The shift to digital money transfers during COVID-19, is a permanent revolution
While many remittance shops have had to close their doors during citywide lockdowns, people all over the world were still sending money to friends and family across borders. According to the ‘Lost in Transaction’ report published by Paysafe, almost a third of consumers globally said they transferred money overseas during the first month of lockdown, with 43% saying they minimised the use of cash due to health concerns.
Digital wallets and other online services for sending money are fast becoming the preferred alternative to sending cash transfers. Especially considering that the global restrictions on movements are showing no signs of being loosened, the ability to send money to anywhere in the world quickly, conveniently and COVID-safe is critical to keep remittances flowing in the right direction.
The massive shift to digital is not exclusive to remittances, as COVID-19 has kickstarted digitalisation across many industries. Brick and mortar retail shops are creating e-commerce capabilities to reach customers using blended online to offline models such as ‘click & collect’; local neighbourhood restaurants restricted to takeaway orders are tapping into networks of delivery apps; and the events industry is replicating the experience from attending conferences in person to meeting people in virtual spaces.
What is exclusive to digital remittances as opposed to digital events for example, is that sending money digitally gives people a far better experience.
Cutting transaction fees with digital money transfers
According to the World Bank, in 2019 a record of $554bn was sent to low- and middle-income countries exceeding both foreign aid and foreign direct investments received during the same year. Altogether, payments like these support over 800 million people across 125 countries, accounting for more than 10% of gross domestic product (GDP) in over 30 countries. Still, there is a lot of room for improvement which is where digital technology comes into play.
Each year, about $200bn worth of fees is spent to send money across borders. The average global fee for sending money stands at 6.7% as reported by the World Bank, ranging from an average 4.92% in South Asia to 8.71% in Sub-Saharan Africa. Mainstream banks remain the most expensive way to send money with fees averaging 10.57%. They simply prefer to deal with larger customers and as a result the cross-border remittance market remains underserved. In the banking world, the less money you have, the more expensive it is to send money back home.
Turning to digital channels, we have the power to change all of this. On digital platforms like N2Xpress, sending smaller amounts of money is entirely possible without spending most of that money on fees. We offer people digital wallets that they can load once at a single fee, and from there they can send any amount of money to any number of people free of charge. It’s a new model that’s only possible using digital money transfer services.
The shift from cash to digital also gives customers the added benefits of increased speed, security and transparency. On regulated platforms, you are required to go through Know Your Client (KYC) verification procedures, funds and transactions are protected using bank-grade security, and you know exactly where your money is at all times.
Increasing reach on the receiving side
Fully digitising money transfers only works if people on the receiving side have the means to connect to the service. The rise of mobile banking solutions in the recent years is making a big difference in increasing financial access, but it has not yet tipped the scale in favour of digital transfers.
Instead, we’ve seen alternative channels such as mobile money in the form of airtime being used as a means to receive money digitally. On our platform, we are taking that approach one step further giving people the ability to pay for bills directly instead of sending money.
Through strategic partnerships, you can use N2Xpress to pay for utility bills, phone bills, tuition fees, home deliveries and even tax bills. Besides making digital transfers accessible to more people on the receiving side, we also like to think of it as a way to make money transfers even more meaningful. Instead of sending money, send favours, gifts, and gestures.
The shift to digital is a permanent revolution
The remittance industry has long been on a journey towards digital. The old ways were simply too slow, expensive, and exclusive. But for the entire industry to make that change has taken a long time, and the impact of the COVID-19 pandemic and the new way of living it has forced upon us has shortened that journey dramatically.
Perhaps in a few years when the pandemic is behind us some people might prefer to go back to sending money the way they used to. Old habits die hard. But it’s safe to say the majority will stick with digital remittances considering all the benefits it has to offer.
The permanent shift to digital money transfers means we will be able to increase the reach of global remittances while at the same time lowering the costs for everyone involved. We are on a mission to make that happen sooner rather than later, making money transfers more meaningful for people living in between countries.