How can payment systems improve cross-border remittances for migrant workers?

1 The remittance market

Remittances are transfers of money from migrant workers to their relatives or friends in their home countries. According to the World Bank, remittances reached $548 billion in 2019, surpassing foreign direct investment and official development assistance as sources of income for low- and middle-income countries. Remittances can have a significant impact on poverty reduction, financial inclusion, education, health, and economic growth in the receiving countries.

2 The challenges of remittances

However, remittances are not without challenges. Migrant workers and their beneficiaries often face high fees, slow delivery, limited access, and fraud risks when sending or receiving money across borders. The average cost of sending $200 globally was 6.8% in the first quarter of 2020, well above the United Nations' target of 3% by 2030. The speed of remittances can vary from minutes to days, depending on the payment methods, corridors, and intermediaries involved. The access to remittance services can be limited by the availability of physical outlets, bank accounts, identification documents, or digital devices. The security of remittances can be compromised by data breaches, money laundering, terrorism financing, or scams.

3 The opportunities for payment systems

Payment systems are the infrastructure and rules that enable the transfer of funds between parties, and can be instrumental in improving the remittance market. Adopting new technologies, such as mobile money, blockchain, biometrics, or artificial intelligence, can reduce costs, increase speed, and enhance security of remittances. Additionally, developing partnerships with banks, fintechs, telecoms, or post offices can expand the reach and diversity of remittance services. Furthermore, aligning with standards such as the ISO 20022 messaging format and the Principles for Financial Market Infrastructures can improve the transparency, efficiency, and compliance of remittance transactions.

4 The examples of payment systems

Various payment systems are innovating and collaborating to improve the remittance market. For example, SWIFT gpi enables banks to send and receive cross-border payments with end-to-end tracking, transparency on fees and exchange rates, and faster settlement. Ripple is a network that uses blockchain technology to facilitate low-cost, real-time, and secure cross-border payments between financial institutions. M-Pesa is a mobile money service that allows users to send and receive money through their phones without bank accounts. It has partnered with various remittance providers, such as Western Union and MoneyGram, to enable cross-border transfers. Ria is a remittance company with over 435,000 agents in 160 countries that has integrated with Visa Direct, Mastercard Send, and Zelle to offer more options and convenience to its customers.

5 The benefits of payment systems

By improving the remittance market, payment systems can create a variety of benefits for migrant workers, their families, and the economies of their home countries. These include saving money by reducing the fees and exchange rate margins of remittances, saving time by speeding up the delivery of funds, and saving lives by enhancing the security of remittances. This helps migrant workers and their beneficiaries retain more of their income, access their funds quickly and efficiently, and protect their money from fraud or misuse.

6 Here’s what else to consider

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