The greatest enemy of the remittance market: transaction costs
What is the greatest enemy of remittances? The cost of sending money back home. The World Bank states that cutting prices by at least 5% could save up to $16 billion a year. As in 2019 the average cost of sending $200 from G20 countries was recorded, with some going up to 17.18% or $34.36!
It is clear that there is an inequality present as even the UN has recognized it and implemented aims to reduce it.The UN has established 17 sustainable development goals (SDG) aiming to fight against poverty and implement sustainable development all at once. Goal 10 of the SDG reads as follows, “reduce inequality within and among countries”, with an included subsection of 10.c which specifies: “reduce transaction costs for migrant remittances”. The United Nations has thus established that remittances are key to reaching some of the SDGs, as lowering transaction cost would reduce such global inequality, hunger, and poverty; in turn also improving access to healthcare, quality education, and economic growth. They have declared that they aim “by 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent”.
How exactly can this be achieved? Many believe that digital financial services can help reduce these fees, as seen from the graph above the average cost for sending $200 was around 6.82% or $13.64. This almost $14 difference can have a very big impact on the receiver and sender, but given that no other choices remain, they are left with no other option.
It has shocked many how resilient remittances have been during the pandemic, and the lead author of the report on migration and remittances and head of KNOMAD Dilip Ratha said “The resilience of remittance flows is remarkable. Remittances are helping to meet families’ increased need for livelihood support … They can no longer be treated as small changes." The World Bank is working to reduce remittance costs and improve financial inclusion, as there is an expected growth in the upcoming years. Remittance flows are projected to increase around 2.6% to $553 billion in 2021 and by 2.2% to $565 billion in 2022. Once more showcasing the importance and immensity of this market.
This is why many are fighting to implement policies, believing that digital financial services can make remittances cheaper and more convenient. This is the potential that we see at elsa.care and are working hard on. There is, clearly, a lot of room for improvement in this sector, and we believe migrant workers deserve better. We want to fight for them, and provide simple solutions. We are working towards reducing costs and providing access to private healthcare services, as well as alternatives to remittances. For so long remittances have seemed to only encompass cash, but what about services?