Visa: How a Global, Digital Network Can Boost Financial Inclusion

Subsets of financial services continue to face challenges as a result of decades-old, friction-filled, and fragmented processes in the midst of the great digital shift.

Cross-border remittances are one such payment service that has traditionally been frustrating, according to Ruben Salazar, global head of Visa Direct. These payments and the processes that support them have been hampered primarily because they were designed decades ago to accommodate the physical need for senders and receivers to send and pick up cash.

But that was before the digitization of payments and the global explosion of mobile technology, which made digital wallets commonplace. The global remittances industry is transitioning from a cash-centric network strategy to a network-of-networks strategy, making streamlined interactions on a global scale more efficient and cost-effective - and increasing financial inclusion in the process.

Eliminating the Friction and Frustration

Salazar stated that he has firsthand experience using these networks to internationally send money from the United States to family in El Salvador. Those transactions were traditionally enabled on both sides by a dispersed network of physical agent networks, which were housed in storefronts, supermarkets, post offices, and even banks.

The norm was paper-based processes, multiple documents, and even phone calls. Salazar outlined some of the procedures. Wait for an agent with a special terminal for entering data to do so, and then take the cash. Wait for a pickup code to be received, which must then be given to the receiver in order for them to pick up the cash.

The receiver had to go to another supermarket, storefront, or bank with that code to pick up the money - and often not on the same day it was sent.

This process differed from one country to the next; each market had its own network based on agent contracts and proximity to large concentrations of receivers. There was some overlap, but nothing remotely resembling uniformity. Senders and receivers did not understand pricing.

“There’s no single business model, there’s no single network,” Salazar explained.

The Scale of Global P2P

Remittances, which are only a small part of the story, provide some stark illumination into the global scale of cross-border payments. Consider the fact that 800 million people around the world receive money from family members living abroad to cover basic expenses. According to the International Monetary Fund, remittances account for a significant portion of developing countries' gross domestic product (GDP) - 4% on average (IMF).

PYMNTS' research, conducted in collaboration with Stellar, discovered that consumers desire change - better, faster, and less expensive digital remittances.

Seventy percent of US consumers who pay fees to send money to family members across borders want more transparency, affordability, and speed. According to Visa, digital remittances are the preferred method, with 59% of remittance users polled saying they have sent or intend to send money using digital-only platforms.

There’s some urgency here, as the data show that 32% of global remittances are sent to friends and family in need.

“It can be an emotional transaction,” said Salazar of remittances.

Fostering ‘Digital Inclusion’

According to Salazar, Visa Direct's platform aims to create a single, real-time network that uses debit card credentials (billions of them) and direct bank account access to move money digitally and directly between senders and receivers. He cited Visa's 2019 acquisition of cross-border payments network Earthport, which will allow the company to reach 2 billion bank accounts in addition to the bank accounts accessed via debit cards that ride Visa's debit rails.

As reported by PYMNTS, when the Earthport deal was announced, Bill Sheley, Visa's then-head of global push payments, stated that the Earthport capability would help move Visa "beyond the card" and extend its reach to include an account-to-account (A2A) disbursement model.

Any wallet and input is capable of transacting across Visa's network for those who send and receive money cross-borders.

"Whether you're in a Visa credential or a bank account, or whatever value exists in that wallet, we can 'land' the transaction," Salazar said, adding that, at a high level, any digital wallet exists as an endpoint on Visa's acceptance network, capable of receiving a digital payment, enabled by its network-of-networks capabilities.

"We've come a long way from the days when getting banking services meant getting a physical, plastic card tied to a traditional checking or credit account," he said.

New Models and New Possibilities

Banks can provide real-time remittances simply by allowing account holders to use the payment credentials they already have with the bank. Salazar cited recent news in which Canadian bank CIBC announced that it had expanded its global money transfer capabilities with Visa Direct, with funds pushed directly, in real time, to Visa credit and debit cards in more than 80 countries. Qatar Islamic Bank also launched the Visa Direct remittance service, which allows customers to send money overseas in real time.

The seemingly eternal question is always present: What about cryptocurrency? As per PYMNTS data, nearly one-quarter of all U.S. consumers making cross-border, peer-to-peer (P2P) payments have used cryptocurrency and mobile wallets to send funds.

Salazar said that cryptos still present a “last-mile” issue in terms of converting the cryptos into fiat on each side of the transactions. But these new technologies, all-new capabilities and new players can also help accelerate the digital shift to real-time, digital, cross-border remittances. Visa’s aim, he said, is to make it seamless for senders and receivers to get money to their loved ones in the most efficient and secure way possible.

“Every single credential that is out there can be used to deliver money,” Salazar said, without the need to create a whole new network “online or in a face-to-face environment.”