We can all agree that the money transfer industry is a crucial component of the global economy. In addition to regular support, the flow of remittances has always served as an important lifeline for many people, very notably during the COVID-19 pandemic or recent natural disasters, for instance as we've seen with Typhoon Odette in the Philippines. The remittance industry allows support to not be restricted by borders and helps build communities in all corners of the world. The recent pandemic changed the industry, which made many wonder - what could the remittance industry look like in five years? How will people send money in the future, and how could digital disruption affect services and deliveries across the world?
The state of remittance
The pandemic has had a considerable impact on the flow of remittances around the world, but it wasn’t as bad as experts originally predicted. In 2020, Ratha et al. projected a decline in remittance flows to low/middle-income countries by 20 per cent as a result of the pandemic, which negatively affected wages and employment for many migrant workers. However, recently available data is illustrative of the immense resilience of the remittance industry today. Remittance flows fell by only 1.6 per cent to USD 540 billion, defying the projected decline.
Despite the pandemic, we saw our customers send large portions of their disposable income to their loved ones in their time of need. Although borders were closed and travel routes suspended; the remittance industry remained open and agile, allowing continuous financial support to flow across borders. Our own Small World agents and branch staff were front line workers, ensuring that money kept flowing as a critical part of supporting the common battle against COVID-19’s impact on societies. The recorded decline in remittance flows in 2020 was significantly smaller than the decline experienced in the aftermath of the global financial crisis in 2008. This is a testament to the current strength of the remittance industry and the potential for further growth in years to come.
There are some countries where international money transfer is a crucial part of the
economy and the nation’s economy itself relies heavily on foreign remittance
support. According to the World Bank, the remittance industry accounts for 24% of
Somalia’s GDP, 10% of Senegal’s, and 9.9% of Pakistan’s, just to name a few.
But will these countries still rely heavily on remittance in the future and in what shape
might it be?
Will the remittance industry grow?
What does the future of money transfer hold? In five years the remittance industry will likely be significantly larger and more integrated than it is today. The World Bank is projecting 3 to 4% annual growth in the coming years. With more growth comes more customers, and this will attract more investors, innovators and Fintech players to get involved. As the remittance industry defied the COVID-19 predictions, it is certain that the industry will continue to be resilient. We know that as long as there is a possibility to do so, people all over the world will want to support their loved ones and share a portion of their income. Nonetheless, the future shape of the sector remains hard to predict.
In 2027, India may still be the largest recipient of remittances by volume worldwide, but other regions are also growing quickly. With the world being more connected, more money flows across borders and at a faster speed than ever before. For instance, Small World customers sending money to Bangladesh can have cash received in the hands of their loved ones seconds after placing a transaction in our app, or handing cash to one of our in-store tellers. So we know the remittance industry is stable and will continue to grow. Let’s deep-dive into what direction this might be.
What’s on the horizon?
A lot of industry thought leaders initially thought that digital advancements in the industry would significantly reduce face-to-face or “offline” payments, e.g. transfers being set up in branches, agents or via phone. At Small World, we’ve also seen expansive growth on the digital side as a result of consumers becoming more digitally savvy, but this growth has been additive - not at the expense of our physical network. The physical cash-side of our industry is still experiencing strong growth, and the physical presence of the network is invaluable for our customers. Customers hold significant value in the trust and confidence that comes with setting up transfers through face-to-face interaction. It can be important for many customers to have a sense of belonging or a connection with the person they’re transacting with; this is particularly true for less digitally savvy demographics. Customers value setting up a transfer with someone they interact with often, building a two-way relationship of convenience and having any potential questions answered in person.
For example, at Small World, most of our branch staff and agents are members of the local community and speak the same languages. The face-to-face interaction can therefore be a lot more personal and alleviates any potential stress regarding the transaction. We offer both physical points of presence and/or digital experiences by integrating the two. For example, a customer who chooses to set up their transfer via an offline channel, like a branch or an agent, will still be able to get updates digitally through e-mails or via app notifications. Although digital channels for money transfer are flexible and adaptable, there is a sense of community offline that some people want. The strength of a company like Small World is that we’re able to give our customers the choice to choose whatever option suits their needs.
It is also important to remember that many communities across the world might not be bank account holders or get paid via bank transfers. Sending money or receiving money in person is still a large reason why many choose non-digital alternatives. Instead of allowing new developments to replace existing services, we’re adding them to our portfolio of payment and payout methods.
Ultimately, it’s about flexibility and being adaptable. We witnessed it first hand recently during the crisis in Ukraine. We quickly worked with our extensive local network in Ukraine to provide solutions where customers weren’t able to leave their houses, all cash-out payments could be credited into bank accounts. Our expansive collaboration with partners across the world allows us to quickly adapt, adjust and adhere to any changing international dynamics.
Staying on the receiving side, as it becomes easier to acquire inexpensive smartphones in countries around the world, the usage of mobiles to send and receive money is rising. Mobile banking and mobile wallets are rising and at Small World, we’re extending our services to ensure our customers have these options where applicable. Our aim is not to be an offline-only or digital-only service. We truly believe in the omnichannel model where a customer gets the choice of how to interact. If a customer prefers to send money on the go via our digital channels or by walking into a branch or visiting an agent, they should be able to choose what’s most convenient for them. The transfer methods customers are faced with might expand, but we should not let one out rule the other. It’s important to remember that different customers have different needs.
Small World’s role
We live in an increasingly global economy. Despite the COVID-19 pandemic and all the temporary restrictions on movement it brought; people are still crossing borders, and working in locations far from home. In five years' time, based on projections by the World Bank, more people will be benefiting from remittance than ever before. This means more people will have access to much-needed funds, more people will be able to support their loved ones and more people will be able to realise their potential.
Small World has a significant and growing role to play in the remittance industry. We are an international money transfer service that facilitates millions of money transfers every year through our global network of interconnected digital services and locations. Our goal is to be the go-to service for money transfers, regardless of whether a customer wants to send money online or offline. Our approach is simple, whenever or wherever the customers want to send money to or from, we need to give them the option to do so. We believe customers deserve to have choices, and we want to be the company they turn to for convenience and ease. Borders shouldn’t mean barriers.
To learn more about remittance and global money transfers visit Small World.