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TerraPay: Expanding Digital Remittance Channels to Reduce Costs & Enhance Financial Inclusion

Across the globe, nearly one billion people rely on sending remittances to family or friends in other countries. However, remittance costs have risen to unnecessary highs. In Q4 2022, the average cost of sending $200 was 6.2 per cent – more than double the UN’s target (three per cent or under) for reducing all remittance costs.

According to Ambar Sur, CEO and co-founder of TerraPay, the cross-border payment platform, there are three main ways in which remittance challenges can be tackled. 

Expanding digital remittance channels to reduce costs and enhance financial inclusion
Ambar Sur, CEO and co-founder of TerraPay
Ambar Sur, CEO and co-founder of TerraPay

Globally, we’ve witnessed a surge in cross-border remittances – funds sent by a migrant to their home country across national borders – with a 13 per cent increase since 2022. Increasing migration flows, advances in technology and the globalisation of trade are some of the factors contributing to the sustained growth of remittances and they show no signs of slowing down; the value of cross-border payments expected to grow to $250trillion by 2027.

Remittances are critical to promoting financial inclusion and facilitating economic growth, although they can come with challenges. Typically, these channels are associated with high fees and lengthy processing times – disproportionately impacting vulnerable populations more than others.

However, these challenges are being addressed by the digitisation of remittances – leveraging technology such as mobile phones and internet platforms to offer a cheaper alternative to remittance transfers and broaden financial access. Here we look at the benefits of digital remittance channels, the challenges to adoption and how these can be addressed.

The value of digital remittances

Undeniably, digital remittance channels have played a crucial role in modernising and improving the efficiency of cross-border remittances. Previously, consumers faced various pain points including issues around high transaction costs, lengthy processing times and a lack of real-time visibility into their finances. These difficulties exacerbated existing economic disparities, disproportionately impacting individuals with lower incomes who faced higher proportional transaction costs and unfavourable exchange rates.

Now, the emergence and widespread usage of digital platforms, such as mobile phones and the internet, have served as crucial tools for expanding access to formal services and opportunities that were traditionally limited such as access to credit. In recent years, there has been growing recognition of the importance of financial inclusion in promoting economic growth and reducing poverty. Now, digital remittance channels have made it easier to send and receive money.

Globally, the benefits of improving cross-border payments are recognised. For example, a potential saving of $13billion could be made in Africa alone if transaction costs on international trade were cut by one percentage point.

Adoption challenges

Although digital remittance channels offer numerous benefits, as we move closer toward digitisation we still face complex challenges that impact effectiveness and adoption. For example, compliance with intricate regulations and diverse financial norms can prove difficult, given that they vary across multiple jurisdictions.

This point was highlighted in TerraPay’s report with UNDCF on studying the growth of digital remittance channels in Sub-Saharan Africa. It found that while there is a significant market for digital remittances, there remain barriers to adoption including various regulatory, distribution and payment infrastructure hurdles. To move the dial, we will need to see standardised licensing and supervisory processes to enhance competition and the quality of service received by customers.

Next, taking a step back, we need to remind ourselves that poor telecommunications, internet connectivity and technological literacy can hamper the use of digital remittance channels and prevent individuals from taking advantage of these advancements.

For instance, in Africa, although countries such as Egypt, Kenya and Nigeria have managed the transition to digital fast, others including Eritrea and the Democratic Republic of Congo have struggled to prioritise digital infrastructure, due to challenges around political instability. The onus is now on governments and businesses to widen access to telecommunication services, develop the appropriate infrastructure and policy frameworks to drive greater financial inclusion and the usage of transaction accounts.

Why do we need to prioritise the digitisation of remittances?

Undeniably, the digitisation of remittances is happening at a rapid pace, and we are seeing an increasing number of innovative services as a result. This new technological offering in remittances is supporting equitable development across the world and supporting global growth by providing fast and secure ways for people to send and receive payments.

Digital remittances can reduce transaction costs and make money transfers quicker and simpler is transforming the payments landscape. Going forward our priority should be to focus on how we can navigate the intricate regulatory landscape and encourage agreements amongst governments through policy and regulatory dialogue.

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