Fin Tech Potential for Cost Reduction in Remittance Market: Ken Research

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Fin Tech Potential for Cost Reduction in
Remittance Market Ken Research
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Introduction The global remittance market is
worth over USD 600 Billion as of 2017 and is
expected to be worth over USD 6 Trillion by 2030
based on information revealed through various
Remittance Industry Market Research Reports. The
growing requirement for remittance services,
especially to facilitate economies in low and
middle income nations is a top priority for
financial service providers across the globe.
Despite the increasing importance given to
remittance transactions, there have been barely
any measures working to curb the cost incurred
for remittance based services with the remittance
cost globally being around 7.3 against the
targeted 5 globally. While there has been
major cost reduction in selective regions with
Russia having a remittance charge of about 1.7
and countries like Mexico and India having less
than 6, the major issue is for poor economic
zones, primarily located in the African
Subcontinent like Tanzania, Nigeria and Angola
having rates up to 23. Aside from these
staggeringly high global averages, even in
developed economies, there are instances of high
remittance charges, for example, bank based
remittance charge from Japan to China can go up
to 38 of the transaction cost.
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Aside from the high cost, there is the increased
risk of devaluation due to the foreign currency
volatility when having the amount transferred
being traded into local currency which can
devalue the remittance amount if there is a
increase in the value of the domestic currency
relative to the foreign currency or vice versa
which is based on the time and exchange rate
indicated of the currency conversion process.
These factors lead to devaluation of the amount
received which cannot be afforded in low and mid
income economies. FinTech The emergence of
financial technology services has integrated
technology into consumer side financial
transactions exponentially. The companies which
work as financial technology service providers
have found easy ways of online payment, money
transfer, verification of identity and have
helped consumers in understanding the financial
services market better. Online platforms have
eliminated the physical need of a financial
institution significantly. Even procedures
regarding bank accounts can be handled through a
digital device allowing bank account holders
flexibility and accessibility like never before.
This technology has major application into the
remittance market.
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Market Shift The global market around
remittances is estimated to generate USD 616
billion in 2018 according to the World Bank.
There is a multitude of financial service
providers using technology to redefine the
application into the remittance market. One such
company, WorldRemit, a London-based, mobile-first
remittance startup valued at about USD 670
million, which competes with the likes of Western
Union and wants to grow its current customer base
of 2 million to 10 million by 2020. The firm
offers instant transfers to over 130 million,
mainly unbanked individuals through mobile
money accounts in emerging markets. More than 65
of its transactions are currently sent from
smartphones, from about 50 countries to over 145
receiving destinations. Investment into
remittance based development has grown
significantly topping USD 800 Million in 2017 and
reaching a value of over USD 350 Million for the
first half of 2018 alone. Another major example
of the Financial Technology disruption is the
evolution of technology based remittance service
in Malaysia. Remittance service provider
MoneyMatch Sdn Bhd with 5,000 registered users
has dealt with about USD 12.6 Million in
transaction volume so far. The companys key
benefit being the lowest remittance rates in the
market for Malaysia. Traditionally, one would
have to pay about 3-4 of the transaction cost
for remittance services in Malaysia to Australia,
with countries like South Korea, the rate goes up
to 7 and more.
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The company changes this by charging a flat rate
of USD 2 for all transactions to Australia, for
example. Effectively the rates of the financial
technology provider become on average, 10 to 12
times cheaper than traditional remittance
providers. This is a major factor that driving
growing adoption of mobile, fin tech based
remittance in Malaysia and similar markets. The
average transaction cost made through non-bank
remittance service providers in Malaysia has been
lowered to 2.96 as of April 2018. This is
compared with the remittance cost of 12 in 2016.
Another example being UAE where due to high
service charges, about 80 of the inhabitants of
the UAE are outside the financial
system. Conclusion Curbing of costs is a major
issue that exists in the remittance market which
needs to be addressed and financial technology
seems to provide an applicable solution. The
integration of financial technology can
effectively save over USD 15-20 Billion in
transaction costs each year which would play a
major role in assisting low and middle income
countries which rely heavily on the money
received through remittance to manage their basic
expense and to grow their economy
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ancial-services-and-insurance/remittance/177.html
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