The human impact of cross-border remittances
How digital inclusion can alleviate global poverty — and what policymakers can do to help.
When I was growing up in El Salvador in the 80s, people living in extreme poverty were defined as those “who spend their daily purchasing power on food and still go to sleep hungry.” Today, the definition is a function of daily income indexed to US Dollars. Based on World Bank data, from 1990 to 2015, the global rate of extreme poverty - living on less than $1.90 per day - dropped an average of one full percentage point per year — from nearly 36% to 10%1. A factor in this decline is the fact that, during the same period, the accumulated value of worldwide remittances to low and middle income countries (LMICs) was $4.7 trillion2.
In 2019, the total value of remittances sent by some 200 million migrant workers to their home countries was a record $706 billion — $554 billion of which went to LMICs3. In 2021, remittances to LMICs are projected to reach $589 billion4. Remittances also more than tripled the value of official development assistance to LMICs5. And despite predictions a potential downturn at the onset of the pandemic, remittance flows declined less than 2% for 2020, an amazing testament to the resilience of migrant workers6.
I expect demand for digital remittances to increase in a post-pandemic world. A recent U.S. Visa study found that almost a quarter (23%) of surveyed U.S. adults have sent money from the U.S. to another country already, and 15% of total U.S. adults surveyed plan to send money to another country within the next year7.
These figures hold true even though the process of sending remittances can still be fragmented — in terms of technology, economic models, providers, and user experiences. Immigrant workers depend on a multitude of remittance methods, providers, intermediaries, agents and channels to provide financial support to their families every month.
Behind the millions
In the abstract, the hundreds of millions of dollars migrant workers send cross-border to their families each year is striking. In the concrete, though, behind those figures are hundreds of millions of individuals — hard-working people doing their best to make sure their loved ones have what they need. Globally, it is estimated that 800 million people receive remittances8 to pay for things like food, utilities, and education — and the method for doing so has not always made it easy.
Personally, I’m intimately familiar with the challenges of sending cross-border remittances to family. In 2000, I immigrated to the US to take a job with Citibank. Eight years later, my career took me to Spain and later to Singapore. During the first few weeks in any new country, “How do I send money back home?” was a recurring question. The answer, though, has rarely been the same in any two places.
I have been in supermarkets, filling out seven forms and waiting for the cashier to confirm the transmission. I have visited bank branches to physically identify myself with national IDs so that a transaction could be initiated. I have gone to small remitters that guaranteed better foreign exchange rates. And I have used several apps and websites.
As a consumer, my decisions were always driven by the speed, cost, and security of the remittance. But every user experience left me with some degree of stress and frustration. The larger remitters were limited by the technology of that time. Of course, things move faster now with new fintech remitters accelerating their digital transformation. Despite much technological progress, there is still room for improvement — for user experience to improve and costs to fall. And at Visa, we’re doing our part, with Visa Direct bringing global scale, security, and efficiency to cross-border P2P payments, helping enable real-time payments for gig workers and some of the best-known P2P apps. In partnership with global remitters, Visa Direct helps enable digital remittances by simplifying cross-border payments, creating new opportunities for financial inclusion and wealth building. One example is an announcement we made earlier this week with the Canadian Imperial Bank of Commerce (CIBC) and Simplii Financial who are using Visa Direct Payouts to enable cross-border remittances and B2C payouts as part of their Global Money Transfer service.
The high cost of remittances
Digital remittances are making real progress on costs in many areas, but still, barriers remain9. For instance, regulatory requirements may lead to entry barriers for new providers who might improve user experience and provide transparency to money movement.
Digital inclusion as the new urban migration
During the industrial revolution the mass migration was to urban areas—areas with large factories that offered steady work, affordable housing, electricity, better living conditions and the opportunity to prosper. In the digital revolution, people are looking for connectivity and technology. Where you are doesn’t matter as much, so long as you’re connected.
The best contribution the ecosystem can make is to accelerate financial inclusion, a core component of which is streamlining the process of digital remittances.
Want to learn more about how Visa is powering cross-border P2P remittances? Check out Visa Direct.
2 Data downloaded from https://www.knomad.org/data/remittances
3 COVID-19 Crisis Through a Migration Lens. Migration and Development Brief, no. 32. https://openknowledge.worldbank.org/bitstream/handle/10986/33634/COVID-19-Crisis-Through-a-Migration-Lens.pdf?sequence=5
4 Remittance Flows Register Robust 7.3 Percent Growth in 2021 (worldbank.org)
7 Visa Remittances Landscape Survey by Morning Consult (US, 2200 adults) Dec. 3-6, 2021
9 See, for example, “The rise of digital remittances” from the Visa Economic Empowerment Institute. https://usa.visa.com/content/dam/VCOM/global/ms/documents/veei-the-rise-of-digital-remittances.pdf