In a small village in Bangladesh, Ayesha, a mother of two, waits eagerly each month for the remittance her husband sends from overseas. This money is vital, helping to pay for her children’s education, medical bills, and daily living expenses. Yet, traditional ways to send money are slow and expensive, eating into the precious funds that Ayesha’s family depends on.
Ayesha’s story is not unique; it reflects a global phenomenon where millions depend on diaspora remittances as a lifeline. In 2023, global remittances reached a staggering $860 billion, highlighting their critical role in poverty alleviation, gender equality, and economic stability for families and countries alike.
The role of cross-border payments in meeting UN Sustainable Development Goals (SDGs)
Billions of people across the world – especially women like Ayesha who live in remote and geographically challenging areas – remain unbanked even today. Burgeoning populations in Sub-Saharan Africa, Southeast Asia, and other such regions are being poorly served by a financial system where it is difficult and expensive to move money the traditional way.
People in these regions are desperate for financial services that cater to their unique circumstances, craving the dignity of being recognized as consumers with rights rather than subjects of charity. Easier access to remittances can give these people more control over their finances. Ayesha could be in a better position to make decisions and investments that benefit her family and her community. As this story repeats in households across Bangladesh and beyond, these remittances can become a powerful force for change, supporting education, healthcare, gender equality, and overall economic stability in communities.
To democratize financial access and transform these passive recipients of aid into active participants in the economy, we need to draw inspiration from practical, consumer-oriented solutions. Take consumer goods companies, for example, which tailor their products to meet the economic realities of their customers. These companies don’t sell two-liter bottles of shampoo in remote areas; they sell a small, one-time-use pouch at a fraction of the cost. The question is, can we do this for financial services – offer financial products in accessible, small-scale transactions – without shaving off a big chunk of the money in transaction costs?
The high cost of remittances remains a barrier to financial inclusion
Despite their significance, the cost of sending remittances remains intolerably high, with banks being the costliest channel for fund transfer. While the UN is targeting 3% as the average cost of sending $200 by 2030, there is a lot of ground to cover. Today, on average, it costs $12.50 to send $200 to a low- or middle-income country , and in regions like Africa, the cost can be anywhere from 12% to 30% of the transaction. And if you are sending money from Türkiye to neighboring Bulgaria, you will end up paying a fat 50% of the funds as transaction fee!
These high costs – a consequence of an outdated financial system characterized by a preference for the affluent and exacerbated by multiple currency conversions and regulatory hurdles- are particularly burdensome for the poor, acting as a significant barrier to financial inclusion. If we could make it just five percentage points cheaper to send remittances, nearly $30 billion a year could be saved to benefit migrants and their families.
Digitizing and formalizing remittances for sustainable development
Today, we have the technology to split a meal with a friend and transfer a share of the cost in seconds. We can pay utility bills with a few taps of a smartphone, knowing that the funds will be transferred that same day and with no hidden charges. Money moves at the speed of data. So why can’t it move with the same speed across borders?
Digital cross-border payment solutions can make remittances faster, more affordable, and reliable, ensuring that more money reaches the hands of those who need it most. In addition, digital platforms’ ease of access helps formalize remittances, bringing them into the regulated financial system and creating greater security and transparency for both senders and receivers.
At TerraPay, we have built an infinitely scalable solution that optimizes cloud computing costs, regulatory expenses, and operational efficiencies to serve the needs of billions of people. This has helped us make significant strides in digitizing remittances in Africa. In 2022 alone, we facilitated over 9 million remittance transactions to Sub-Saharan Africa.
Our approach is unit size agnostic, cost agnostic, and margin agnostic, focusing instead on creating a network effect by establishing a wide range of endpoints. We are building a strategic “network of networks,” digitizing it and seamlessly integrating it with major financial systems to enable frictionless movement of money, even in remote and difficult geographies. This model not only facilitates easier and cheaper remittances but also promotes financial inclusion by enabling access to financial services for people who were previously considered outside the reach of traditional banking.
Navigating the regulatory landscape for frictionless cross-border transactions
Regulatory oversight in international finance plays a critical role in ensuring economic stability, preventing money laundering, and protecting consumers. However, regulations vary dramatically from one country to another, creating a patchwork of legal requirements that fintechs must navigate to enable seamless remittance flows on a global scale.
As the only payment provider regulated in 30 global markets, TerraPay’s approach to simplify the movement of money while staying compliant follows three key principles:
- In-depth regulatory insight: Develop a deep understanding of regulatory environments in the target markets to ensure compliance at every step of the transaction process.
- Strategic partnerships: Cultivate strategic alliances with banks, payment gateways, and mobile money providers that adhere to local compliance standards to ease regulatory processes in new markets.
- Technological innovation for compliance: Leverage advanced algorithms and machine learning models to automate regulatory compliance, identity verification, etc.
Partnering to create a more inclusive world
The market for digital remittances holds considerable potential, yet its expansion is hindered by a range of obstacles, including regulatory, distribution, and payment infrastructure challenges. To create a significant impact in this space, we need a quasi-public-private partnership with concerted efforts from governments, regulators, and financial institutions to create a more cohesive and supportive regulatory environment.
Digitizing cross border payments is about more than just enabling financial services; it’s about enacting a systemic change that uplifts communities with dignity. By reimagining the possibilities of digital finance, we are not just offering a service but championing a movement towards a more equitable and inclusive world.