International Day of Family Remittances - The importance of the digitalization of remittances

Remittances are very important not only to upgrade the remittance families but also can help them to achieve their SDGs (Sustainable Development Goals). That's also the main theme of this year's International Day of Family Remittances.

However, till now, for people sending and receiving remittances, certain traditional methods of receiving them still cost money and time. In this article, let’s find out with FinFan this main topic and learn how technology can help with the digital transformation of remittance.

Some details about The International Day of Family Remittances (IDFR)

*The International Day of Family Remittances (IDFR) is a universally recognized observance adopted by the United Nations General Assembly and celebrated every year on 16 June.

The Day recognizes the contribution of over 200 million migrants to improve the lives of their 800 million family members back home and to create a future of hope for their children. Half of these flows go to rural areas, where poverty and hunger are concentrated, and where remittances count the most.*

*Sourced by United Nations

Total remittances of the world and situation in Vietnam

According to the most recent statistics from the United Nations, in 2022 international remittances to low- and middle-income countries (LMICs) amounted to US$626 billion. This figure overstates the importance of remittances to the lives and economies of people in low- and middle-income countries.

In some nations, this amount might make up the majority of GDP and provide more funding for constructing public services and infrastructure.

Typically in Vietnam, the seminar, which was held in Ho Chi Minh City on May 22, 2023, demonstrated how the annual growth in remittances to the city has significantly aided in sustaining the lives of many locals who are struggling. In addition to supplying their basic requirements, these expatriates also need to invest in real estate in Vietnam, just like locals do.

It is only for Ho Chi Minh, if more broadly, at a national scale, Vietnam is always in the top 10 countries receiving the most remittances in the world with the amount received in 2022, equivalent to nearly 19 billion USD.

Some examples of its effects on developing countries like Vietnam have been summarized by FinFan in the following articles.

The importance of the digitalization of remittances

According to a United Nations report, less than 1% of transactions are conducted using digital forms, which is the most remarkable statistic.

This statistic shows the sad truth that, although the governments of low- and middle-income countries have provided considerable support to achieve the aforementioned, the current state of the digitalization of the economy in these countries remains a huge challenge.

However, there are still some statistics showing growth in digital transformation attempts in the process of sending and receiving remittances. According to the statistics provided by Vatican News in 2021, the number of mobile users to conduct remittances and receive remittances has increased by 65% compared to 2020 and has reached 12.7 billion USD.

There is no denying the convenience of digitizing remittances, which is paramount for these countries.

Digitalization of remittances is a crucial issue regardless of the medium (online, a mobile app, or a combination of both) used to send them because it brings the following values:

Reducing costs when traditional methods cost senders and receivers too much from foreign exchange to conversion costs.
Creating a connection between financial services and consumers along with financial services together (like FinFan providing APIs to support remittance specializing companies such as Remitly, MoneyGram and Thunes, etc.)
Digital channels typically eliminate the need for a physical money transfer location, which is often inconvenient or inaccessible for people, especially during times of crisis and for those living in rural areas.
Being faster when using digitalization way now the receivers can receive the money in just a few seconds or few minutes (maybe some can take a few days however never more than a week) after the senders complete all stages of entering the money transfer form.

How can the digitalization of remittances be accelerated?

First, we must educate users about the convenience of using digital tools to make and receive remittances.

Cash is still king in certain nations, particularly low- and middle-income nations. They occasionally lack trust in technology tools that could speed up remittance transfers and receipts as a result, which shows by just 1% of transactions, according to the United Nations report, are made using digital forms.

Many times, we will come across a young person trying to show an older person new trends in technology in such countries. We will also easily encounter elderly people carrying a stack of money (albeit very dangerous) to buy something.

Most crucially, it is these elderly individuals who get the majority of remittances. Therefore, it is crucial and required to figure out how to alter consumers' perceptions of the value of digitizing remittances.

Some nations, like Vietnam, have excelled at this thanks to "cashless payment" initiatives started by MoMo and other e-wallet companies.

Second, fintech companies must work together more closely to bring the best services to customers.

It's critical to work closely together. You should join forces with a B2B party that can give you integrated tools if you've concluded that your strength in remittance and remittance services is in the B2C segment (working directly with customers). most beneficial for giving clients the best experience.

That is also the recent acquisition of a FinFan partner Ripple with Swiss company Metaco, or like the way FinFan has provided APIs for other parties to complete the software for transferring and receiving remittances for customers.

Lastly, should develop more types of currencies for sending and receiving remittances.

Today, the development of crypto currencies is an opportunity for fintech companies to take advantage of to convert their services.

With cryptocurrencies, all transactions will be faster and more convenient without the need for foreign currency conversion fees or two-way transaction fees.

At the same time, transaction information will become more secure due to the fundamental nature of blockchain.

By 2023, 420 million individuals are expected to be using cryptocurrencies for transactions and other purposes, according to the most recent figures from Tripple A (a FinFan partner).

This number of individuals represents 4.2% of the planet's 8 billion inhabitants and is anticipated to rise sharply in the years to come.

Businesses that specialize in remittance should pursue this sector in the future. There will be new unicorns developing in the future if they catch the trend and seize this digital transformation opportunity.