Remitting Money Home: Why is it So Expensive for Migrants and can Bill Payment help here?

A list of bills marked paid.

In today’s interconnected world, millions of people migrate for work, leaving loved ones behind. A crucial lifeline for these families are remittances. The World Bank estimates that migrants were remitting over $773 billion globally in 2022, with a significant portion going to low- and middle-income countries. While these remittances provide essential support for families, a hidden cost lurks – the fees associated with sending money home.

According to the BBC, the average global remittance fee sits at a hefty 6.2%. This might seem like a small percentage, but for many migrants, particularly those on low incomes, it translates to a significant chunk of their hard-earned money. The picture gets even bleaker in some regions. The World Bank reports Sub-Saharan Africa has the highest average remittance cost, hovering around 8.5%. Imagine a migrant worker, toiling long hours away from their family, only to see a substantial portion of their support eaten away by fees.

Breaking Down the Barriers: Why Remittance Fees Remain High

Several factors contribute to the high cost of sending money home. Here’s a closer look:

  • Regulation: Compliance with anti-money laundering (AML) and Know Your Customer (KYC) regulations adds complexity and cost for remittance providers. Verifying identities and ensuring the legitimacy of transactions can be expensive, especially in regions with limited digital infrastructure.
  • Competition (or Lack Thereof): The remittance market can be dominated by a few large players, leading to a lack of competition and potentially inflated fees. New entrants often struggle to compete with established players’ scale and brand recognition.
  • Cash-Based Societies: Many remittance recipient countries are still heavily cash-based. This necessitates physical locations to distribute the funds, which adds to operational costs for remittance service providers.
  • Correspondent Banking: Traditional remittance channels often rely on a network of correspondent banks to move money across borders. Each bank in the chain takes a cut, contributing to the overall fees.

Mobile Money: A Beacon of Hope (But Not a Silver Bullet)

The rise of mobile money has offered a glimmer of hope for reducing remittance fees. By leveraging mobile phone networks, mobile money providers can offer faster and potentially cheaper remittance services compared to traditional banking channels. The World Bank reports that sending money via mobile money can be 2-4% cheaper than traditional methods.

However, mobile money isn’t a panacea. Limited mobile phone penetration, particularly in rural areas, hinders its reach. Additionally, interoperability between different mobile money providers can be an issue, meaning sending money across different networks might still incur fees.

The Road to Affordable Remittances: Collaboration and Innovation

The UN’s Sustainable Development Goal (SDG) 10.c aims to reduce remittance costs to less than 3% by 2030. Reaching this ambitious goal will require a multi-pronged approach:

  • Regulatory Streamlining: Governments and international bodies need to collaborate on streamlining AML/KYC regulations without compromising financial integrity. Standardized procedures across jurisdictions can reduce compliance costs for remittance providers.
  • Fostering Competition: Encouraging competition in the remittance market can drive down fees. This might involve supporting new entrants and promoting innovative solutions like blockchain technology that can potentially streamline transactions.
  • Investing in Digital Infrastructure: Expanding access to mobile phones and the internet in developing countries will be crucial for wider adoption of mobile money and other cost-effective remittance channels.
  • Public-Private Partnerships: Collaboration between governments, financial institutions, and technology companies can foster innovation and drive down remittance costs.

The Human Impact of Lower Fees

Reducing remittance fees isn’t just about saving migrants money; it’s about empowering families. A World Bank study estimates that a 1 percentage point reduction in remittance fees could result in an additional $1.5 billion flowing to developing countries. This translates into more money for food, education, healthcare, and investment – all critical aspects of improving lives and fostering development.

The Call to Action: A Shared Responsibility

The high cost of remittances is a complex issue with no easy solutions. However, through collaboration, innovation, and a commitment to the UN’s SDG target, we can make sending money home more affordable for migrants. This, in turn, can empower families, boost development in low- and middle-income countries, and create a more inclusive global financial system.

What is BILRS doing?

At BILRS we enable customers to pay institutions directly, cutting out the middle man and providing confirmation directly that key life bills are looked after. Water, electricity, gas and internet are essentials in today’s society and BILRS connects globally to these and many more enabling remitters to pay directly. This has two key effects, the first being it’s more efficient, driving costs down for the remitter and the second the convenience of saving time and effort on the receiving end. Cutting out the middle man means you can be more efficient in how much money you need to remit home, keeping money in your host country can also have a significant impact on your own quality of life. Paying bills directly particularly, in rural communities, can save many hours. For our customers also, direct bill payment is an incredible powerful way of driving ongoing monthly engagement, these are not luxuries so delivering a great customer experience is a powerful way of keeping thees customers in your ecosystem.

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