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Beyond the Transaction: Every Transaction Has a Story
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Too Much Cash and Cost in Remittances

Over 215 million people around the world live outside their home country and send, or remit, money home.  Of the $420 billion currently sent as remittances, almost half of it is still conducted as cash to cash transfers.  Governments around the globe are pushing for greater efficiency in cross-border remittance transfers, and broader use of electronic payments can help them achieve this objective. 

South Africa is a great example of the problem.  A World Bank study found that sending money from South Africa costs on average 20.7%!  That’s enormous for anyone to pay let alone for people that are living in poverty.  Many transfers are made in cash to boarder countries like Zimbabwe through taxis at very high risk, and the Treasury has expressed that this as a key concern they are looking to address.                                                                    

The key to lowering cost is competition and broad access.  Regulations that restrict non-bank service providers and innovative products like prepaid or mobile keep the costs high.  This happens even where electronic payments are available because banks and MTOs have little incentive to go beyond the traditional products and people they serve.  Considering that 40% of global remittances are sent to rural areas where distribution networks are often poor, electronic solutions become even more critical.

Global Forum on Remittances 2013

We recently attended the Global Forum on Remittances hosted by the UN agency IFAD and the World Bank where I was asked to speak about the importance improving competition by eliminating regulatory barriers and driving innovation. As a network of networks, MasterCard can help achieve interoperability between systems and provide consumers with the choice of innovative electronic payment options driving usage away from cash transfers.  It was great to also hear from government leaders, NGOs, and FIs, who all agree that we need to create solutions that make remittances more transparent, efficient and secure. 

Remittances will be an important in-flow that helps create the payments ecosystem and drive usage.  That’s why initiatives from our partnership with Western Union to the recently announced Nigerian ID program are so important.  Each program improves the ease of access to electronic accounts that drive lower cost remittances which in-turn attract new customers and, ultimately, create financial inclusion … Exactly what governments want!