Remittance Industry During Covid-19: Rise of Digital Remittance

Remittance inflows are a lifeline for many households and countries, especially lo low and middle-income countries. The world bank estimated that in 2019 the remittance to low and middle-income countries would reach $551 billion with a growth of 4.7% compared to 2018. The billions sent through remittance have supported over 800 million households, with India, Mexico, and the Philippines topping the recipient countries list for remittance.

Remittances play a vital role in shaping the economic health of many countries. However, with the recent economic crisis induced by the COVID-19 outbreak, remittances saw a steep decline in the numbers. This decline in the number also had an adverse effect on countries that rely heavily on the funds remitted by their migrant workers.

During these harsh times, the international community of policymakers, governments, and money transfer operators has worked intensively to evaluate the remittance industry’s issues. The goal was to formulate developments and responses to build a resilient global remittance market accessible to all.

With the global lockdown posting significant limitations to the business of traditional forms of remitting money, the immediate need for digitization came forward. The migrant community accepted the changing payment landscape, highlighting the benefits of using digital channels over traditional channels amid a pandemic.

The impact of COVID-19

The recent COVID-19 outbreak induced a global lockdown, and with that came economic uncertainty and financial instability. The risk to incomes, including pay cuts, fewer working hours, or total unemployment, affected migrants worldwide. And with ethnic minorities and migrant communities impacted by the economic consequences of COVID-19 in developed countries, it took a toll o the international remittances market.

The second factor impacting remittance numbers was the volatility of the foreign exchange markets. Currencies such as the British pound and Euro weakened amid the COVID-19 outbreak. Meaning the value of funds would be reduced when a transaction is initiated from these countries. This reduction value also led to a decrease in the sender’s transactional appetite. A lack of demand did not drive this decline in global remittance. If anything, one could argue that many families would find relief if the remittance inflow stayed intact.

The new normal

With the limited options for traditional remittance channels during the pandemic, many migrants switched to digital channels and saw the advantages of going digital.

• Financial inclusion: A technological-centric framework for remittance service helped improve the accessibility of financial services.
• Cheaper cost: During uncertain financial times, the cost of remitting money can play a significant role in the amount being sent. By eradicating the middleman, informal channels and reduced fees helped bring down remittance costs. Also, digital service providers offered favourable exchange rates as compared to other traditional channels.
• Safety amidst pandemic: Digitization of remittances helped consumers send and receive money without visiting a physical money transfer location or bank. This was especially critical during the lockdown when the government was asking people to stay at home.

Beyond the pandemic (Conclusion)

Many migrants pivoted to the digital remittance channels during the pandemic. While this was incited out of necessity, this change in consumer behaviour is not a temporary one. In 2020 the global digital remittance market size was valued at $16.28 billion. According to recent research, the digital remittance market is expected to grow with an annual percentage of 13.3% between 2021 and 2028. Also, a growth in payment automation and digitization can be expected to propel market growth. With more migrants switching to digital channels owing to their reduced transfer time and low fees, the digital remittance market can expect big numbers in the future.

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