Around 200 million migrants support 800 million family members globally. Labour migration for work seeking is one of the key reasons behind international migration. Local conflicts and crisis, low level of economic, lack of jobs and the common desire to earn more drive this tendency.
Financial remittances are an essential part of the labour migration process, moreover, it is one of the determining factors for the economies of the developing countries. According to the World Bank’s latest Migration and Development Brief remittances to low- and middle-income countries came to a record high in 2018.
The World Bank estimates that officially recorded annual remittance flows to low- and middle-income countries reached $529 billion in 2018, an increase of 9.6 percent over the previous record high of $483 billion in 2017. Global remittances, which include flows to high-income countries, reached $689 billion in 2018, up from $633 billion in 2017.
And what is interesting this amount is larger than foreign direct investment flows in 2018 ($344 billion).
Top Remittance Recipients in 2018
Sources: World Bank staff estimates, World Development Indicators, IMF Balance of Payments Statistics.
Estimates and Projections of Remittance Flows to Low- and Middle-Income Regions ($ billions)
Source: World Bank. Note: e = estimate; f = forecast.
A large part of this money is cash. This is not surprising since it is often quite difficult for labour migrants to obtain banking services for receiving salary and payments, managing personal finances, as well as making transfers abroad. Factors attributing to this are legislative restrictions, unsettled official status in the host country, low interest from financial institutions. So this state of affairs creates an extensive field of opportunities for niche FinTech products.
Let's take a look at this process from the money flow perspective and people needs.
Could FinTech products cover it? Definitely yes! Why is it interesting? Again, because of digits. Banks are the most expensive remittance channels with an average fee of 11 per cent in the first quarter of 2019. Post offices are the next most expensive, at over 7 per cent. So giving a service of Card + Payments + International transfers with lower fee rate is a win-win business for tech companies and end-users. Also, such products can be enhanced with a vast number of additional services, ranging from the registration of employees in the necessary government agencies, insurance, or even hiring and recommending new employees. It all depends on the local characteristics of the market and the needs of employers and employees.
Average Costs of Remittances by Type of Provider, 2018 Q4
Sources: Calculations by World Bank staff for 2018 Q4 based on the Remittance Prices Worldwide database, World Bank. Note: MTO = money transfer operator.
Of course, this is a very high-level description of the critical features of the Mobile or Web FintTech products and the construction of such service includes a large number of organisational and integration work, but the market opportunities are very desirable.
The article was prepared using information from World Bank’s latest Migration and Development Brief