Overview: Remittance is referred to the money sent by foreign workers to their families living abroad. Developing countries depend a lot on remittance received from workers abroad as it constitutes a part of their GDP. This market is entirely dependent on workers working in countries apart from their native homeland. GDP and economic growth can be affected significantly by remittances received. However Remittance Market Research Reports suggest that it can also result in adverse macro economic impacts by increasing income equality and lowering labor supply in recipient countries.
Outlook: The future holds two notable but divergent trends in remittance industry: market consolidation by large existing groups and disruption potential of technology driven startups. One of the major factors that could disrupt the existence of established institutions is the introduction of blockchain technology. Our current transfer mechanism depends upon wire transfers that are supported by financial institutions. This is a reasonably sound system however bockchain technology can provide a much safer, faster and more reliable means of transferring money from one part of the world to the other. Since traditional money transfer institutions have a monopoly over the same, entry of block chain backed service providers releases the hold on transfer fee, thus making it almost negligible. Block chain is very reliable and secure thus prevents hackers from taking advantage of the system whereas banks are centralized and hence vulnerable to fraud. It’s certainly true that it’s harder to track where money is flowing to and from, but it’s also true that both sender and recipient know exactly where their money is. Established companies like Money Gram, Western Union are reluctant to adopt this new technology whereas young technology driven startups are providing much cheaper, reliable, faster money transfers using blockchain network. However most regulators are divided to put this technology to its best use as it currently lacks the robustness as compared to the present financial system. Industry players are currently looking into reducing the average cost of transfer in order to improve its user base.
Market Size: Developing countries, in 2015-2016 witnessed a fall in remittances received. However, Remittance Industry Analysis suggests that in the past year, the amount of remittance to these countries has gone up and expected to grow in 2018. Worldwide, transfer in remittances (including developed countries) has grown mildly. The key drivers in this industry are:-
- Increasing international migration: Worldwide, international migrations have seen an increase due to factors such as easier documentation process, rising disposable income etc.
- Cheaper, transparent, reliable: Blockchain as technology is much cheaper and is expected to reduce the cost of transfer overseas. It is much more transparent or reliable as it consists of a universal journal that can be easily accessed by users. It is reliable as it prevents frauds and even reduces the risk of data breach by a hacker due to its secure system.
- Growing Urbanization: Globally, urban population has observed a tremendous increase from 34% (1960) to 54% (2016). (Source: World Bank)
- Rising employment opportunities: Globally, rising employment opportunities have increased thus causing a surge in remittance sector.
- Accelerating Economic Growth: Global GDP is currently increasing at a rate of 2.5% which contributes in speedy growth of the remittance industry. (Source: World Bank)
Competition: Remittances can be transferred in two ways either through bank to bank transactions or through independent agencies. Banks that support international transfer include Citi Bank, Bank of America, HSBC, and DBS Bank etc. Independent agencies include Western Union, MoneyGram, PayPal, Ria, Global Web Pay to name a few. Companies that involve remittance transfer via block chain technology are Align Commerce (USA), Bitspark (Hong Kong) Bitpesa (Africa) among many. Entering into the competition is IndusInd Bank (India) in partnership with blockchain technology backed company Ripple to introduce cross border transfer using the new technology. A major remittance transfer house from UAE is also in talks with Ripple for developing a remittance transfer mechanism that would be faster, efficient and cheaper to the consumer.
Conclusion: Remittance industry shall grow further due to high growth in key driving factors thus resulting in a greater user base. However due to advent of technological changes it is unsure whether current methods of transfer shall be continued or method of blockchain will gain popularity, which will result in the entire industry witnessing a paradigm shift.
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Ankur Gupta, Head Marketing & Communications