The importance of digital remittances during a crisis
For people living away from family and friends, COVID-19 raises its own set of issues. Providing financial support may be critical, but the current circumstances means there are challenges to overcome
It is inevitable that during a crisis people’s first thoughts are of their loved ones. During the COVID-19 pandemic this concern is predominantly twofold; firstly, that their friends and family are safe and healthy, and secondly that they remain as financially secure as possible during these uncertain economic times.
For economic migrants, or those living away from their family and friends for other reasons, the COVID-19 pandemic raises a unique set of challenges. With global travel bans in place, the reality of the physical distance between families is even more pronounced, and financial assistance is likely the only way that many can contribute to keeping their family safe at the moment.
A growing need for remittances
And of course, there are some countries in the world where the financial hardship resulting from COVID-19 is greater; for emerging markets in particular the economic impact of ‘lockdown’ social distancing controls is having an even more dramatic effect. In these countries, the need for people to receive money from family members that are able to financially support them is urgent.
Even in developed countries, increasing the amount of financial aid to loved ones might also be essential. For example, the cost of healthcare in the US for uninsured citizens is so steep that many who fall victim to COVID-19 will be reliant on family support to pay the medical bills that they will incur when recovering from the virus.
This is why remittances will play such a key role during COVID-19. The ability to send money internationally quickly, easily, and cheaply to those that are financially struggling is vital for millions of families across the globe even when the economy is booming; during an economic crisis the reliance on this income stream may be critical. This is not only true for families that regularly receive financial support; there will be many economic migrants that will be compelled to send money to support relatives for the first time due to COVID-19.
The negative impact of COVID-19, and what can be done about it
And yet, while the need for financial support in emerging markets is perhaps the greatest it has ever been, there are several key factors that mean the value of the remittances market might fall, rather than rise with the increased demand.
The first is that economic uncertainty and financial instability resulting from COVID-19 may be as much of a factor for the sender as the recipient. The risk to incomes, including pay cuts, loss of trade, or unemployment, is impacting people across the globe. And migrant communities are being disproportionately impacted in developed countries, squeezing the source of much of the international remittances market to a degree that hasn’t been seen since the 2008 global recession.
So, despite wanting or needing to send more money abroad to friends and family, the reality is many economic migrants will have to prioritise managing their own financial situation.
The second negative factor is the current volatility of foreign exchange markets. Currencies such as the Euro and British Pound have significantly weakened since the outbreak of COVID-19; this not only reduces the propensity to transfer money overseas, where remittances are made out of necessity the value of the transaction made from countries in the UK or Eurozone is reduced.
This trend may reverse in the coming months, so much so that volatility drives demand for remittances. But in the meantime, economic migrants must maximise the benefit of the finances they are transferring overseas in order to mitigate these negative factors as much as possible. This means seeking out the remittances methods than enable senders to transfer as much value as possible to the recipients through both lower fees and preferable exchange rates. Invariably these operators are online-only, which is why digital remittances have such a critical role to play.
Moving away from cash
One further key disruptor of the remittances industry is that consumers are now reluctant to use cash. There appears to be a general consensus that cash is a potential transmitter of COVID-19, so much so that in many countries stores are advocating that consumers avoid paying with cash wherever possible.
And even where some consumers would still be prepared to keep making transactions with cash, social distancing or shelter in place orders may be restricting their access to cash dispensers and physical stores to make those transactions.
So in addition to the people that might be sending money home for the first time due to COVID-19, there is also a large number of people who have regularly made remittances payments via cash with store-based operators that now cannot or will not be able to do this. Some predictions state that as much as 80% of the global remittances market is still cash-based, meaning this blocker to the remittances market could have a seismic impact for senders and recipients.
For these people, digital remittances methods seem the most suitable alternative for still sending financial assistance to those that need it.
A catalyst for long-term change?
But this will not necessarily only be a short-term trend. The COVID-19 pandemic might be the catalyst for a permanent shift from cash to digital remittances; with both cost and convenience benefits over traditional in-store remittances methods, once consumers’ are made aware of these advantages it seems highly likely that the percentage of the global remittances market made via cash deposits will fall for good.
Additionally, many cash-based money transfer operations that have been forced to close during COVID-19 will not have the funds to re-open once social distancing measures are relaxed. This will play a further role in shifting senders online.
The growth of m-PESA as the predominant payment method in Kenya is an example of social need permanently transforming the payments landscape. The need for an alternative to a bank ecosystem that was not accessible for the majority of the population drove Kenyans to use digital alternatives, that then quickly became the preferred method due to its convenience even when cash was a viable option.
A digital remittances solution such as Skrill Money Transfer that is both low-cost and has a simple user experience that is much cheaper than a traditional bank account, will be an essential source of support for families across the globe during the COVID-19 pandemic. And while the need to go digital is immediate, there are strong indicators that this may be a permanent evolution for the remittances industry.
Skrill Money Transfer enables people to send money overseas conveniently, and for free. To find out more visit the Skrill website.