Payment Methods

The (Digital) Transformation Of Remittances, Bit By Byte

global remittances

The pandemic has kept us all home — and for firms that have depended on walk-in business, transactions have slowed, or simply stopped. That’s certainly true of firms that help transfer money, sent by individuals back to recipients (including their families) domestically or across borders.

To that end, remittances are poised to decline markedly from the $550 billion level seen last year, as estimated by the World Bank.

The World Bank projects that remittances will decline by 20 percent to about $445 billion.

That decline will hit certain companies — and corridors of payment flows — harder than others. Mexico, for example, garnered $36 billion in remittances from the U.S. last year. And as reported, remittances can comprise a substantial percentage of GDP for recipient countries. In one example, remittances were 21.4 percent of GDP in Honduras last year.

But within the downturn lies a shift, one that focuses on digitization and that reflects the new reality of how we transmit money between parties these days — and likely will persist, well into the future.

“Remittances will face downward pressure as social-distancing measures affect the US service sector,” said ratings agency Fitch in an April report on Latin America and the Caribbean. “The median Fitch-rated country in the region receives the equivalent of 10 percent of GDP from remittances. In 2009, the last recent year with a comparably large output contraction in developed markets, remittances to Latin America and the Caribbean fell 15 percent,” Fitch said in the report.

Social distancing, of course, means that the traditional ways that money changes hands will likely no longer be literally … hand to hand. The uptake of P2P payments and digital wallets will continue, even if the volume declines, at least temporarily. But as recent earnings reports attest, the digital age is becoming firmly entrenched.

Setting the Stage

“We’ve basically seen a multi-year acceleration of the world going digital over the course of a few weeks,” Visa Senior Vice President and Global Head of FinTech Terry Angelos told Karen Webster in a recent interview.

“There has been and will be the priority to move money quickly — something that we think is absolutely critical to rebuilding the global economy,” Angelos said. That interview was focused on the latest class of Visa’s Fast Track innovators, some of whom are focused on digital wallets that can help speed fund transfers.

During Visa’s latest earnings call, CEO Al Kelly said that the company continues to work on “digitizing cross-border P2PAY. This quarter Remitly launched cross-border in seven countries. MoneyGram expanded to 11 additional countries and KB Kookmin card one of the leading issuers in South Korea also initiated a cross-border program, all with Visa Direct.”

Western Union’s results also underscored the shift to digital, with commentary on the quarterly call that the company has launched “digital location” concierge service in select countries where consumers are unable to pick up money in face to face transactions.

In this case, the funds come to them, delivered by contactless means by Western Union agents. As noted in this space upon the earnings report, the firm has also expanded its Account Payout Network’s real-time capabilities such that it now reaches 50 countries. The service allows users to move funds from their account cross border digitally to the recipient’s bank — or mobile wallet — account within moments.

Digital money transfers showed continued developing strength with revenues up 21 percent on a reported basis. On the whole, digital transfers represented 16 percent of total C2C revenue in the quarter.

As we reported, revenues increased 13 percent, with cross-border revenue growth of 23 percent during the quarter when compared to the same time last year. To date, CFO Raj Agrawal noted, service is currently available in over 75 countries, while bank account payout is available in over 100 countries.

The pivot from walk-in business to digital transactions was also underscored by MoneyGram. The firm said earlier this month that during the first quarter, per commentary from CEO Alex Holmes, the walk-in business began to decline beginning in March.

“At the worst point of crisis, thus far, we were touching year-over-year transaction declines of about 40 percent, with several countries reporting declines of as much as 100 percent,” MoneyGram reported, as consumers were stuck at home.

Management said on the call that the digital business, through MoneyGram Online, saw 60 percent transaction growth rates for the quarter — and into April, those growth rates accelerated to 88 percent.

Sends to accounts and wallets increased 80 percent year over year, with growth further accelerating into the triple digits in April, according to the company.

In further proof positive that financial services are increasingly moving into the proverbial palm of one’s hand, MoneyGram said mobile app downloads were up 46 percent in the quarter, with transactions through the app up more than 200 percent, and with 83 percent of transactions conducted across on a mobile device.



About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.