How to improve the common problems of the remittance companies?

Remittance is now really important in developing countries. It can be the money that gives the lifelines for families of immigrants in need.

Especially in a gig economy world like today, many people now don’t need to leave their countries to have a job and money to remit to their loved ones.

Because of this, the finance industry needs to make sure that remittances safely continue flowing through legitimate channels rather than dangerous, informal ways of transferring money.

So, what are the common problems to improve for remittance companies, and how to solve these ones? Let’s find out with FinFan in this article.

4 common problems to improve for remittance companies.

The businesses that provide remittance services for a fee to migrant workers and their families, known as remittance service providers (RSPs), are crucial to the continuation of remittance flows.

Although that is considered the goose that lays the golden eggs of the financial industry, however, this segment still has many problems to be solved by RSPs, there are 4 common ones:

• First: Danger of being de-risked by banks:

Imagine if you were the owner of a large bank in any country, would you dare to bear part of the risk to ensure that those who send and receive remittances do not have illegal purposes?

Although AML and KYC technologies are now more and more advanced with the intervention of AI and big data. However, technology criminals also develop their skills to bypass advanced software.

Remittance is a very effective channel to carry out the above acts because all transactions are civil (from individuals to individuals and often quite large), so instead of sharing the responsibility and risks with Remittance companies, bankers often look for de-risking solutions to reduce risk by restricting incoming business for RSPs.

The global practice of de-risking has been increasing in recent years, putting remittance companies at risk of losing access to the global financial system.

• Second: Difficulty in finding trusted partners:

Once a remittance service is performed, companies have to send a prefund to the counterparty in the receiving country to ensure a smooth transaction.

If you cannot find the right reliable partner, the partners of these companies can take the prefund money received and use it for other purposes and as a result, there is no money to send to the final recipient. This leads to the fact that remittance service companies can lose the credibility and trust that they have built with end customers over the years.

Due to these high financial and reputational risks, RSPs usually have to allocate most of their people, time, and money to find reliable partners.

These prefunds also lead to the third problem that RSPs need to solve.

• Third: The industry requires extremely large cash reserves:

Since today's financial system has yet to adopt an efficient solution to cross-border payments, prefunding is still the primary method in use. Due to the need for prefunding, requiring each participant to deposit cash to the expected value, the remittance business is extremely cash-heavy.

Imagine a day that remittance companies have to receive over 1000 transactions and each transaction is worth about 1000 USD (actually more than this number), how much cash do these companies have to reserve in their accounts to make prefund payments to partners in the receiving country?

Because this is an industry that requires quite a large amount of cash reserves, the owners of these remittance transfer companies may lose liquidity with opportunities to update new technology to support remittance transfers faster such as improve some other issues such as upgrading its KYC/KYB and AML systems (to solve the first and second problems).

That is also the cause of the final problem that a company providing remittance services needs to solve.

• The last: The company's operating system is mostly manual:

As mentioned above, putting too much money into prefunds will cause companies to fall into illiquidity to update the latest technologies to further improve their services such as:

• • Upgrade KYC/KYB and AML systems to no longer have to browse manually,
  • Apply blockchain technology to make money transfers faster and less expensive,
  • Expand the money transfer service through the app to attract young customers, instead of going to the counter or going to the website to place orders.

Solution for remittance companies to solve these problem

We can see that the above 4 problems all come from choosing reliable partners to accompany businesses providing remittance services.

Criteria to choose such partners come from 4 factors:

• • Can support RSPs businesses in connecting with major banks in the recipient's country,
  • Have extensive experience in the industry as well as trust from many customers to be able to trust and send prefunds to them,
  • Support business RSPs in upgrading technology to make the Remittance process faster, less costly and safer.

If RSPs businesses are in need of a partner that meets all three factors above and has a market for remittances to Vietnam, please contact FinFan immediately, because we:

• • FinFan the Brand of Choice, has had Credit Points for over 20 years,
  • We have connections with 42 banks along with a large e-wallet system in Vietnam such as MoMo, ZaloPay, VNPay, etc.,
  • We are on top of infrastructure via integration with almost leading industry players as national switch, post office, telcos, banks, ATMs, cards, ewallets as all in one where you can use our API as one for all.