Money Without Borders: Financial inclusion and the way ahead

August 19, 2021 4:08 PM

Working with the idea that foreign remittances services should be to help people, the concept of money without borders is being designed to allow people to manage money internationally more cheaply, quickly, and transparently by savings on bank fees, intermediaries, and time.

Foreign Remittances, sending money abroad,The high cost and cumbersome nature of remittance management often deprive disadvantaged families living in remote areas of this money.

The domestic payments system in India has grown by leaps and bounds in the last decade, thanks to innovations in real-time payments infrastructure like the Unified Payments Interface and the emergence of digital-first payment methods such as e-wallets. Today, domestic digital payments are convenient and fast. Cross border payments, however, still lag behind domestic payments in terms of cost, speed and convenience.

With increased globalisation, it becomes imperative that cross border money movement become as easy, fast and convenient as domestic payments. Cross border remittances are known to help boost consumption and help economic development and could lead to increased financial inclusion if formal banking channels become more efficient. The growing use and access of the internet, email, social media channels and messaging services have democratised the global exchange of information, hitherto reserved for a privileged few. It is inevitable that this would be the trend seen in the movement of money as well.

The Current State of Cross Border Remittances:

Today, sending an email to someone overseas takes seconds and is practically free. Yet, in today’s digital world, moving money across borders continues to be slow, cumbersome and expensive.

The banking system — built primarily with domestic needs in mind — has seen little innovation when it comes to moving money globally. Sending money abroad requires moving funds through a chain of banks and systems, resulting in delays and high fees. There is an urgent need to rethink and redefine this system as people and families evolve into becoming global citizens.

Foreign Remittances and Their Role in Alleviating Poverty:

There are many reasons why people need to send and receive money internationally. Studies have shown that remittances from international shores help relieve poverty in low-and middle-income nations, enhance spending on nutrition and education, and go a long way towards reducing child labour in underprivileged communities. Foreign remittances also allow small and cottage industries to find international clientele to sell their product or services. Recognising the importance of the same, the UN Sustainable Development Goal indicator aims to help address the inequality amongst countries by reducing transaction costs for migrant remittances to less than 3 per cent and eliminating remittance corridors with costs higher than 5%.

Offshore remittance sums are huge globally. Overall cash flow from developed nations to developing nations through remittances has increased manifold especially in the last decade, despite the economic recession.

But the remittance systems to send money to and fro have been slower to keep up the pace. Some transfer agencies have made minor inroads into improving international remittance systems but the gap persists with costs remaining extremely high. According to a World Bank report, the global average cost of sending $200 was as high as 6.8 per cent in the first quarter of 2020.

The high cost and cumbersome nature of remittance management often deprive disadvantaged families living in remote areas of this money.

New Remittance Systems And Financial Inclusion:

The shortcomings of remittance systems and their perilous impact on global financial inclusion have given rise to a few innovative players who have entered the market to offer more convenient options to meet consumers needs in a way that traditional players have not done thus far. They recognise that international money transfers need to be cost-effective, fair, and simple and allow for multi-currency dealings. Not only do they enable easier, faster and cheaper money transfers, they also help new businesses transact with customers across shores, removing any intermediaries.

These innovators also appreciate that universal access to such financial services should be within reach for all, irrespective of their financial status and are making this possible with the help of new technologies.

Working with the idea that foreign remittances services should be to help people, the concept of money without borders is being designed to allow people to manage money internationally more cheaply, quickly, and transparently by savings on bank fees, intermediaries, and time.

The road ahead:

Undoubtedly, as with anything that offers tremendous possibilities, there are accompanying challenges and opportunities. The biggest being those around policy and governance frameworks in different countries. The other challenge is often around access to technology in many developing parts of the world where access to fairer tech-led remittances services continue to be a challenge for millions.

None of these challenges, however, appear insurmountable. Technology and lower barriers to participate in the digital economy have made access to remittance instant, transparent, convenient and fair. As per the World Bank, globally transaction costs constitute an average of 6.38 per cent of the remittances sent. For an industry that annually remits over $500 billion globally, the fees alone equal the GDP of many emerging countries. While many tech financial technology companies have begun this challenge head-on by helping consumers save billions of dollars annually in hidden fees, the industry is just getting started. In the coming years, the remittance industry will witness a sea of change where technology will play a crucial role in spearheading widespread financial inclusion as banks, legacy financial institutions and tech companies become an invisible layer to facilitate this.

By Rashmi Satpute, Country Manager India, Wise

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