Small value remittances, commonly known as micropayments, are transactions which are considered too tiny for traditional payment methods, and yet ignoring these tiny payments is bad for business.
This assumption did not rear its head last week, but rather a couple of years back when credit card companies refused to process an amount remitting in cents and money transfer services did not accept them as ‘value enough.’ This issue gave birth to a concept that small value money transfer solutions should exist for easy and affordable remittances.
There is no point in hiding that small value transactions make economies run, the world over. 30 cents charged here, Rs. 80 invoiced there, 60 Takas sent here and there… This is what makes the economy run. If cross-border and domestic payment systems ignore this, then we are essentially cutting out a very large swath of businesses who cannot transact.
Here we all come to a standstill because to make a small value remittance, you incur an unexplainable high-cost, not to mention the irksome minimum threshold each money transfer service sets for person ABC to send across money.
Here is an example a freelancer faces for his efforts on a popular platform whose USP is small value services:
The said service has a minimum withdrawal threshold ranging from $5 to $20 depending on the method chosen. Of course, there is a withdrawal fee attached to this amount on top of this.
The sad state does not end here; each of these withdrawal methods have their very own minimum payout that is usually set at $50. See the problem here? Not only does the freelancer have to wait to collect a certain amount before he/she can withdraw money, but before it can be used as cash, there are other hoops to jump through and minimum thresholds to meet. Also, yes, all these have fees associated at each step.
Here is another example; online advertisement. An agency is paid $0.25 for every thousand impressions, which makes one impression worth $0.00025 – now this is a real micro charge! Moreover, while $0.00025 may not seem much, but with a few thousand impressions, this very $0.25 would over the course of several weeks / months quickly result in a substantial amount, once that is pocketable or spendable.
Also, it is just not cents; a micro charge could be in the form of credits, loyalty points, bitcoins, virtual token, ads and even access privileges! Our traditional methods fail to capture and process these charges because the transaction cost is larger than the value of such a remittance.
So, then why not create an alternate and new money transfer solution for cross border payments? Why set a minimum payout value?
It is because of these hindering factors that people think twice before making a small value money transfer. Also, just for the record, for a minimum wage earner, small value remittance and small value payments are extremely important.
It does not really matter whether these small value remittances are made across continents, countries or cities, the hurdles cannot be ignored or pushed aside. In fact, it is a billion-dollar unchartered territory, the one who digs out the solution for a seamless and affordable micro payment, would surely earn millions! However, for now, what we have is a half-baked solution commonly known as mobile money transfers – the only problem with them is that they are usually within the same country. They are useful to the core, but limited within the confines of a country.
It is not like small value remittances are impossible. TagCash offers a micro payment solution for real money, but the transaction fee is between 2% – 5%. Similarly, Dwolla uses ACH network for fund transfers that no doubt makes the remittance slow but at least any small value money transfer below $10 is free; but then again, it is limited within one single country only.
Need Of The Hour
A working solution needs to be in-place for small value remittances because these days many businesses are conducted online, and teams are managed remotely. Such companies would then be able to pay their freelancers, partners, bloggers or business associates, wherever they are in the world, easily without encountering high fees. Small value remittances are already taking place amongst individuals and the solutions in place need to be explored to include businesses as well. Lastly, the remittance market is awaiting a revolution. The ability to remit money affordably in ‘sachets’ would unlock latent market potential and enable a range of use cases. A parent, for instance could send a gift of $20 to their child, anytime, anyway and almost anywhere in the world.