Introduction: The Global Remittance Market has been valued to be at approximately USD 600 Billion based on Market Research Reports for Remittance. The market has had a growth rate of about 4.5% between 2012 and 2017 due to increasing reliance on remittance amounts in low and middle income countries. Close to 70% of the remittance amount transferred is used for the basic expenses of the recipient families in developing economies. The increasing reliance of remittance has caused a growth in the contribution of remittance to the GDP of emerging economies with countries like the Philippines, Senegal and Guatemala having remittance amounts which exceed 10% of the GDP. The issue is that in developing economies there is high importance that the cost of remittance be as low as possible
Global Scenario: While the global cost of remittance has gone down from roughly 9.8% in 2000 to about 7.3% in 2017, the cost of transferring money to developing nations has tripled since 2000 and has become 5 times what it was in 1990. This increase in cost cannot be sustained by developing countries. The basic cost of transferring USD 100 ranges from anywhere between USD 1.2 to USD 34. In the case of developing markets where every cent counts, this causes major financial distress. The cost of sending money in 2017 has been calculated at USD 30 Billion for global money transfers. This amount is the entirety of non military foreign aid provided by the US for the year 2017. There have been repeated meetings describing initiatives from the G8 countries to bring the cost of remittance to below 5% of the total cost but they’re not even halfway there. The costs play such an exponential role in the loss of finance that a reduction of 5 % points could lead to savings of about USD 16 Billion.
Market Scenario: On the whole, the cost of remittances has remained stable in most regions. At an average of 5.31%, Southeast Asia was the cheapest region to send money to, whereas Sub-Saharan Africa was quite a bit more expensive at 9.48%. Eastern Europe and Central Asia has also stayed fairly constant at 6.3%. The one region which recorded an increase is the Middle East and North Africa, jumping to 7.63% in the fourth quarter of 2016 from just over 7% in the previous quarter. The Global Average remained stable at 7.45 percent in 2017, compared to the 7.40 percent recorded in 2016. This is the same figure recorded for this Index in 2016. Banks still remain the most expensive Remittance Service Provider. Although there is not much of an issue for outbound remittance in the G20 countries, with the majority of the countries having a rate of less than 10%, excluding China, inbound remittance charges are significantly high and are the highest in the African regions. The average cost of outbound remittance as a % of the amount transferred for the major G20 countries is given below:
Brazil -6.98%,India-6.14%China -10.26%,Indonesia -7.84%,Mexico-4.85%,Turkey -7.62%,South Africa – 7.56%.
While the cost for outbound remittance is not high in any of the above countries, the cost of sending to developing countries in Africa is extremely high with highest inbound remittance rates: South Africa-17.70%, Ghana -16.65%, Tanzania-18.41%, Nigeria -21.39%, Angola -23.02% with key players in the remittance market being PayPal Holdings Inc., Western Union, MoneyGram International and Euronet.
Conclusion: remittance based money transfer works for the developing nations as there is a steady source of foreign income. The increased strength of the foreign currency usually allows for an adequate amount of local currency to be withdrawn but the global foreign exchange volatility combined with the number of intermediaries have led to costs for money transfer staying consistently high. There is an emerging need for low cost money transfer services which minimize the cut taken away by intermediaries thereby lowering the cost of remittance to developing economies as much as possible. The high rates of inbound remittance in African and the few vulnerable Asian nations is skewing the global average and is the major cause for the lack of reduction of remittance rates globally. Understanding how to address this issue could help in increasing the value of the remittance market, saving money and boost the economy for low income nations
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Ankur Gupta, Head Marketing & Communications