Digital channels may help stem global remittance slowdown

Digital channels must be encouraged to mitigate potential slumps in cross-border remittance flows amid the ongoing pandemic, speakers said during a technical webinar co-hosted by AFI and the UK’s Department for International Development (DFID) on 11 August.

Cross-border remittances are an important contributor to economic growth and sustained financial inclusion with countries within the AFI network receiving more than USD380 billion in 2018 alone. But as the fallout from COVID-19 continues to spread, experts forecast a drop in global remittance flows by as much as 20 percent due to loss of income, movement restrictions and the hibernation of agents.

Despite this negative outlook, AFI Deputy Executive Director Norbert Mumba remained confident. He reminded the webinar’s 120 participants – including member institutions, peers from developed countries and private sector stakeholders – that the ongoing situation “presents an uncommon opportunity for regulators to address longstanding challenges and proffer policy solutions to ensure an efficient, affordable, and inclusive remittance ecosystem”.

Digitalization and innovative technologies, Mumba explained, can shape cross-border remittances, sustained financial inclusion and broader recovery from the global emergency. However, progress will be defined by the leadership and guidance of policymakers and regulators as countries work towards recovering from the ongoing economic downturn, particularly its impact on vulnerable groups, including women, elderly, informal sectors, and micro, small and medium enterprises.

“The digitization of cross-border remittances should, therefore, remain a high priority on our agendas, specifically the use of proven digital financial services (DFS) solutions – such as mobile money services and other such innovations – to reliably offer an affordable, convenient, secure and efficient way of sending and receiving remittances,” AFI Deputy Executive Director said.

Bank of Ghana’s deputy head of payments systems, Clarissa Kudowor, reiterated the seismic potential of digital innovations, particular for women excluded from formal financial services, noting that some felt safer using mobile money as avenue for greater financial independence and privacy.

“[DFS] has provided fertile grounds to close the financial inclusion gender gap,” she said, adding that informal money transfer services, such as hawala, had left some women exposed to fraud.

State Bank of Pakistan’s head of Pakistan Remittance Initiative, Moinuddin Sb, concurred with the sentiment when he spoke of how local banks had been encouraged to raise awareness of digital channels for sending and receiving remittances. This, he said, had led to aggressive marketing campaigns involving lucky draws, prize giveaways and domestic television advertisements.

“Access to financial services is an important factor in ensuring the smooth flow of remittances. This is the right time for banks to promote digital channels and … remittance products to customers not only to improve efficiency in remittance ecosystem but also accelerate much-needed financial inclusion among migrants and their families,” he said.

Amid such incentives, digital remittances for mobile wallets jumped more than 300 percent to PKR1.14 billion (USD10.8 million) in the second quarter of this year compared with PKR490 million in the previous quarter.

From one of the world’s largest remittance-receiving jurisdictions to one of its top remittance senders, Bank of England’s senior financial technology (FinTech) specialist and international lead, Cormac Sullivan, said he was heartened to see specialist FinTech firms, including cross-border payment firms and digital banks, engaging more with customers.

In outlining his institution’s goal, he emphasized how the central bank encouraged competition and moves away from “central points of failure” as a means of strengthening resilience while also ensuring financial integrity by maintaining regulatory standards.

“You can give a short-term boost by lowering regulation, but if it’s at the expense of financial stability and you have firm failures and consumers left out of pocket, then you will not achieve your policy goals and effective financial services,” Sullivan said, referring to non-bank access to settlement accounts.

He added that the Bank of England aimed to regulate activities rather than technology, meaning that the “same activities should be subject to the same regulation”. He also emphasized how financial regulators must promote digital literacy to the wider public to build capabilities and encourage the overall financial health, particularly given the complex nature of sector policies.

Further underlining visibility was Yemi Oluwakuyide, remittances lead at the DFID, who noted the importance of better data in improving the “understanding of key informal channels and the support that we can provide, specifically on digitalization”.

Oluwakuyide also shared the details of a Call to Action launched in May 2020 by the governments of the UK and Switzerland, in partnership with the United Nations (UN) Capital Development Fund, World Bank Global Knowledge Partnership on Migration and Development, International Organization for Migration, UN Development Programme, International Association of Money Transfer Networks and the International Chamber of Commerce. While encouraging countries to sign up, he explained that the initiative addresses the slump in remittances caused by the COVID-19 crisis and urges policymakers, regulators and remittance service providers to support and encourage the flow of global remittances amid the ongoing crisis.

From the perspective of cross-border payment providers, Crown Agents Bank’s chief commercial officer, Steven Marshall, urged regulators to reexamine the potential of aggregators in streamlining remittance services. He shared his experiences and how central bank approval to support international money transfers typically took between six weeks and 18 months.

He also asked central banks to take the regulatory lead in mobile money and promote interoperability between mobile networks and bank transfers.