India receives the most remittances in the world, followed by China, Mexico, the Philippines, and Egypt. According to the World Bank, the country will receive $87 billion in 2021, an increase of 4.6%. The United States was the largest source, accounting for more than 20% of these funds. Cross-border remittances are transactions that take place between individuals, businesses, banks, or institutions in at least two different countries. Remittances have become faster, safer, and more affordable as global migration and technology have increased.
Multiple levels of verification in each country are one of the steps in the process for such payments. "International transactions involve several levels of currency exchange, foreign transaction fees, and dealing with the exchange rate." "The entire process involves technology, and in recent times, technology in cross-border remittance has evolved significantly to offer a better user experience and reduce money laundering," says Naushad Contractor, founder and CEO of Fable Fintech, a fintech company specializing in cross-border remittance technology.
Remittances can take many forms, from funds transferred through 'formal' or regulated institutions or channels (banks, neobanks, financial institutions, and money transfer operators) to funds transferred through 'semi-formal' and 'informal' channels (hawala, cash carried in person, in-kind transfers).
Fintech companies and cryptocurrencies are revolutionizing the way technology is used. Such transactions are frequently high in volume but low in value. “ In many cases, the formalities, paperwork, and so on that are required for a 'transaction type' are the same regardless of the amount. As a result, high-value transactions become profitable, while low-value transactions become burdensome for the bank (to process). Many of these processes can be automated by technology, which converts the 'dislike' into a 'like' for such transactions. Moreover, the ability to transact 24x7 and across time zones is a huge benefit from a customer experience perspective,” says Contractor.
Opportunities for Cross-Border Remittance Growth
Global cross-border remittances are a growing opportunity, with payments volumes expected to exceed $156 trillion by 2022. However, new use cases emerge on a daily basis. A dentist, for example, importing a dental chair from Germany is also a cross-border transaction. Travel, education, and healthcare-related cross-border transactions are some of the fastest growing segments, according to Contractor. Banks would require technology to accommodate this growth, which fintech firms provide, he adds.
Outward remittances are also becoming more popular. "It is estimated that money transfers from India to foreign countries under the Liberalized Remittance Scheme (LRS) will total around $12 billion." "This should grow at a minimum of 7% per year, if not more," Contractor adds.