By: Jonny Winstanley
For millions of people around the globe, remittances are crucial to providing financial security, especially in areas that struggle with hardships caused by sub-optimal economies and unstable governments. Remittances can be a financial lifeline that not only provide people with the ability to cover life’s essentials, but in some countries also contribute a large percentage toward the total gross domestic product (GDP). Remittances provide the economy with a steady flow of income that allows local and national communities to survive, and thrive.
This article is geared toward those who are new to the world of international money transfer, and will help provide an overview of remittances, traditional methods of both sending and receiving them, as well as looking at Telcoin’s revolutionary approach to providing a remittance service and how it aims to change the face of this market for the future.
In the simplest of terms, when we refer to remittances we are talking about the act of a person sending money from one country to another.
According to a report by the United Nations, 3.5 percent of the world’s population (over 272 million people) work and reside outside of their home country. Many of these workers come from developing nations where employment options can be scarce and the prospect of working in another country can often yield a greater chance of earning a fair wage.
A large number of migrant workers will send money back home to their families and loved ones to be used on necessities such as food, clothing, and bill payments; and the influx of money helps to drive the local economy. Remittances are often used as a way to help raise the standard of living for people and help combat global poverty.
According to a 2019 report by the World Bank, more than US$550 billion was sent around the world by migrant workers, and for many countries, the inbound remittances serve to make up a large portion of their annual GDP.
“Among countries, the top remittance recipients were India with US$79 billion, followed by China (US$67 billion), Mexico (US$36 billion), the Philippines (US$34 billion), and Egypt (US$29 billion).”
Not only do remittances provide steady income for families and play an important role in the economies of developing countries, but they can also provide a vital injection of money during large-scale tragedies such as natural disasters or war; and in many cases exceed money donated by charitable organizations or from foreign aid. For millions of people, remittances can be their main — and in some cases, only — source of income, so being able to access them in an efficient and timely way is of great importance.
Historically, handling remittances were (and in many cases, still are) a cumbersome and costly process. In order to send a remittance, an individual would need to use the services of a remittance provider — this could range from a bank, a remittance agency such as Western Union or MoneyGram, or now more increasingly, digital service providers like PayPal or Wise.
In fact, there are many ways to send a remittance and each way has its own benefits and drawbacks, but they can often have confusing cost structures or hidden fees that can result in anything from 3 to 10-plus percent of the money being transferred taken by the service providers. Some examples of ways to send remittances are listed below.
- Wire transfer
- Physical cash
- Mobile money
- Electronic payment
- Bank draft
A typical remittance transaction takes place in three steps:
- The sender pays the remittance to the sending agent using cash, check, money order, credit card, debit card, or a debit instruction sent by e-mail, phone, or through the internet.
- The sending agency instructs its agent in the recipient’s country to deliver the remittance.
- The paying agent makes the payment to the beneficiary.
Typically, a remittance payment via traditional methods such as banks, post office, cheques, or wire transfers can take anywhere between two to five business days to process, and sometimes even longer. This is not an ideal situation and can be a hindrance especially in the case of an emergency say for example a family member is taken ill and needs money for urgent medical care.
“The global average cost of sending US$200 remained high, at around 7 percent in the first quarter of 2019, according to the World Bank’s Remittance Prices Worldwide database. Reducing remittance costs to 3 percent by 2030 is a global target under Sustainable Development Goal (SDG) 10.7. Remittance costs across many African corridors and small islands in the Pacific remain above 10 percent.”
Banks remain the most expensive way to send a remittance, with an average associated fee of 11 percent according to 2019 data from the World Bank. Post offices were the next most expensive, costing on average more than 7 percent. Transfer fees often include a premium, where post offices have exclusive partnerships in place with a specific money transfer operator, blocking competition and thus keeping fees exorbitantly high. Post office remittance premiums were reportedly adding, on average, 1.5 percent worldwide and as much as 4 percent in some countries.
Digital providers can offer a much faster way to send money, however, users often need to have access to other services such as bank accounts or a government ID in order to set up and make use of them. This bars many un- and under-banked users from being able to benefit from the often lowest cost option in a corridor.
One big issue with many of the current methods is that they are not convenient or cost-friendly to the millions of financially excluded people in developing countries. According to the World Bank 2017 Global Findex report, 69 percent of the global adult population have access to some form of financial services, meaning that 31 percent of all adults worldwide (approximately 1.7 billion people) still lack any sort of basic financial services, with the clear majority of these people based in small and developing nations. For many of these people to receive their remittances, they have to go to a physical location and collect cash in their local currency. This is often time-consuming, can result in long queues during peak times, and for many people who live in rural communities, the nearest location may be very far away. This is all without mentioning the current global COVID-19 pandemic and the need to social distance or remain at home.
There are currently over 5 billion people with access to mobile phones, which is around five times the number of people who have access to traditional banks. In 2007, Kenyan mobile operator Safaricom launched the MPesa mobile money wallet, among the first of its kind available. This helped created a solution to provide limited financial services to the under-banked by putting a digital wallet on their existing mobile device. MPesa gave users the ability to top up their phone at a local shop and kiosks, which they can then use to make payments for many things such as utility bills, online payments, or even buying household goods.
Since the launch of MPesa, many countries have developed their own mobile money solutions, such as GCash in the Philippines, and mobile money wallets are being acquired by users at a much faster rate than other legacy financial services. The rise in mobile money is providing much-needed financial services to the millions of under-banked throughout society and In developing nations, subsequently, mobile money services have negated the need for banks in order to process rudimentary digital payments. For many, these services are a first step away from a solely cash-based economy, while offering users a small degree of financial independence.
International remittance providers have been very slow in making use of mobile money services, and for most of the current digital remittance providers like Paypal, there is currently no synergy between mobile wallets and the services provided by these remittance companies. The result is that users are still unable to access digital remittances via their mobile phones without the need for other financial services to accompany this process. We believe a better solution can be created, one that offers more flexibility and ease of use, while providing a more affordable service to all.
As mentioned earlier, there are nearly five times more mobile phones than active bank accounts, yet people around the world are still lining up to send money from high-cost remittance agents like Western Union. Why waste time and money when you could be using what’s already in your pocket?
So far we have established that the current (and most common) ways of sending remittances are costly, inconvenient, and cumbersome, with disproportionate fees that essentially take money out of the hands of the people that so desperately need it. We have also established that many people still lack access to the most basic financial services, which makes receiving remittances and money management even more difficult. Moreover, people need a digital solution that complies with social distancing and lockdown measures to stop the spread of coronavirus.
Our approach is simple. To provide secure, affordable, and convenient remittance services that keep the maximum amount of money in the hands of the recipient, while offering a robust ecosystem that ties into existing financial networks and allows users to spend their money on the things that are important to them.
By partnering with regional mobile network operators, mobile money platforms, and e-wallet services, Telcoin aims to provide a service that can transfer money globally in minutes and still offer some of the most competitive rates available.
Below are the steps a user takes in order to send money the Telcoin way:
- Log in to the Telcoin App and verify your identity with a government-issued photo ID.
- Tap the home screen to send money.
- Enter the beneficiary’s information.
- Enter or select an amount in local currency and tap “Send Money.” Fill in the required additional details and tap “Next.”
- Review the transfer details before the sixty second exchange rate quote expires. Enter your Telcoin App pin then tap “Confirm & Send.”
At Telcoin we aim to make sending a remittance payment as easy as sending a text message.
By using our app it now means the beneficiary has no need to travel long distances to go to a physical location, no more queues or waiting in lines, and no more week-long delays for transactions to process. We will provide their money directly to them when they need it the most — this is what we mean when we say convenient.
But what about costs and fees?
We are targeting a total cost of 2.5 percent or less, including fee and FX margin. The World Bank aims to bring the cost of fees down to 3 percent by 2030, we aim to beat that target a decade earlier — this is what we mean when we say affordable.
Another benefit is that our users will not have to carry around quantities of cash, which typically happens when having to collect from a local agent. For some people, they will be collecting the equivalent of one or two months’ salary in hard cash, and unfortunately could be seen as a target for unsavory characters. We all know that keeping large quantities of money on your person is far from the best way of handling your finances, however with our system the money will be safely held in their mobile wallet and available for them to use whenever they need it — this is one of a number of reasons we say it’s secure.
Telcoin launched its first remittance corridor in 2021, allowing users in Canada to send money back to the Philippines. Through our partnership with GCash (the largest mobile money service provider in the Philippines), our users will get a first look at the future of remittance services. To supplement this, we are building a foundation of additional services powered by the latest blockchain technology that will enable Telcoin users even more financial freedom and control over their money. Over the course of this year and beyond, we will be releasing more information on some of our other products and services currently in development, as well as opening additional remittance corridors that will empower migrant workers from multiple regions in the world with a better way to send money home to their loved ones.
At Telcoin, we don’t just want to enable people to send money, we want them to Send Money Smarter.