Four Snapshots Shaping Cross-Border Remittance Market in 2022

Over the past two challenging years, the remittance industry proved to be amazingly resilient and investment in fintech in general has reached unprecedented levels. 2022 begins with a promise of a fresh start in Europe. With the economies gradually recovering from the pandemic and labour migration a priority, we hope to see the number of labour migrants and, consequently, the remittance volumes rising.

Remittances in 2022 will see the continuing uptake of digital services driven by the mobile-only segment. The market becomes more competitive which results in reduced margins. To gain more leverage, providers take advantage of ecosystems, expanding the scope of their services for broader and seamless user experience.

Going digital

The pandemic profoundly affected the fintech market and its remittance segment in particular, propelling its growth and accelerating its transition to digital channels. Due to restrictions, money senders, who are mainly labour migrants, lost access to more traditional OTC cash-based channels, both formal and informal, and many resorted to online remittance services.

Unsurprisingly, this massive, one-in-a-generation migration from the offline to online setting translated into an influx of new players on the market, from dedicated digital-only startups to traditional leaders and Big Techs exploring new growth opportunities.

At the same time, providers stepped up promotional campaigns explaining the opportunities of sending money digitally, and many governments (such as Italy, Spain, Turkey, the UK, etc.) recognised international remittances as essential service. These combined efforts resulted in increased awareness among the populations regarding novel digital ways of sending and receiving money.

With all this in mind, cash-based services remain strong, of course, taking up about two-thirds of total remittance volume. Many migrants and recipients are still unbanked and cannot easily enjoy the wealth of digital finance. There are as well persisting cultural preferences: for example, in Europe there are countries where cash is still king, such as Greece, Italy, or Turkey. However, digital financial instruments and services become more available and the regulation of cash transactions stricter; we are inevitably moving towards the cashless society, and the pandemic has been the catalyst this process needed.

Cheaper remittances

By 2030, the UN aims to reduce remittance costs to 3% as per its SDG target 10.c, and the proportion of corridors with average costs of less than 5% has increased from 17% in Q1 2009 to 41% in Q2 2021, the data from the World Bank show. In 2022, sending money internationally will continue to cheapen. Several drivers are behind this.

First, the pandemic-caused migration to digital setting means lower cost for providers who do not need to maintain offline infrastructure but can instead scale up their digital solutions. According to the World Bank’s data on Europe and Central Asia (excluding Russia), in Q2 2021 sending $200 via digital-only remittance service providers cost 4.19% against 7.16% for cash services.

No wonder then that since the start of the pandemic the majority of providers (38%) have put effort into scaling their digital channel, according to IAMTN. Compare this with 8% of those focusing on reducing transaction cost, which was the second-highest priority.

Second, remittances are becoming a commodity, which means that price would be the defining competitive advantage and, consequently, that providers’ margins tend to zero.

Last but not least, despite its low marginality, the potential of the remittance segment, especially its digital part, is huge and, therefore, it is attractive to both newcomers and well-established players. Naturally, the more providers on the market there are, the lower the price for consumer is – and this is the trend for the nearest future. Hopefully, KoronaPay will also make its contribution here. Low remittance price is our value proposition; we already possess the necessary expertise, being the lowest-cost provider on the CIS market, and are committed to apply this positive experience on the European market.

Transition to mobile-only

Pushed by the pandemic’s rapid digitisation, the B2C service industry in general gravitates towards the mobile-only approach. This is facilitated by further penetration of mobile infrastructure and connected devices.

Websites still remain the main gateway for user acquisition, however, our data for the past 5 years show that up to 90% of the KoronaPay website visitors use mobile devices. Which comes as no surprise since for the majority of labour migrants a smartphone would be the only connected device they have access to. Moreover, many labour migrants come from developing countries where the mobile is now the mainstream technology, with the desktop stage skipped altogether.

At the same time, a smartphone as a single point of entry and, subsequently, payment offers vast opportunities on the provider side, which brings me to the next very important point.

Emerging ecosystems

Contrary to the mobile-only trend above that implies narrowing the interaction with a service to a single device, it is increasingly difficult for providers to sustain their operations as a single-service (remittance, in our case) business.

Today consumers have plenty of payment choices, including APIs, e-money, digital wallets, etc., and providers are pressured to expand their offering into an ecosystem. This is what traditional banks have been doing and what electronic banks, as well as others, are doing now. If you look at Wise or Azimo, on top of remittances they offer a plethora of wallets, cards, extra services, etc. Traditional providers such as Western Union also explore such opportunities.

An ecosystem implies three key benefits for market players. First, they can spread their fixed costs across a larger set of products and, thus, have more leverage to offer competitive prices. Second, an ecosystem facilitates the upsale of higher-margin services to customers. And third, ensuring seamless user experience in the ecosystem increases customer loyalty and retention rates. In turn, users benefit from more convenient and broader service.

2022 may become a pivotal year in terms of fintech ecosystem development for Europe, which, in line with its Digital Finance Strategy, intends to adopt a legislative proposal for a new open finance framework by mid-year. And this is not the only development in the regulatory field that we keep tabs on and will be sharing soon in this space.