More than 800 million people around the world receive money from family or friends working abroad to pay for food, utilities, education and medical treatments. These remittances are often a lifeline for the individuals who receive them. They were also the biggest source of capital inflow for low- and middle-income countries (LMICs) last year, exceeding foreign direct investment and aid.
In fact, remittance flows to LMICs jumped 8% to $647bn in 20221. Europe and Central Asia also registered a record high of $79bn in remittance flows over the same period, following nearly a decade of steady growth.
The predicted growth figures for 2023 are less stellar (1.8% to LMICS and 1% for Europe and Central Asia), partly due to the economic woes of many major remittance sender countries, which have had a knock-on effect on wages. But remittance flows should continue to grow in future as more people look to provide loved ones back home with financial support.
Despite the important role remittances play in both the European and global economy, sending money to someone in another country can still be a surprisingly frustrating experience. “Traditionally, remittance payments were slow,” says Sean Pitman, head of product strategy and commercialisation for Visa Direct Europe. “It would take several days for the money to arrive. There was no transparency on where the money was. And it was a very expensive service.”
That’s because cross-border payment methods like wire transfers and automated clearing house payments are typically processed in batches and can take hours or even days to settle. The number of players involved as money hops between different regions can also increase costs for both the sender and recipient. This means the amount the recipient receives is usually less than what was sent home.
“This is money that people depend on to live,” says Pitman. “So ensuring as much money as possible gets to the other end [of the remittance chain] is really key.” Yet historically, migrant workers have had to give up “quite a big percentage of that money to get it to where they want it to be.”
Globally, the average cost of sending $200 was 6.2% in Q4 of 2022, which is more than twice the Sustainable Development Goal target of 3%1. Reducing the cost of remittance transfers could therefore substantially increase disposable income for remittance-receiving families. As the UN states1: “By reducing average costs to 3% globally, remittance families would save an additional US$20bn annually.”
Digital remittances, which take advantage of new money movement networks to offer faster, simpler and more transparent cross-border transactions, are chipping away at these costs. According to the World Bank1, they are nearly 2% cheaper than cash remittances – a significant saving for those sending money cross-border on a regular basis.
Funds are typically transferred via a mobile app to a payment card or digital wallet, avoiding the delays and expense associated with cash or bank-to-bank remittances. The money is often received by the recipient in real time2, directly into their account, rather than in hours or days.
“With the development of faster payments in the remittance space and new entrants into the market, the price has really dropped,” says Pitman. “And that’s only been a good thing for families in countries that rely on remittances.”
Both established money transfer operators and fintechs offer digital remittance solutions. Both are supported by Visa Direct, which helps enable people to send and receive money directly from their accounts through debit credentials.
Visa’s 2023 Digital Remittances Adoption Report highlights the growing popularity of digital remittances. It found that digital remittances are the preferred method among consumers across all surveyed countries, with 53% of consumers turning to digital apps to send and receive funds around the world.
In Europe, consumers in both high send and receive countries are very much open to digital remittance methods. “There are huge populations of diaspora earning money and sending it back to their family,” says Pitman. “We see that in countries like the UK, France, Italy, Spain and Germany. And we also see real growth in the use of payment channels in the digital space.”
Breaking down barriers
Although digital remittances are undoubtedly growing in popularity, there are still significant barriers that could impede access to faster, more convenient means of sending money cross-border. For example, even though remittance users surveyed in France and Poland reported more issues with physical payments – including difficulties with fees, convenience, and currency exchange rates – high fees are still viewed as a pain point with some digital remittance services.
French remittance users surveyed by Visa also cited concerns about theft and hackers as the top reason for not trying digital transfer methods. In some ways this is understandable. As transfer speeds increase, fraudsters can quickly take advantage of vulnerabilities to move funds to fraudulent accounts on real-time2 payment rails, potentially disappearing before an attack has even been detected. However, digital security systems capable of vetting fraudulent transfers in real time2 can help to alleviate this risk.
For millions of people in emerging economies, the lack of basic infrastructure like electricity could also impede the digitisation of remittances. Beyond electricity, broadband and mobile connectivity are also crucial components of increased access to digital services. Indeed, while 34% of remittances were digitally initiated in Q2 of 2022, only a third of those were digital end-to-end.
Mobile money is not accepted at many merchant and e-commerce locations, meaning people need to cash out to make purchases in their everyday lives. Traditional money transfer operators (MTOs) maintain vast networks to enable this capability. Digital-first MTOs have likewise engaged numerous third parties to facilitate cash conversions for the recipient of digital remittances. But this service generally comes at a price.
Increased access to digital wallets could help to reduce these costs for many recipients in underbanked regions. “Using a digital wallet adds transparency, as the money arrives instantly,” says Pitman. “As much money as possible can also be used for the intended purpose.”
What’s more, people also receive the funds in their own homes, meaning they no longer have to travel – and potentially queue up – to collect remittances. “Cash is a physical commodity,” says Pitman. “You have to go into a store, and there’s a security risk involved in that process on both ends.”
It’s one reason why digital remittances are changing the frequency with which remittances are sent, as well as the amounts transferred. “Because of the cost involved [in sending cash] and the time taken, people would … send over large amounts less often,” says Pitman. “That is changing dramatically. We now see smaller, targeted payments being sent. And this is completely facilitated by real-time2 digital payments.”
Now, people are able to send money around the globe by pressing a few buttons with transfers happening in real time2, thanks, in part, to the power and network of Visa Direct. Visa Direct is able to facilitate the transfer of money across borders3 in real-time2 between remitters and recipients.
To learn more about digital remittances, read the Visa Direct payment guide
1 Case studies, statistics, research and recommendations are provided “AS IS” and intended for informational purposes only and should not be relied upon for operational, marketing, legal, technical, tax, financial or other advice. Visa Inc. does not make any warranty or representation as to the completeness or accuracy of the Information within this document, nor assume any liability or responsibility that may result from reliance on such Information. The Information contained herein is not intended as legal advice, and readers are encouraged to seek the advice of a competent legal professional where such advice is required.
2Actual fund availability depends on receiving financial institution and region.
3Availability varies by market. Please refer to your Visa representative for more information on availability.