Global remittances are increasing, mainly fueled by the rise of financial technology (fintech) platforms that make it easier to send money transfers. The increase of fintech-fueled cross-border and domestic payments has also been accelerated by the pandemic, where cash payments have given way to digital payments many times. While cross-border payments were once primarily a migrant community phenomenon, they have evolved to include new market participants drawn to features such as transparent, low-cost, and fast transactions.
According to Juniper Research, global digital remittance volume is projected to surpass 2 billion transactions in 2027 compared to slightly more than 1.1 billion this year. This growing industry is primarily thanks to the speedy and inexpensive features that fintech platforms have introduced, bringing more flexibility and convenience to consumers and outpacing the options long provided by legacy banks.
Below we have identified three trends made possible by fintech companies that make it easier to send money.
An eye-popping 1.7 billion people globally are considered unbanked, meaning they don’t have access to traditional financial services like a bank. However, out of that cohort, 1.1 billion of them own a mobile device. In developing nations, more than three-quarters of adults are mobile-phone holders. As a result, digital banking has been thrust into the spotlight, where people are increasingly willing to use their mobile devices for payments, including domestic and overseas money transfers.
The trend, in this case, can be described as payments-as-a-platform or PaaP, best reflected in the rise of super financial apps. These services largely depend on partnerships between financial institutions and mobile network operators. A good example is China’s Ant Group, which has inked deals with hundreds of other entities, including banks and brick-and-mortar merchants. In the United States, tech giants like Apple and Google are working on their payment offerings to be delivered through super financial apps.
PaaP is similar to a better-known phenomenon dubbed banking-as-a-service (BaaS), allowing non-bank entities to offer bank-like services, including money transfers, early direct deposit, checking accounts, and more. They are able to do so at lower costs than traditional banks would require because they don’t need to have the same expensive licensing or compliance layers.
For example, according to UN data, the average cost for a traditional cross-border payment is 7.13%, and fintech startups can often easily beat that amount with rates in the low single-digit percentage range. In addition to offering cheaper options, tech-savvy platforms provide greater transparency on prices and fees. They are also increasingly able to verify a person’s identity online to satisfy know-your-customer (KYC) regulations, paving the way for unbanked users to gain access to financial services.
Demand is only getting stronger as consumers flock to mobile money platforms and super financial apps to send cash anywhere in the world, often in real-time or close to it. This is especially beneficial for populations in regions such as Sub-Saharan Africa, where the banking presence is lacking, but money apps are abundant.
Blockchain and Stablecoins
The emergence of the blockchain has blazed a new trail in financial services. Thanks to the decentralized nature of this distributed ledger technology, no intermediary, such as a bank, is required to settle a financial transaction. Instead of running on the SWIFT payments network, financial transactions are completed on the blockchain network over the internet, allowing individuals and institutions alike to send digital assets overseas without excessive fees and in as quickly as a matter of seconds. Meanwhile, traditional cross-border payment platforms are increasingly partnering with crypto firms to support digital asset transactions.
Two major blockchains are Bitcoin, on which leading cryptocurrency bitcoin is sent, and Ethereum, fueled by ether, the second-biggest crypto. These peer-to-peer (P2P) networks allow individuals to send funds to one another directly, as long as the person on the receiving end has the relevant digital wallet to accept the digital currency. Money has been lost due to digital asset holders sending funds to the incorrect wallet. That’s the downside of the blockchain — there’s no customer service provider to call when things go wrong.
Governments worldwide are trying to fix that by introducing central bank digital currencies, or CBDCs. These are digital versions of fiat money, such as the U.S. dollar or Chinese yuan. They are designed to have the backing of the central bank, making them more like digital versions of traditional money that can be sent quickly and for less.
This is not to say that SWIFT is going anywhere. It is a massive payments network supporting thousands of financial institutions and billions of financial messages annually. However, the blockchain has disrupted the payments space, and even SWIFT is looking to integrate some of the technology’s key features. This is a sign of decentralized and centralized finance coming together, which could lead to even greater innovation in the payments space.
Digital wallets in both the traditional financial landscape and crypto have also taken the payments industry by storm. Some major digital wallets include Cash App, Apple Pay, Google Wallet, and even Walmart Pay. Thanks to digital wallets, consumers no longer need to carry around cash or even plastic debit or credit cards and can harness their mobile devices to make payments on the platform of their choice.
Digital wallets offer users the convenience of loading money directly from a bank account. Transactions are quick, often in real-time, and they offer fraud protection that is impossible when carrying around cash. These wallets generally require a specific passcode to access, providing users an additional layer of protection they would not get with plastic debit or credit cards. With the use of cash dwindling in many countries worldwide, digital wallets are only gaining more prominence in society.
Change Takes Time
Despite these trends in fintech innovation, most cross-border remittances are received in cash. Bringing digital innovation to the massive financial services industry takes time, with issues like global compliance slowing things down. However, thanks to these growing industry trends, it is easier today to send money than it was just a few years ago.
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