Remittances sent to developing countries alone represent a massive $500 billion market (and still growing), even though these payments are generally sent in small amounts. The funds might be used for everyday expenses such as groceries, or to help in the event of a medical emergency, for instance. When you combine businesses and person-to-person remittances, cross-border transactions soar to an eye-popping $10 trillion annually.
For global remittances, which are comprised of developing and “high-income” countries, the size of the market is close to $689 billion, according to The World Bank. In fact, the amount of money sent via remittances, which are generally how migrant workers send funds back to their home countries, surpasses that of flows in the stock and bond markets.
The data reflects 2018 amounts, which incidentally were on the rise vs. 2017 levels by 10.8% and 10.3% for remittances to developing countries and globally, respectively. India leads the way as a remittance destination, with more than $60 billion in volume in 2016. China was a close second at $61 billion, followed by Philippines, Mexico, and Pakistan, whose volumes were less than $30 billion each.
Source: PaymentsSource & The World Bank
Given the sheer size of the remittance market, financial technology, or fintech, plays have stepped in. They are filling a void in a market where banks often charge fees as high as 6% of the amount sent, which is a lot considering the payments are generally small to begin with. Using a service such as MoneyGram to send a GBP payment from the UK to Ireland in EUR commands a 5% fee.
For smaller currencies it’s worse. For instance, to send a payment from South Africa to Nigeria the fees could be as high as one-quarter of the total amount sent. What’s more it could take several days for the transaction to be complete.
Turning to Latin America, in countries like Venezuela that are suffering from hyperinflation, this could make the difference for a day’s worth of groceries.
Similar to how they have disrupted the bigger payments landscape, fintech firms are making it cheaper and easier via mobile technology for individuals to send money to their families or make other payments overseas.
Pangea is a mobile-fueled remittance platform known for its cheap fees. The Chicago-based company reportedly plans to expand to support “branded checking accounts” for customers, which is something they are reportedly doing because customers are lacking “a strong connection with their current financial institution,” according to American Banker.
Given its presence in the U.S., many of its customers use the platform to send funds to the Latin American region. The company also has a strong presence in Southeast Asia across India, Indonesia, and China.
In fact, Latin America is an area of focus for fintech companies looking to provide remittance and payment services. The number of these firms increased by more than 60% last year, according to data from the InterAmerican Developmental Bank and Finnovista. In addition to setting up shop in the region, fintechs are teaming up with local companies across mobile and financial services.
Latin America represents a huge opportunity for fintech companies because even though the region represents a big piece of the global remittance pie, their share of mobile payments pales in comparison to other regions, mainly, Sub Saharan Africa.
One segment where fintech-powered remittances are having an impact is in the cruise line industry. Cruise workers used to be paid in cash, which was a security risk and made it cumbersome, as well as pricey to send money to families overseas. Cruise ships also don’t have the best internet connections, so even if they were paid digitally, the cruise workers didn’t always have the technology for remittance transactions.
Fintech companies have stepped up to fill the gap, giving these workers the ability to send payments via mobile apps that are nimble enough to work with the limited bandwidth that the high seas have to offer. Rather than having to wait for days, the funds can be received in a matter of minutes.
Financial technology companies are leaving their mark in every facet that touches payments, and this increasingly includes the growing opportunity in the remittances market.