COVID-19 is forcing a shift to digital remittances, giving fintechs and mobile money a boost

Despite a forecasted 20 percent decline in global remittances for 2020, users are abandoning cash-focused incumbents and flocking to digital services. Telcoin and its mobile money partners will benefit from the exodus.

By: Jeff Quigley

Back in April, as much of the world began coming to grips with the grim “new normal” created by the spread of the novel coronavirus, the World Bank announced an appropriately negative outlook for remittances. With the pandemic already wreaking physical havoc across the globe, lockdowns and layoffs served a knock-out punch to economies. The loss of work, coupled with the inability for many migrant workers to even leave their homes, led to a forecasted 20 percent decline in the total international remittance market — the largest anticipated downturn in modern history.

The global remittance market hit a record high in 2019 — US$714 billion globally, with US$554 billion going to low and middle-income countries (LMICs). LMICs represent some of the world’s most vulnerable populations, including millions of families that rely on their respective diaspora communities sending money back home.

The World Bank projected the following 2020 remittance market losses by region:

Europe and Central Asia: -27.5%
Sub-Saharan Africa: -23.1%
South Asia: -22.1%
Middle East and North Africa: -19.6%
Latin America and the Caribbean: -19.3%
East Asia and the Pacific: -13%

In reality, the market might not look as dire as the World Bank’s April forecast. Some major beneficiary markets have bucked the predictions outright, instead reporting increased remittance inflows over pre-pandemic figures. In July, for example, inflows to Mexico reached US$3.5 billion — up more than 11 percent year on year. Bangladesh reported US$2.6B in remittance inflows in July, a major jump from US$1.6B in July 2019.

One explanation for the spike in remittances to lower and middle-income countries, even as lockdowns and layoffs wreak havoc on economies globally, is that their diaspora communities abroad often work in jobs that have been deemed “essential” during the crisis.

While there’s still not much good news regarding a clear end being in sight for the pandemic, the potentially overblown doom and gloom surrounding remittance forecasts also came paired with a rosy outlook for money transfer players operating in the digital space. Lockdowns, social distancing, and other pandemic safety measures have rapidly accelerated the industry’s shift away from cash toward contactless, fully-digital offerings.

“Traditional cash transactions went to zero in some geographies and fell by around 30–40 percent overall in late March and April for the major [remittance] players,” wrote Forbes. “Whilst the expectation is that some people will go back to paying cash over the counter, not everyone will. This means the once in a generation boost to digital will have lasting effects.”

Among incumbent remittance players, analytics firm Apptopia reported a 52 percent year-on-year growth of their respective mobile applications — further signaling the inevitable shift away from crowded, time-wasting brick and mortar cash pickup points.

Though the pandemic is forcing many to adopt mobile application-based money transfer services, it is likely to continue even after a vaccine and a slow return to normalcy post-COVID, because of the youthful demographics present in many LMICs. The next generation of migrant workers will be tech natives who grew up on smartphones, and thus far more receptive to remittance apps than their parents.

While digital remittances have been given a serious boost, there’s still a long way to go to unseat cash and physical transfers. Of a 700-plus-billion dollar industry, the global digital remittance market size was valued at just US$15.01 billion in 2019, according to a recent report. The market is expected to reach US$33.9 billion by 2026, rising at a market growth of 17.2 percent compound annual growth rate (CAGR).

As many of you already know, Telcoin is not only a fully digital, contactless remittance provider — it’s a fully digital, contactless remittance provider that focuses on telecom and mobile money partners (especially on the receiving side of a corridor). In addition to pushing remittances into the digital sphere, existing mobile money platforms have seen a boom in new users and increased engagement by existing users.

The mobile money market in Africa alone hit a milestone of reaching US$22.6 billion in digital transactions in 2019 — a bigger number than the entire global digital remittance market. That figure is likely to be largely unaffected by the pandemic, and could even potentially go higher in 2020.

“[I]nitial evidence from the African mobile money market suggests that mobile money-enabled remittances have seen less of a negative impact [due to COVID-19] and have remained resilient compared to other channels,” stated GSMA.

Some major mobile money players, like Safaricom’s M-Pesa in Kenya, have even raised transaction limits to ensure those affected by the pandemic could avail financial services regardless of their ability to leave home. M-Pesa more than doubled their transaction limit — from 70,000 KES (US$700) to 150,000 KES (US$1,500) — for the platform’s 20.5 million customers.

“Mobile money is as an effective and physical-distancing-friendly option to deliver cash transfers in large scale, given that ownership and use of mobile phones in emerging and developing economies is very high, and globally, there are 228 mobile money agents per 100,000 adults compared to only 11 banks and 33 ATMs, said a statement from the IMF in June. “Mobile money can therefore help rural and remote populations gain access to government transfer programs without traveling long distances or waiting in lines, or even having a bank account — a critical advantage in a world where 1.7 billion still don’t have access to formal financial institutions.”

Telcoin, with its digital-first approach and direct partnerships with mobile money platforms, is entering the remittance market at perhaps the best time possible. The World Bank’s most recent report showed that the global average cost of sending a remittance is largely unchanged, despite the pandemic, at 6.8 percent. Even with its robust mobile money ecosystem, Sub-Saharan Africa remains the most expensive region to send money to at 9 percent.

With Telcoin targeting a total cost of roughly 2.5 percent to send money to friends and family who need it most, market disruption is imminent. Launching soon for transfers between Canada and the Philippines, Telcoin will dramatically alter the remittance landscape as we expand our digital platform in Asia, Africa, and beyond.

Telcoin. Send Money Smarter.