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How technology is revolutionising remittances to India

The cost of cross-border payments, de-risking, and financial inclusion are all being overcome by payment services providers

When the World Bank delivered its annual report on the global remittances market earlier this year, it was of little surprise that India had retained its position as the largest remittances market in the world. USD $69bn was sent back to India from expats working abroad in 2017, an increase of 9.9 percent on the previous year.

This growth was in line global growth of officially recorded remittances to low-and middle-income countries, which rose 8.5% in 2017 to $466bn. That value is forecasted to rise again by another 4.1% in 2018.

However, the growth in volume doesn’t mean that everything is rosy in the world of remittances. Despite the increase in the number of migrants working overseas which is triggering the rise in the volume and value of remittances, the process is being undermined by flaws in the global banking system which are hindering secure and economically viable transfer of money across borders.

The potential consequences of this are catastrophic for the developing world, as millions of families are dependent on remittances to sustain their living standards.  

De-risking and perpetually high costs: The barriers to financial inclusion

The first of these issues, as Paysafe’s CEO of Merchant Acquiring in Europe Andrea Dunlop explained in an article on the blog last month, is that correspondent banks de-risking through the reduction of the number of global banking relationships they maintain is not only stemming the flow of international trade, it is also having a profound effect on the remittances market and escalating serious financial inclusion concerns.

According to IMF figures Money Transfer Organisations (MTOs) account for over 90% of international remittances in many markets, and it is these services that are being hit hardest by de-risking strategies. In 2013 more than 140 UK-based remittance organisations had their accounts closed by a major high street bank, and this trend is evident globally, with MTOs in the Pacific and MENA regions particularly affected.

A second issue that continues to be a concern is the overall high costs associated with sending money back home. Whilst the average cost of sending money back home to family or loved ones from overseas has been in gradual decline for a number of years, this figure was estimated to be 7.2% 2017, more than double the target transaction cost of 3% set by the United Nations 2030 Agenda for Sustainable Development.   

Bringing affordable remittances to India

As the largest remittance market in the world, India is certainly not immune to these issues. The fact that financial inclusion within the country also remains an issue adds a further obstacle for those wishing to send money home to overcome; the number of Indian adults with an active bank account has risen from 53% in 2014 to 80% in 2018, but this still means that hundreds of millions are unbanked.

However, smartphone adoption in India is also accelerating at the fastest rate anywhere in the world. 337 million Indians are predicted to own a smartphone by the end of 2018, a 16 percent year-on-year growth; this growth is expected to continue to as India urbanises and the cost of handsets and data packages falls, potentially opening up further avenues for remittances to the unbanked and underbanked.

The MENA region is also a major centre of migration for Indian workers (in 2016 the UAE was the premier source of remittances travelling into India, with expats in Saudi Arabia, Kuwait, and Qatar also making significant contributions to the remittances total) meaning that the de-risking in the regions is a particular issue.  

“Utilising a digital wallet such as Skrill to execute the remittances process tackles many of the issues faced by Indians attempting to send money home directly, not least the high cost of sending international transfers.”

Digital wallets: the relevant solution for emerging markets

What is clear in the immediate term is that traditional banking solutions to sending money to India need to be challenged, in order for the pain points in the system to be tackled.  

Last month Skrill extended its Send Direct payment function, which enables a Skrill digital wallet user to transfer funds from their stored value account directly to a recipient’s bank account or email address, to nine new countries, including India. For Indian expats, this opens up a new possibility when looking to transfer money back home, one that does not rely on the traditional remittances systems that are dogged with issues, and is not even reliant on the recipient having a bank account.

Utilising a digital wallet such as Skrill to execute the remittances process tackles many of the issues faced by Indians attempting to send money home directly, not least the high cost of sending international transfers. Skrill Send Direct charges extremely low fees to send money overseas – and doesn’t charge the recipient at all. FX exchange rates are often preferable over those offered by traditional bank and MTOs also, meaning that the cost saving is compounded, and this is particularly the case for sending money to India.

And in addition, by sending money via a digital wallet Indian expats aren’t exposed to correspondent bank de-risking that looks set to continue for the foreseeable future.

To find out more about how to transfer money internationally using Skrill, visit our website