By Anil Kapur, Head, Asia-Pacific, and South Asia, MoneyGram International

Digital technology has enhanced access to services and markets, becoming a vital accelerator of India’s economic growth. We are witnessing a dramatic scaling-up of digital infrastructure and electronic delivery of financial services, making India one of the fastest digitising nations on the planet.

While this has impacted a range of services and industries, nowhere has the transformation been more acute than in the remittance space. Globally, India has been at the top spot of remittances with its diaspora sending $79 billion back home in 2018, according to the World Bank. Although external remittances have always been in focus, internal remittances have largely escaped notice. Internal remittances — from workers in one state to their families in another — are estimated to be well above Rs 75,000 crore annually. This is much lower than external remittances, but their role in keeping home fires burning is significant.

Of note, less than a third of these internal remittances flow through institutional channels like banks or electronic platforms. Therefore, there is a critical need for digital awareness and financial literacy.

The Reserve Bank of India has left no stone unturned to educate consumers about remittance and digital inclusion. It has been in overdrive, making online remittances through the National Electronic Funds Transfer and Real Time Gross Settlement System facilities in savings bank accounts free from January 2020. Even more impressive, these services are now available 24×7, allowing for quick transfers anytime. This is in keeping with the RBI’s ‘Vision 2019-2021 for Payments and Settlement Systems’ document released in May 2019, which spoke of empowering “every Indian with access to a bouquet of e-payment options that are safe, secure, convenient, quick, and affordable”.

Busting myths

There are several myths associated with remittances that need urgent attention:

Bank transfers are cheaper: Decades of dependence on banks for money transfers has created a belief that they are the cheapest. However, according to a World Bank report, banks are the most expensive type of service provider with an average transaction cost of 10.44 per cent. Money transfer operators clocked an average transaction cost of 6.94 per cent. It’s clear that for non-business remittances, consumers should look at non-bank options.

There are no digital solutions: Especially in a country like India, it’s not well understood that there are digital solutions available for transfers and payments as alternatives to cash. As the country digitises rapidly, these options are rapidly becoming available to even those at the bottom of the pyramid.

They are slow: This myth, too, can be traced to our reliance on banks which would previously take weeks to transfer money internationally. Blame it on complicated procedures, which are not a bank’s core area of operation anyway. That’s where remittance service providers step in, providing not just transfers within minutes but also the ability to track your money in real time.

Online remittances are risky: While there is an impression that bank transactions are better protected, online service providers have equally strong – if not better – risk management systems. This is a well-regulated space that has invested in checks against unauthorised access, fraud and money laundering. Remittance providers undergo rigorous audits and are supervised at various levels.

It’s complicated: Online remittance firms offer easy sign-ups – all you need to furnish is basic information and upload the required documents (as per applicable laws). Once your account is active, you simply add recipients and send the money with just a few clicks.

It’s critical for migrants and their families to understand remittance services, and for their families to use the money efficiently. There are several hurdles to this, some of which stem from cultural and social attitudes, as well as trust in the platforms available. This can be traced to low levels of financial literacy.

Points to be kept in mind:

  • Knowledge to make informed decisions goes hand-in-hand with an understanding of issues specific to the culture/society of migrants;
  • Educators, training strategies and materials must create trust and self-confidence in the target group, whose needs and contexts must be adapted; and
  • Financial literacy is an ongoing exercise; a one-off effort is not enough as economic environments and social contexts continue to change.

Knowledge is empowerment

Now more than ever, we need to widen financial literacy to ensure that its benefits reach intended target groups. Today, even financially empowered groups are shunning the formal banking/remittance systems because they lack awareness, which underscores the need for comprehensive financial literacy programs. Without that, the potential of India’s financial and digital infrastructure will never be fulfilled.

In fact, such awareness provides the foundation for asset building because without it, investment decision-making capabilities are limited. The cloud hanging over the global economy has affected migrants and their ability to remit as well as recipients and their ability to save. Giving both the knowledge to manage their money is crucial.

Financial education programs across the world have resulted in improved financial access and helped people achieve economic independence. This is the right time to accelerate such literacy campaigns, particularly when digital culture is spreading fast with the introduction of Goods and Services Tax (GST) and online payments for daily utilities.

The right mix of literacy with the evolving digital ecosystem should power India towards greater financial strength and inclusion by 2030, the deadline for the United Nations’ Sustainable Development Goals.