow directly from the remitter to the recipient family member or friends, as opposed to foreign aid, which may never reach the parties in need of it. 

Types of Remittance

When discussing remittance, there are two types to be aware of:

  • Inward Remittance: when funds are sent domestically, from one person to another within the same country. 
  • Outward Remittance: when funds are sent to a bank account in another country.

Right now, outward remittance is skewed towards exploitative rates. This means that individuals sending money from their host country to the recipient’s face a transaction fee, a loss of value due to the exchange rate, and a fee relative to the speed of the transfer. This can take anywhere from under an hour to more than six days. 

Remittance as Industry

Competitors in the remittance industry that can offer high-speed transfers and limits, favourable rates and no hidden fees are starting to have an edge over the renowned market-dominant, Western Union. Notably, the impact of blockchain on the remittance industry is also having a major impact. 

The great diaspora remitting payments to their countries of origin are likely fulfilling families or individuals in developing countries who are considered to be underbanked. Moreover, remittance payments can function as an alternative financial solution for often the poorest segments of society. 

Underbanked, Underserved

In 2017, 1.7 billion people were classifiable as ‘unbanked’ in emerging economies. This means that these individuals lack access to banking infrastructure, a mobile phone or the required government-issued ID to open a bank account. 

A lack of financial inclusivity is no good for the underbanked individual nor the country’s economic system as a whole. Those who remain under or unbanked, tend to develop a general distrust of banking systems and further, a lack of participation in the country’s economy. 

The Importance of Remittance

In certain cases, remittance payments that flow directly to citizens in developing countries can function as business start-up capital. This enables the injection of funds into business infrastructure that will eventually act as a catalyst for employment opportunities, innovation, and stirred competition. 

The result of start-up capital is plain to see, from the tech giants dominating Silicon Valley to the dramatic impact of Alibaba on Hangzhou, the domino effect of enterprise transforms the operation of cities. Remitted payments can therefore provide financial leverage for start-ups, paving the way for financial success. 

Looking Ahead

Thankfully, there is a much safer, efficient and transparent alternative to this. System participants are able to send fiat currencies or digital cryptocurrency assets via the Kinesis Monetary system for an extremely low fee, with the transaction executed in seconds. What’s more, the ecosystem offers users the option to purchase physical gold and silver currencies, KAU and KAG, which are backed 1:1 by the respective precious metals. In turbulent times of high-level inflation and economic instability, money parked in precious metals is becoming increasingly more appealing for those in emerging markets.

As for the remittance industry as a whole, the diversification of providers can be a positive aspect for individuals. More competition means that companies will have no choice but to do better in regard to their services, rates, and product offerings. It may be this rivalry that leads, eventually, to fair remittance policies for all. 

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.