The global remittance market plays a crucial role in sustaining families and communities in developing nations, with millions of people relying on these funds to cover basic needs like education, healthcare, and housing.
However, the high cost of sending money across borders remains a major challenge, disproportionately affecting low-income households. According to the World Bank, remittance costs average 6.3% globally, far above the 3% target set by the United Nations Sustainable Development Goals. Reducing these costs is essential, and several technological solutions offer promising avenues toward more affordable digital remittances.
A major opportunity to lower remittance costs lies in the adoption of digital financial services, particularly mobile money. In regions like sub-Saharan Africa, mobile money platforms have revolutionized the way people handle financial transactions, offering an accessible alternative to traditional banks. By cutting out intermediaries and reducing the need for physical cash handling, mobile money can drastically lower the cost of sending funds across borders. The use of blockchain technology further holds the potential to transform the remittance industry. Blockchain’s decentralised nature can streamline payment processing, reduce settlement times, and eliminate the fees associated with middlemen, ultimately making remittances faster and more affordable.
New players and business models
The emergence of fintech companies has disrupted the traditional remittance landscape. These firms offer innovative, tech-driven solutions that bypass the costly infrastructure of legacy financial institutions. For example, digital wallets allow individuals to send and receive money instantly via mobile apps, eliminating the need for physical transfers or cash-based services. By providing seamless digital alternatives, these fintech solutions lower transaction costs and make remittances more accessible to underserved populations.
E-commerce platforms have also begun integrating payment services into their ecosystems, offering customers the ability to transfer funds while engaging in online transactions. This integration of financial services into non-financial products is known as embedded finance, and it holds enormous potential for further reducing remittance costs. Through this model, people can access remittance services directly within the platforms they already use for shopping or social interaction, avoiding the fees imposed by traditional financial service providers.
Data analytics offers another powerful tool for optimizing remittance services and lowering costs. By analysing transaction patterns, fintech companies can identify inefficiencies in the remittance process and devise strategies to minimize them. Moreover, advanced data analytics can uncover opportunities for cross-border payments, enabling the creation of more streamlined, cost-effective services. Insights from data can help fintechs design tailored solutions that address the specific needs of their users, offering more affordable remittance options for individuals and businesses alike.
Blockchain and API-based remittances
Blockchain-based remittances represent a transformative solution for reducing costs. Decentralized platforms built on blockchain technology eliminate the need for traditional intermediaries such as banks or money transfer operators. This not only speeds up the transfer process but also cuts down on transaction fees, making it an attractive option for sending money internationally. Moreover, blockchain ensures transparency and security, offering peace of mind to users concerned about fraud or misuse of funds.
API-based remittances are another game-changer in the fintech space. APIs (Application Programming Interfaces) enable different financial institutions to communicate securely and efficiently, facilitating seamless cross-border transactions. By connecting financial service providers through APIs, companies can bypass the layers of intermediaries that usually drive-up remittance costs, making it easier and cheaper for people to send money globally.
While these technological solutions hold immense potential, their success depends on local adaptation. For example, mobile money and digital wallets are well-suited to regions where smartphone penetration is high and access to traditional banking is limited. However, in areas with poor digital infrastructure, implementing such solutions may face challenges. Governments, regulators, and private sector actors need to work together to create an enabling environment that fosters the adoption of fintech solutions, ensuring that these innovations benefit the people who need them most.
A path forward
The road to cheaper remittances is uneven but promising. By leveraging digital technologies, encouraging the entry of new players, and exploring the potential of blockchain and data analytics, fintech companies can significantly reduce the cost of cross-border transfers. These innovations not only make remittances more affordable but also extend financial inclusion to millions of unbanked individuals worldwide. However, achieving widespread adoption will require a collaborative effort between governments, financial institutions, and fintech innovators to address the challenges that persist in different regions.
As the world continues to become more interconnected, affordable digital remittances can unlock new opportunities for economic growth, improving the lives of millions who rely on these essential financial lifelines.
By Dominic Senayah, an International Relations researcher at Teesside University, UK.
