Revolution or evolution? Digital remittance in Asia Pacific

By: Deepan Dagur

Cross-border payments are the lifeline of many developing and exporter markets. Asia Pacific is no exception. Research shows that companies want their beneficiaries to receive cross-border payments faster—within 3 business days or less (78%).[1] With Visa Direct, Visa’s real-time* money movement solution, we have seen increased demand for our cross-border payment solutions from the full range of send players in the ecosystem, including banks, remitters, fintechs, online merchants and payment processors.?

?

From telegraphic transfer to technological evolution

Historically, a consumer had limited cross-border payment options—fill up a telegraphic transfer form at a bank branch, process a cash based transaction at the remittance company, or resort to informal channels such as “Hawala.” The landscape has changed, with the rise of specialist remittance fintechs and fintechs that offer remittance as a service that complements a broader offering. RTP payment options?and many traditional bank and remitter players are deploying a range of digitally enabled solutions for consumers.??

The need to accelerate in Asia Pacific?

There are several key factors fueling the demand for cross-border payment solutions in Asia Pacific. As the largest regional contributor to global migration, it’s common for Asians to work outside their home country and send money to their families. Therefore, it’s no surprise that Asia Pacific is the largest net receive region globally. Of the $2T in annual global cross border flows to consumers and small businesses, AP receives 45%. This global footprint is amplified by widespread digital adoption. 96% of households in Asia are in possession of a mobile phone [Euromonitor, GSMA]. In some Asian countries, mobile penetration rates are well in excess of 100%, while in others, the mobile phone is the principal medium for online access.??

Overseas education and property purchase have also shaped the payments landscape. China, India, Indonesia, Malaysia, and Japan are the largest Asian contributors to the global pool of international students. Asians account for 53% of all students enrolled in higher education institutions overseas worldwide [Source: OECD]. In the international real estate market, China and India alone account for more than 20% of global international home buyers.?

New demands require new solutions

The impact of COVID-19 has strengthened the demand for digital solutions across the board, and this is especially true for cross-border payments. Cash drop-off and pick-up became increasingly difficult during the pandemic, creating a broader awareness of the need for a range of endpoints.?

At Visa, we recognize the continued role of the account as the endpoint, especially for larger ticket transactions. Simultaneously, we are experiencing demand for alternative endpoints. In a relatively under-banked Asia Pacific region, we understand the power in reaching consumers where they are, be it account, card or digital wallet—giving send partners access to 3B accounts, 2B cards and 4B wallets globally. As our proprietary network, we have effectively delivered funds to cards as an endpoint for some time. Our 2019 acquisition of Earthport, which is fully integrated as Visa Direct Push to Account, has added accounts to our global endpoint reach.?

In large developing markets such as India, Indonesia, Vietnam, and the Philippines, consumer products such as shampoo are often sold in small affordable “daily-use” sachets—with empirical data showing that a reduction in unit cost drives a dramatic increase in unit sales. Digital remittances are showing a similar trend. The average unit cost of a digital remittance has gone down, both in terms of transaction cost and FX spreads. With this, we have seen a corresponding increase in the number of transactions. Several decades ago, a parent may have sent funds to their child studying overseas annually or once a term to avoid steep fees and logistical challenges. When transactions can be executed from a mobile app, where the cost is single digit dollars and funds are received on the same day, it’s clear to see why transaction volumes increase (albeit with smaller average ticket sizes).

This trend will continue, highlighting the need for send partners to be equipped to process larger volumes of lower ticket transactions. While competitive transaction cost is an imperative in staying relevant, so is a platform scalability. No sending bank or fintech can afford to increase operations employees by the same proportion as transaction volume. As the number of tickets increases, so does the imperative for Straight Through Processing, high authorization rates, and the ability to handle client enquires at scale.??

The next frontier: moving beyond remittance

We are also witnessing the impact of the creator economy and gig platforms on cross-border payments. In addition to traditional bank and remitter partners, we see cross-border payments demand from online marketplaces (e.g. real estate and freelancers), creator economy platforms (e.g. social media influencers, bloggers, independent content), and alternative asset class/wealth management platform (e.g. load or cash-out use cases for online brokerages and crypto exchanges).??

The needs of these use cases are often similar to that of a digital remittance, with the requirement of endpoint reach, speed, user experience, and transaction “microtization” being even more pronounced.??We continue to work closely with fintechs, online platforms, and payment processors to deliver the same value proposition to such consumers. As the creator economy, labour markets and e-commerce continues to evolve, so must the ability of the ecosystem to deliver cross-border payments to a broader range of partners.??

A single connection, infinite possibilities?

Asian banks that rely exclusively on bilateral correspondent banking relationships and the SWIFT messaging network are increasingly seeing market share erosion. Many leading banks in the region are looking to leverage solutions such as Visa Direct to complement their correspondent banking-based arrangements and win back market share. The KYC cost in correspondent banking relationship management, the burden of transaction monitoring, and rising liquidity premium and management of nostro account fundings have led many Asian banks to explore competent alternatives. Visa Direct provides both banks and fintechs a single connection for cross-border payments to 180 countries in over 160 currencies.?

Digital technology proliferation is changing consumer expectations—permanently. Without compromise, consumers demand that funds reach their destination swiftly and the overall experience with their bank or fintech provider is easy to navigate. This requires solutions that are secure, reliable, transparent, and traceable. Providers that are unable to fulfil a strong value proposition will suffer market share erosion.

The value proposition to Visa Direct’s bank and fintech clients is only as good as how this translates to the end consumer experience. The most successful programs are those where we partner with clients to map out the consumer cross-border payment journey, and where we share best practices in how to build this into the bank or fintech’s consumer facing platform. At the same time, an awareness needs to be created with both send and receive consumers in terms of the differentiating value proposition that the partner is targeting—be it speed (i.e. instant receipt of funds), simplicity (i.e. not needing a bank code and beneficiary address for every transaction), or user experience (i.e. the number of taps needed on the phone to make the transactions), all backed by a secured, trusted network.??

For more information on Visa Direct and remittances, click HERE

---------------------------------------------

[1]?Cross-Border B2B Payments, Online Quantitative research of 300 B2B decision makers. Australia. 2020.

*Actual fund availability varies by receiving financial institution, receiving account type, region, and whether transaction is domestic or cross-border.