Globally, over 200 million migrant workers, working in 40 countries across the globe, transfer money back home to their families in 125 countries. Here, it is noteworthy that Asia accounts for around 35% of global payment flows. According to Mckinsey’s Global Payments Map, the region accounted for over 40% of more than $200 billion of global cross-border payments revenues in 2021. The South Asian region is home to many developing countries and remittance is a lifeline for a majority of these growing economies. The money received is spent by family members on essential items like food, health, education, etc. in rural and remote areas which are still underbanked or financially excluded.
The importance of remittances as a driver of financial empowerment has been recognized globally, however, challenges still remain. The high cost of sending money, informal flow structures, strict regulatory measures and processes, and the requirement of multiple documents make small-value transactions for migrant workers highly unattractive and cumbersome. According to the World Bank, the importance of the reductions in the cost of cross-border payments cannot be understated as for every 1% drop in remittance prices, around $6.89 billion becomes available annually to migrant workers.
It is encouraging that global actions are being steered to bring the transaction costs down which include aims such as boosting competition in payments, global price targets for retail payments of 1% of transaction value and no corridor costs to exceed 3% by 2027 and others. Making the entire process seamless with the help of digitalisation and technology can not only bring the costs down but also offer a better user experience. Thus, it is imperative to eliminate the existing bottlenecks, bridge gaps and remove inefficiencies in cross-border payments to ensure a smooth flow for better financial inclusion.
Fintech is the way forward
No one would disagree with the fact that digital technologies carry the potential to shape the future of cross-border payments and drive financial inclusion in South Asia. Fintech can support the expansion of financial services in areas that are underbanked or unbanked and help to do away with challenges like high transaction fees, hidden charges or complex pricing models for cross-border payments.
In addition to formalising informal remittances, it can provide financial services to people living in remote or rural areas. The digital tools can garner and analyse data to produce insights that help with a better understanding of customer needs and behaviors, and as a result, alleviate the pain points and improve the overall experience.
Many migrant workers are hesitant about the risks involved in conventional cross-border payment systems and rely on carrying cash or informal routes to send money home. Digitalisation can ensure safety nets and necessary checks to build trust and credibility in cross-border payments. At TerraPay, we deliver cross-border payments transparently and efficiently in the South Asian markets with a success rate of 99%. We guarantee complete transparency in fees and foreign exchange charges, ensuring customers know the exact amount they will receive without any hidden costs or surprises.
Digitalisation of domestic payment delivery systems, compliance screening, regulatory reporting, data storage, and communication can result in greater convenience, speed, and security in transactions, deepening financial inclusion in South Asia. Integrating new technologies such as blockchain in the financial ecosystem and innovative solutions like Central Bank Digital Currencies (CBDCs) can bring down the costs of cross-border payments and speed up last-mile fund distribution.
Deeper internet penetration, higher smartphone adoption and technological advancements have contributed a lot to better financial inclusion in the South Asian region. And now, faster, more affordable and accessible cross-border payments backed by reliable technology can expand the benefits of fintech to migrant workers and their families, support economic growth, facilitate global trade and development, and lead to financial inclusion and empowerment.