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Remittances allow overseas workers to send billions of dollars back to their home countries each year, paying for the healthcare and education of their families. Indeed, remittances form 5% of the GDP of over 60 low-income countries. Until recently, traditional remittances typically involved physical transactions which could be a slow and costly process. With a shift to cashless forms of payment accelerated by the COVID-19 pandemic, digital remittance is increasingly common.
Digital remittance explained
Digital remittance describes foreign workers sending money back home electronically. This can be through a variety of different channels, whether it’s online or using a mobile app. However, digital remittance does not involve sending cash funds. Instead, the money is sent using a bank account or digital wallet.
Traditional vs digital remittance meaning
Traditionally, sending money back home could involve standing in a queue at the exchange agent or bank. The recipient would also need to visit an in-person exchange to pick up the cash at the other end, all with high fees attached. Cash-based remittances can involve a great deal of paperwork, slow transfer speeds, and interacting with multiple parties.
Digital remittances were already starting to become an emerging trend as the pandemic arrived, but isolation requirements, closed borders and lockdowns accelerated its growth. Traditional wire transfer companies like Western Union and MoneyGram experienced an increase in electronic transactions, as did newer companies like WorldRemit and Wise.
There are several downsides to traditional remittance, which locks some users out. For example, a high percentage of the world’s population doesn’t have a bank account. Yet with bank-to-bank remittance, both sender and recipient are required to have an account for the funds transfer. Transfer speeds can take up to five business days, and exchange agencies and kiosks are only open during limited working hours.
What are the advantages of digital remittance?
By contrast, digital remittance solves most of these issues. Advantages of digital remittance include:
Faster transfers: Most services offer same-day or even instant transfers.
Lower fees: With electronic payments, users benefit from better currency exchange rates and lower transaction fees.
Transfer status tracking: When you send funds electronically, you’ll often receive updates, so you know exactly when your money is received.
No need to travel: There’s no need to stand in a queue or travel to any bank branch to send and receive money.
The future of the digital remittance market
Companies specialising in digital money transfers have experienced a period of high growth over the past two years. For example, World Remit grew 150% year on year in April 2020. Mobile payments have become the preferred digital remittance method of choice for younger migrant workers, who can send payments back home to unbanked friends and family. It’s now easier than ever to send and receive cross-border payments with low fees and convenient set-ups. According to World Bank estimates, it’s thought that the digital remittance market will overtake the traditional market by 2023.
While digital remittances apply to foreign workers to personal contacts, what options do customers have if they want to make an international payment to a business? Digital remittance is just one aspect of the growth in electronic cross-border payments. For small business owners, GoCardless also offers a way to receive payments from abroad. Businesses can receive international payments from over 30 countries at the real exchange rate, offering the local bank debit option in each supported country. Customers can pay in their own currency, with the merchant receiving the funds in Australian dollars. International payment processing is priced competitively - see full pricing details here. It’s yet another example of how the world of electronic international payments is changing, for businesses and consumers alike.
We can help
GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.