International remittances: A money movement lifeline ripe for digitization

By Ruben Salazar Genovez, Global Head Visa Direct, Visa

The challenges associated with sending money to family far away are personal to me. I've emigrated to several countries during my career. In each new place, one of my first big questions was how to send money home to El Salvador. The answer has been different, and often challenging, each time.

I’m not an outlier; there are more than 200 million people sending hundreds of billions of dollars each year to friends and family around the world — to lend a hand financially or celebrate a special occasion — through cross border person-to-person payments known as remittances. Globally, it is estimated that 800 million people receive money from family or friends to pay for food, utilities and education.¹

And while digital transformation is simplifying how people move money internationally and removing the physical barriers of traveling to a location to receive money, in many ways, the remittance process has remained basically unchanged for 150 years. Some international transfers still can take days to complete, and costs are sometimes borne by the sender and the receiver, compounding the challenges for family members eagerly awaiting needed funds. 

June 16 is International Day of Family Remittances, a day that recognizes and honors the financial contributions made by millions of migrant workers who send money back to their families. Recent trends are an amazing testament to their resilience. In 2021, global remittance inflows reached a new record of $773 billion, of which $605 billion went to low and middle-income countries (LMICs). Thirty countries received over 10 percent of their GDP in the form of remittances in 2021, and eight received over a quarter of their GDP this way.

And costs, while still high, are starting to inch down. A World Bank report showed average remittances costs have fallen slightly to 6% globally for a $200 transfer,² still double what the UN Sustainable Development Goals pursue. This means that it is more important than ever for migrant workers to have the digital tools to “shop around” for the best price. According to Visa Economic Empowerment Institute research, “best available” costs in many markets have fallen to 2.08%, down from 2.96% in 2021. Worst costs remain high at around 7.09% compared to 6.15% in 2021.

Bringing rapid digital remittances within reach

There’s so much still to be done. Digital solutions are emerging to evolve the way cross-border money movement operates today. The proliferation of connected devices globally, fintech and bank innovation, the transformation of global remitters and solutions developed by global payment networks like Visa are helping to bring seamless, secure and rapid digital remittances³ within reach. To that end, a Visa study⁴ found that digital remittances are the preferred method, with digital-only transactions already being the most popular and a majority (59%) of the remittance users surveyed saying they have sent or plan to send money using digital-only platforms.

Yet challenges regarding timing and complexities of cross-border remittances remain formidable. There is little to no interoperability at technical and regulatory levels, including anti-money-laundering (AML) provisions. Most international transfers are managed through a daisy-chain bi-lateral correspondent banking relationships, adding expense and complexity.

Four ideas for policymakers to foster innovation that lifts everyone

As policymakers work to help streamline digital remittances, we believe they should adopt a principle-led and outcome-based approach, giving payment service providers and payment networks the flexibility to innovate. Following are four recommendations:

Engage in public-private dialogue and partnerships. There is widespread recognition that governments, NGOs and the private sector need to work hand-in-hand to close the digital equity gap and ensure secure, reliable and fast remittances are available to everyone everywhere. 

Streamline regulatory environments. Remittances and other cross-border payments are subject to regulatory regimes that can add barriers and complexity. Streamlining and aligning rules as much as possible can reduce these barriers. The private sector can and should prioritize creating products that offer better customer experiences and enable more efficient transfers of money. But the public sector can play a role too, by helping to streamline licensing processes that bring the benefits of digital remittances to more corridors, and therefore to more people.

Prioritize open interoperability. We need to work towards a global, open, and interoperable payments ecosystem that is fast, reliable, and allows service providers to move money between everyone, everywhere—using the rails and payment methods that users prefer. The ecosystem needs to be built on a foundation of security and resilience and accommodate the needs and expectations of stakeholders across a variety of use cases.  Getting interoperability right is an essential step toward the ultimate goal of a more equitable and inclusive payment system.

Understand that scale and security are a must for success. Truly interoperable service should be able to reach as many endpoints as possible, whether they be traditional bank accounts and prepaid accounts or digital wallets.  Consider, for example, that today through the Visa ecosystem alone, a financial institution can reach a combined total of over 5 billion cards and bank accounts. Meanwhile, adopting digital security systems can help vet fraudulent transfers in real-time. Technologies such as tokens and artificial intelligence increase the security of remittances. Alleviating fraud risk requires significant investment in areas such as authentication methods, behavioral biometrics, velocity and aggregation tracking. Similarly, transaction and algorithmic tools to flag suspicious activity as well as checking global databases are essential components of any real-time payment solution.

Families around the world often depend on remittances and as global money movement becomes increasingly digital, there’s a pressing need for flexibility, ease and reach in sending or receiving money across borders. Policymakers and the private sector can leverage remittances to help alleviate poverty and support local economies. Together, we can accelerate financial and digital inclusion.

¹United Nations Department of Economic and Social Affairs Data, June 2019

² World Bank Remittances Prices Worldwide Database, Q4 2021

³ Digital remittances are defined as those initiated via a digital device, rather than in-person at a bank branch or agent office.

⁴Visa Remittances Landscape Survey by Morning Consult (US, 2200 adults) Dec. 3-6, 2021