The remittance market is made up of banks, post offices and money transfer operators that help people send a flow of money typically across borders. Usually, this flow of money comes from migrant workers who send a portion of their wages to their home country to support their families.

The amount of money in this market has been steadily growing, with some fluctuations, over the past 25 years. The majority of this money flow has typically been handled by banks.

The choice of which organization to use to send remittance is an important one, as the worker’s family is likely  highly dependent on the money being sent. With migrants spending on average 15% of their wages as remittance,and with an average global cost of transfer still as high as 6.82% it makes the decision on who to use (banks or money transfer operators) that much more important, since every cent saved counts. 

Why the attraction and interest in Philippine’s remittance market?

A digital upstart is a new business venture that either solely or mainly sells its services online. Globally, there are now 4.66 billion internet users and that number is growing, so more people than ever before are now likely to create or be using a digital upstart.

As said above, the majority of remittances are managed by banks. However, remittances can also be managed by money transfer operators. A firm can set up this type of online service if they have secure access to the internet, certain software, access to a deep pool of foreign exchange, knowledge about the remittance market and proper licensing and KYC/AML approvals. Having a large number of employees is not needed for the business to work, making it attractive to fintechs who operate on a lean employee base by definition.

A $30 billion market is naturally going to cause people to pay attention to it. Where there is the possibility of making money, people will follow. The average cost of sending remittances is 6.82% and if you take 6.82% of $30 billion, you get $2.046 billion. There are many people who would want to have a share of that $2.046 billion, and try to do so by setting up their own transfer service. The fact that the amount of money in the market is still growing also helps to make the remittance industry look attractive.

Banks are not only the most popular way of sending remittances, they are also the most expensive way. On average, the cost of sending remittances through a bank is 10.9% of the amount sent. With more alternative methods making themselves known as the cheaper option, it is likely that people will shift away from using banks, so that as much of the money can go to their families as possible. However, banks may continue to remain the most popular due to people finding it easier to trust banks.

Is this a good or a bad thing for the market?

One advantage of having more digital upstarts join the market is that there is more choice for customers, who will be more likely to find the service that best suits their needs. This is good for customers but bad for businesses already involved in the market, who may find that they are losing a significant portion of their customer base. Businesses losing customers may struggle to keep their prices low because their existing funding structure does not allow them to.

More competition from an increased number of businesses could lead to businesses trying harder to make their services more appealing to customers, possibly by decreasing their prices. Also, older businesses would probably update the way their service works to keep up with all the new businesses. This means that the remittance market would keep adapting to any changes in the world that could affect the way that remittances are sent. 

One of the disadvantages of the fact that online money transfer operations have become evermore popular,  is that it leaves people more vulnerable to scammers. Some of this vulnerability is due to scammers being able to set up their own business, which look like legitimate online remittance sites. Another source of vulnerability also comes from new online remittance businesses that may want to make their services more attractive by making it easier to send money, conversely making it easier for scammers to trick people into sending them money via phishing attacks on the site, or utilizing identity theft techniques.