The conversations focused on the benefits of digital wallets are often centred on consumers. We talk about how they might be faster and more convenient than paying in cash. How they’re safer. And how they eliminate friction points such as the need to input credit card details or a PIN to complete a purchase.
These benefits are undeniable. However, digital wallets have a lot more to offer than just being a more convenient substitute for cash. An example is the huge difference digital wallets can make to people’s lives when it comes to money remittance.
For this reason, we recently launched Skrill Send Direct. The service, which we provide through our Skrill digital wallet, is designed to help expats send money to their families from overseas more securely, more efficiently, and at a lower cost.
Globalisation: Driving money remittance
According to the World Bank, over 250 million people — or 3.4% of the world’s population — currently live and work abroad. There are numerous reasons why people do this, but one clear characteristic most expats have in common is that they will want to send money back home at some point. As The Migration Observatory puts it, remittances are “the most concrete consequence of international migration...”
Migration is continuing to increase and will do so for the foreseeable future, meaning that money remittance is a growing industry. It was worth US$582.4bn in 2016, when the World Bank projected 3% to 4% year-on-year growth in 2017 and 2018. The majority of this value is sent to developing countries, and for many on the receiving end, the money is a lifeline.
The surprising challenges of remitting money in the digital age
Those that have not worked overseas can be forgiven for assuming that sending money cross-border to help your family would be easy and straightforward in 2018. But the truth is that expats often hit roadblocks we might not even have thought of.
For starters, while costs have decreased in recent years, remitting money to a developing country can still be eye-wateringly expensive. It typically costs around US$19.50 to send US$200 to a country in sub-Saharan Africa — an average of 9.72% in fees. Similarly, sending US$200 to a country in East Asia or Asia Pacific can rack up 8.33% in fees, or approximately US$16.50.
These costs don’t account for exchange rates, which can leave even less money in recipients’ pockets by being unfavourable, or having a commission built in.
In addition to the woes of cost, the process itself can be excruciatingly slow. Compliance with government regulations, clearing procedures, and other factors mean a recipient can expect to wait five working days or even more before the money reaches their bank account.
When bank accounts aren’t enough
And of course, our discussion so far has been based on the assumption that both sender and recipient have access to a bank account. But what if one of them doesn’t?
In the last few years, there’s been a huge push for financial inclusion on an international scale. This has led to legislative initiatives as well as the setting of ambitious targets for achieving universal financial inclusion.
But as important as it is to improve access to the financial system for everyone, it isn’t a quick fix. Meanwhile, people will still need to find ways to receive and access the money their relatives send from overseas.
In 2017, some of the top remittance receivers included the Philippines and Nigeria, countries where 72% and 56% of the adult population respectively are unbanked; and as such their economies remain predominantly cash-based.
Clearly, for recipients in these countries, money in a bank account is often meaningless. They need it in a format which they can readily access and, more importantly, which is relevant to the practical realities of their day-to-day lives.
Bridging the gap: How digital wallets can help
It’s not hard to see how digital wallets and services such as Skrill Send Money can make a difference when it comes to money remittances. Compared to traditional methods, they’re often faster, cheaper, and — most important of all — more convenient and relevant.
Sending money from one digital wallet to another account is instantaneous; the recipient can then cash out the remittance at the most convenient time for them. In addition, the only information the sender requires is the email address of the recipient, compounding the convenience of the remittance.
Skrill Send Direct also maximises the benefits of digital wallet transfer, but instead of sending the remittance to another digital wallet account the transfer is directly made into a bank account, or other convenient local payment receive option such as a mobile money account. For regular remittances to the same recipient, this is made more convenient by not having to reenter the payment details of the recipient after the first transfer.
In addition, digital wallets often have more competitive exchange rates and lower fees, which means remitting money costs less. The World Bank reckons that bringing down remittance fees to 5% could put as much as US$4bn extra into the hands of African families and local communities. Compare this to Skrill Send Direct, which charges senders 1.45% per transaction and no fees to recipients, as well as offering excellent exchange rates, and the potential savings are even larger.
All too often, the speed and convenience digital wallets have to offer is only celebrated in commercial transactions. But mobile wallets also have other applications. In the case of remittances, they can give expats the peace of mind that their loved ones will get more money, faster and in the format that makes most sense for them.
Ultimately, money remittance is about people looking after their families. The less it costs, the sooner it arrives and the more convenient the format, the sooner the family — and the local economy — can benefit.