As Remittances Grow Amid Crises, FinTech Grows More Essential

Remittances have long been a lifeline for people living in developing countries. About 11% of people worldwide are supported by remittances sent by migrant workers, and remitted money is often a major contributor to a household’s total income. It’s estimated that 75% of remittances are used towards essentials like food, medical or housing expenses.

Remittances become even more important for families during times of crises. Between the Covid-19 pandemic, increasing natural disasters and civil unrest in many countries, the past two years have highlighted how much of a lifeline remittances are for people around the world. 

The use of digital money has been a particularly important boon for people sending and receiving remittances during this time, since these crises can threaten financial inclusion. The convenience of digital money transfers is poised to only grow more important to remittances as time goes on — especially since remittance rates show no signs of abating.

A Remittance Retrospective

While the pandemic was in full swing last spring, the World Bank projected that 2020 remittances to low- and middle-income countries would decline year-over-year by 20% due to lower wages and growing unemployment among migrant workers. The financial lifeline for many vulnerable households around the globe being cut off would be just another casualty of Covid-19.

Astonishingly, the opposite occurred: consumers sent more money to family and friends across borders to help them during challenging times. Many countries saw double-digit increases in remittances: Honduras, the Dominican Republic and Pakistan respectively experienced 15%, 26% and 37% growths in remittances.

What caused the unexpected spikes in remittances? In many cases, individuals wanted to continue providing as much financial assistance as they could to loved ones who might have faced greater financial need or who were unable to work because of the pandemic.

Reducing Insecurity and Raising Inclusivity

The pandemic is far from the only event over the past few years that has presented people with greater financial needs, causing global remittances to grow in recent years amid civil unrest and natural disasters.

While they’re a key source of aid to families in need, remittances in these circumstances are especially important as they can increase financial inclusion in these areas.

For instance, formal remittances to Afghanistan in 2020 equaled over $788 million, which was about 4% of the country’s GDP. That number is likely to change, as the Taliban’s rapid takeover of the country has caused financial inclusion within the country to plummet. Afghanistan’s Central Bank can only access part of its usual financing, which has caused ATMs to run out of cash, withdrawal limits to be instituted and prices of essential goods to rise. As a result, digitally-transferred remittances are even more essential for Afghanistan residents who aren’t able to secure needed funds.

On the other side of the world, remittances to Haiti grew over 25% from 2018 to 2020, as political instability, gang violence and economic struggles grew as well. Not only did 2020’s total of $3.8 billion in remittances mark a record high, but remittances have also accounted for at least one-third of Haiti’s overall economy in recent years.

As the country still recovers from the disastrous earthquake and Tropical Storm Grace that struck within days of each other in August, remittances have become more of a lifeline for Haiti residents than they were before. With access to financial services already difficult in Haiti, it’s even more important for the remittance process to be made easier.

FinTech to the Rescue

FinTech has transformed the process of transferring money. Users no longer need to travel to physical banks or to remittance outlets to send and receive funds, and they no longer need to wait in long lines to ultimately get a finance professional’s help in sending or receiving money internationally.

Now, a person can just transfer money in just a few taps or clicks, and the recipient can access that money directly from a digital wallet. Thanks to FinTech, a process that once took hours can now take place in seconds.

FinTech and digital money’s benefits extend beyond saving time, though. Eliminating banks from the remittance process eliminates any touchpoints where Covid-19 could be spread. Moreover, electronic money transfers prevent people from having to travel to a physical banking location - a seemingly simple journey that can often be fraught with violence and risk in unstable regions.  

If the past two years are any indication, crises like climate change, political struggles and even future pandemics will continue to lead to financial instability and civil unrest. At the same time however, FinTech will continue to aid people during these crises— not just facilitating transactions, but by ensuring that families can receive lifelines of support. 

Matt Montes is U.S. general manager at Paysend. Montes has nearly 30 years of financial services experience, most recently serving as president of Catalina Card Services. Previously, he founded and led AccountNow, the first online D2C prepaid debit card company in the U.S., which was acquired by Green Dot Corporation.