How COVID-19 triggered a cascade of changes and shaped the new reality of remittances

Do you remember the COVID-19 pandemic? It has been a real challenge for the remittance industry but also a source of opportunities. After a period of turmoil, 2022 is expected to be the year of recovery and the forces shaping the market are in many ways different from what used to be.

Changes in landscape

Remittances within KoronaPay’s major markets – Europe, CIS, Middle Asia and Middle East – are money that labour migrants send to their families back home. Early on into the pandemic, the situation was not yet that acute, with a significant portion of businesses operating, but in April 2020 the economic activity stopped. As a result, in March 2020 we observed a cross-border transfers’ gradual decline of 5-10% per week y-o-y followed by a sharp drop by 50% in April. By the end of May, however, the market had recovered to February 2020 levels.

In Europe, there has been a change in remittance corridors and volumes. For example, coastal countries with major ports such as the Baltic states, Greece, Turkey, Italy, etc. historically have major labour migrant populations serving the retail sector. Since the borders were closed, the remittances from these countries grew, particularly to CIS destinations.

It should be noted that for a number of CIS countries the funds sent by migrant workers within the region and from Europe contribute substantially to the local economies. For example, more than 10% of Armenia's GDP are remittances from abroad; for Moldova this share is close to 16%, for Uzbekistan to 12%, for Tajikistan to 27%, according to the World Bank data. Losing this important source of income would be detrimental to these countries’ economies.

Support and regulations

Even small changes in cross-border remittance patterns, let alone a massive crisis such as COVID-19, can have a major impact on emerging economies. Given the importance of remittances for people who are forced to survive on a dozen dollars a day, the very ability to transfer money, the cost of remittances, and the ease of access to such services greatly affect people's quality of life.

As early as in April 2020, the World Bank recommended taking measures to support the remittance sector, particularly granting it the status of socially important services and facilitating its operations while providing tools to effectively manage credit and liquidity risks.

Unfortunately, with few short-term exceptions such as Italy or Spain, for state authorities in Europe and elsewhere supporting money transfer systems has not been a priority.

On the other hand, back in 2020 many countries introduced various measures to help local businesses and preserve employment. Examples include alleviation of tax burden, especially with regard to SMEs, and direct subsidies to companies most affected by the restrictions. Furthermore, the pandemic-caused unemployment in certain sectors (e.g., housekeeping, retail, and hospitality) was set off by new opportunities for workers, such as in delivery services.

Thanks to this, many labour migrants, though trapped in Europe, were able to keep sending money back to their home countries.

Shift to digital and lower cost

The COVID-19 pandemic has triggered a dramatic increase in online transfers. In the case of KoronaPay, their share jumped to 70% at some point, while the turnover volume grew 7.5-fold in 2H2021 compared to the same period of the previous year. Digital remittances have become more visible against the backdrop of offline transfers through bank branches and non-bank players like Western Union. Still, offline segment remains dominant despite these recent developments and the winners – for the time being – are the companies deploying an ‘offline+online’ hybrid model.

With the remittance market digitization intensifying, competition for customers has also increased. This resulted in more aggressive marketing strategies and, importantly, lower cost of transferring money, which benefits those labour migrants who regularly send money back home. Companies have been reducing (or even canceling) their fixed transfer commissions and narrowing the exchange rate margins. The shift to digital channels has also played a role here, as the average cost of digital remittances in Europe and Central Asia is lower than that of cash remittances (4.4% vs 6.7%). Thus, either way, this has led to a reduction in the total cost of remittances in Europe, and KoronaPay has been at the forefront of this process fulfilling its mission to reduce cross-border payment fees for the lifeline of migrant cash.