The value of the global money transfer market reached over $700 billion in 2020. The COVID-19 pandemic did not cause as much of a significant slump in transfers as experts initially predicted, and in the following years the industry should grow at a rate of several per cent annually. However, the market is facing a lot of challenges, including how to offer multiple ways of sending and receiving funds, lowering transaction costs, and increasing the security of transfers.
According to World Bank data, the global money transfer market in 2020 was worth over $700 billion. In turn, Allied Market Research forecasts that this market should reach a value of over $930 billion in 2026, with a compound annual growth rate (CAGR) of 3.9 per cent. The digital remittance industry alone has growth prospects at a rate of 13.3 per cent annually to reach over $42 billion in 2028 (Grand View Research). The economic situation should be driven partially by economic migrants who leave their homelands to find better-paid jobs and want to financially support their families back home.
According to the World Bank, the countries that received the most remittances last year were India (USD 83 billion), China (60), Mexico (43), the Philippines (35) and Egypt (30). Looking at the statistics of individual regions in the world, remittances grew in Latin America, South Asia, the Middle East and North Africa. Weaker performance was recorded in East and Central Asia, the Pacific region, Europe and sub-Saharan Africa.
“The money transfer market is looking promising. The number of expats in the world is constantly growing, access to mobile services is also increasing, and online financial transactions are already standard in most regions. Digitally sent money has many advantages, which is being realised by the governments of many countries while promoting non-cash transactions. As long as money transfers become cheaper, more secure and available via many digital tools, these services will reach millions of users,” said Evgeny Chamtonau, CEO of Spoko.app.
The pandemic did not end up having as much of a negative impact on the global remittance market as initially expected. The detrimental impact of COVID is estimated to have been weaker than during the most recent major economic crisis, which ended in 2009. The market is expected to return to growth this year, with remittances to less affluent and middle-affluent countries expected to increase by 2.6 per cent in 2021 and by 2.2 per cent in 2022.
Users of the money transfer market still see potential for development, e.g. in unbanked people who do not have access to banking services. According to World Bank data, in 2017 it was 1.7 billion adults.
Still many challenges facing money transfers
“Users expect flexibility above all. They need a simple solution that allows them to choose the right payment method for instant money transfer, regardless of the country of sending or receiving the funds. Our app offers expats an opportunity to use local payment methods that are most convenient and familiar to them. It is also important to gradually reduce transfer costs as they are still often very high. Every year, expats who send money to their families on a regular basis give away significant sums, which should change,” adds Chamtonau.
According to data from FTI Consulting, almost half of Europeans prefer local payment methods. Looking at individual countries, in the Netherlands, Sweden, Finland and Poland, the most popular are payments made through bank accounts, while in Germany, Spain and Italy, users prefer digital wallets (eWallet).
Access to technology is associated with increasing competition, and this can help meet another challenge – high transfer costs. Although the trend is declining – according to the World Bank, transfer commissions have fallen from an average of 14 per cent in recent years to 6.5 per cent, there are still some companies on the market that charge a dozen or so per cent commission on transactions. On the other hand, there are companies that offer commission-free transfers to selected countries. This includes Spoko.app when it comes to transfers to Nigeria, Ukraine, Brazil and Turkey to help users send money to their families.
The future of transfers
Could anything new happen on the money transfer market? Cryptocurrencies, which are increasingly used in transfers, can be a breakthrough. However, until they are widely accepted as an official method of payment and become equal to money, this area will not be able to develop at a faster pace.
One thing is certain. More and more transactions are being made fully online. Cash is still used, but its importance is slowly declining, especially in developed countries, where digital economies are being created with ecosystems of cashless transactions. Technological development and access to mobile solutions is where we are headed, and this will drive the global transfer market.