With a large chunk of the global workforce migrating to foreign countries in search of lucrative career opportunities or better living; the World Bank estimates that migrants will send up to US$636 billion home in 2017, with three-quarters of that being remitted to developing countries.
In 2015, US$440 billion in remittances was sent back to developing countries, but US$32 billion was lost due to high transaction fees incurred during the process, and much more went unaccounted due to informal channels!
Sounds complicated? Fret not! Let us demystify the Cross-Border Payments Ecosystem for you.
The cross-border remittances market is dominated by players like banks and money transfer operators. Traditional ways of transferring money overseas are expensive due to high transfer charges along with hidden fees which are not known to clients. While different in their approaches, the traditional remittance services providers have their own strengths and weaknesses.
BANKS: Though banks do not specialise in remittances, they are an essential part of the remittance industry, as they provide the infrastructure that enables money transfers. Major banks are also licensed, trustworthy, and can provide users with other monetary services such as a bank account.
MONEY TRANSFER OPERATORS (MTOs): More specialised than banks, MTOs provide remittance services that are simpler and faster than banks. MTOs typically have the advantage of speaking the local language, and can provide instant cash, unlike banks which can take days to process. (Source: MasterCard Report, 2011).
The traditional remittance services providers go through multiple steps to get your money across borders. This process racks up hidden bank and MTO fees for you and your recipient, it’s no surprise that the person you’re sending money to doesn’t get the same amount that you send. Here’s how your money gets “lost” in the process: