Forging a path towards inclusive, affordable digital remittances

I have worked in the world of payments for my entire career but hadn’t personally experienced the pain of international payments until I had to urgently send money overseas to my grandma. After trying three providers, I got lucky with a fourth one — if you can call this lucky: I paid nearly 6% in fees and my grandmother had to travel two hours to pick up the cash only to find the agent closed.

Now think of the experiences of the approximately 1 billion people around the world who either send or receive remittances and who have no idea how the payments ecosystem works. And more people are moving abroad to seek out new employment opportunities and using their income to support loved ones back home, with total remittance flows growing to $860 billion in 2023. This is an opportunity for the payments ecosystem to come together to help alleviate a pain point for people who need it the most.

Leaving your home, family and country behind in the pursuit of new opportunities is rarely easy or a decision people take lightly — often, it takes real courage and determination. We in the payments ecosystem have an opportunity — a responsibility, really — to come together to make this remittance process easier for the people who need it the most.

International Day of Family Remittances, adopted by the United Nations in 2018 and celebrated earlier this week, is a chance to recognize the significant contribution that migrants make toward supporting their families and furthering financial inclusion in their communities. But it should also serve as a reminder of what governments and our industry can do to better support these types of payments.   

Removing a painful friction

Remittances provide a financial lifeline to hundreds of millions of people around the world. In the case of Nguyễn Đức Thành, a car manufacturing worker from Vietnam who moved to Japan to pursue better career prospects, the money he regularly sends back to his elderly parents helps keep them afloat. “Families like mine, where parents lack a pension and have exhausted their income on their children’s education, can face major challenges in their later years,” he told me and my team. “Having an individual with a stable income to offer support to the rest of the family is crucial.”

Remittances also have a significant impact on at least 12 of the U.N.’s 17 Sustainable Development Goals, from promoting gender equality and better health and education to contributing to economic development and reducing inequality within and among countries. For example, a UNESCO study showed that remittances help increase the amount households in Latin America and the Caribbean can spend on schooling by between 23% and 83%.  

Unfortunately, when it comes to sending and receiving remittances, access remains a significant pain point. More than one-third of those surveyed in our Borderless Payments Report said their families back home have limited options to access the money they send. One in four told us their family must travel a long way to access their funds.

And of the $669 billion of remittances sent to low- and middle-income countries last year, more than half went to areas populated by unbanked or underbanked individuals who need a cash payout option. This adds a 4% premium to the cheapest digital alternatives.

Based on World Bank data, the global average cost for remittances was 6.39% in the fourth quarter of last year. Such costs are adding to the financial burden on struggling families, especially in emerging markets and lower-income countries.

Reducing costs is crucial to improving financial well-being and inclusion of migrants and their families. Lowering these transaction costs to 3% would lead to migrants' families in Africa — still the most expensive remittance market — receiving an additional $4 billion per year, according to the U.N. Some of the poorest countries in the world are paying the highest prices for receiving much-needed remittances.

The rise of digital solutions

The payments industry has been at the forefront of driving digital transformation, which is helping reduce costs significantly. Unlike traditional methods, digital remittance transfers eliminate the need for manual processing and related administrative expenses. They also benefit from having fewer intermediaries involved and reduce the expense of building and maintaining physical infrastructure like money transfer offices. Based on the same World Bank data, the cost of sending a $200 digital remittance was 4.96%. The average rate of sending via mobile operators was even lower, at 4.35%.

Beyond lowering costs toward the desired 3%, digital remittances also improve access and boost security.

Extending the benefits of the digital economy to more people is part of our mission. It’s why we developed our portfolio of money transfer solutions, Mastercard Move, and why we are constantly working with our partners to expand its reach, which currently spans nearly 10 billion endpoints around the world, including access to 95% of the world’s banked population across more than 180 countries and more than 150 currencies.

For example, we recently teamed up with Remitly, a leading digital financial services provider for immigrants and their families, and we are working with Paysend, a fintech, to enable unbanked users in Central America to receive remittances from the U.S. via instantly issued Mastercard digital cards.

Digital wallets have been key to helping people receive remittances faster, cheaper and with more transparency. Mobile money has skyrocketed thanks to increasing smartphone penetration, particularly in sub-Saharan Africa, the global epicenter for this form of payment, with around $2.3 billion transacted per day.

Governments around the world have a huge role to play in laying the foundations that enable the adoption of digital solutions like these. In Egypt, the Central Bank of Egypt and Egyptian Banks Company created Meeza Digital, a network to enable interoperable money transfers between digital wallets in real time, using Mastercard’s mobile payment gateway and Mastercard Move solutions. Digital payments have since exploded in popularity in the country and are expected to total more than $20 billion this year and reach nearly $31 billion in 2028.

Remittances will only grow in importance. It’s essential that banks, payment service providers and governments around the world work together to promote digital solutions that help empower both senders and receivers and build greater inclusion for all.