Remittance flows are lifelines for migrants and their families in need. They are also one of the main sources of income for developing countries and play a crucial role in their economic survival. With the class of global citizens getting crowded and the gig economy passing $340 billion in 2021, the finance industry needs to make sure that remittances safely continue flowing through legitimate channels rather than dangerous, informal ways of transferring money.
The businesses that provide remittance services for a fee to migrant workers and their families, known as remittance service providers (RSPs), are crucial to the continuation of remittance flows. However, they are facing significant problems that are not effectively dealt with yet, but are rather constantly ignored by the finance industry.
There are four common problems of RSPs that come forward:
A survey conducted by the International Association of Money Transfer Network (IAMTN) and the United Nations Capital Development Fund (UNCDF) in 2020 shows that when asked about new initiatives in response to COVID-19, RSPs highlighted the need to scale up digitization. After the harsh results of the pandemic, RSPs recognized the need to develop their digital offerings and innovations. While some have focused on developing apps, some have started exploring novel partnerships with digital solution providers in sending and receiving countries to decrease the high costs resulting from manual operations and increase their resilience.
RSPs are working on their part, but they must not be left alone to deal with the inefficiencies of the current financial system on their own. The global financial services industry is converging in itself, becoming more connected and complex day by day. This means that each player's effect on the other and the global economy is doubled up, and ignoring the existing problems is no longer an acceptable way of dealing with them.
Dialogue between RSPs, banks, and regulatory authorities must be efficiently promoted to take tangible steps towards coming up with practical solutions. Strong partnerships with innovative fintech companies and collaboration of all stakeholders within the industry are keys to tackle the decades-long problems RSPs are facing.
You can read more about Remittances in our article What Are Remittances and Why Are They Important?