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The increased use of technology-based cross-border payment services helped ensure remittance flows avoided the huge declines predicted during the pandemic.
The value of money transferred by migrant workers to families in the developing world was expected to plummet amid the Covid-19 pandemic, but World Bank figures show levels have held firm.
Payments, traditionally from migrant workers to their families in developing countries, can now be made in seconds using a mobile phone at a fraction of the cost. Financial technology (fintech) firms that focus on making it easier and lower cost to transfer money, using mobile apps, have emerged and expanded quickly.
The value of transactions, money flowing to low-income and middle-income countries, was $540bn in 2020, only 1.6% down from the previous year when $548bn was transferred.
One of the reasons flows held up, according to the World Bank, was the “shift in flows from cash to digital”. Other reasons cited were fiscal stimulus and movements in oil prices and currency exchange rates.
In contrast to the resilience of remittances, flows of foreign direct investment in low-income and middle-income countries fell by around 30%. In 2020, the value of global remittances was more than foreign direct investment ($259bn) and overseas development assistance ($179bn) combined.
“As Covid-19 still devastates families around the world, remittances continue to provide a critical lifeline for the poor and vulnerable,” said Michal Rutkowski, director at the World Bank. “Supportive policy responses, together with national social protection systems, should continue to be inclusive of all communities, including migrants.”
Remittance flows to low-income and middle-income countries are expected to increase by 2.6% to $553bn in 2021, with 2.2% in 2022.
“The resilience of remittance flows is remarkable. Remittances are helping to meet families’ increased need for livelihood support,” said Dilip Ratha, lead author of the report on migration and remittances, and head of Knomad. “[Remittances] can no longer be treated as small change.”
The average global cost of sending money is high at 6.5%, but fintech providers are shaking the market up. For example, fintech Azimo has a platform that enables people to make cross-border transactions in seconds via a smartphone app, at a considerably lower cost than traditional high street money transfer shops. The platform removes complexity through automation.
Richard Ambrose, CEO of Azimo, said the World Bank figures underline just how tough and resilient migrant workers are. “We know how hard our customers work, and how much they sacrifice to be able to send money home to their families. To see almost no change in the volumes being sent, even during such an unprecedented year, is really remarkable,” he said.
There is still a huge market that digital money transfer suppliers can disrupt. The global remittance sector is dominated by traditional money transfer suppliers with retail branches on high streets, which customers need to visit and go through manual processes. The costs are much higher and suppliers that use mobile apps are making significant inroads into the market.
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