Trends in the Regional Remittance Market

Regional Remittance Trends

The remittance market plays a significant role in supporting people in developing countries across the world while also contributing significantly to their GDPs. Dependent on expats living remotely from their families and homeland, Research and Markets reports that the global remittance market is booming at a lucrative CAGR over the years, with East Asia and Pacific acquiring a major share of global inflow remittances.

With remittance outflow usually from high income regions and inflow  from lower-middle income regions, India retained its position as the largest remittance receiving country, with China in second place.  The United States retained its position as the largest source of remittance outflow, which according to the World Bank, enjoyed a stronger economy and employment situation.  The economic rebounds in Gulf Cooperation Council (GCC) countries and the Russian Federation also contributed to increased outflows from these regions.

According to the latest Migration and Development Brief of the World Bank, remittances to low-and middle-income countries reach a record high in 2018, with the official figure recorded at $529 billion.  This is an increase of 9.6 percent over the previous year’s record high of $483 billion.  Global remittance inflows to high-income countries reached $689 and $633 billion in 2018 and 2017, respectively.

With global growth expected to weaken in 2019, remittances to low- and middle-income countries are expected to grow moderately by 4 percent to reach $549 billion this year.  However, the upward growth trend is set to continue, with increase in the global digital remittance market projected with a CAGR 25.1% in terms of revenue, reports Reuters, reaching US$ 5890 Million from US$ 1540 by the Year 2023.

Among major remittance recipients, the World Bank states that India retains its top spot, with remittances expected to total $80 billion this year, followed by China ($67 billion), Mexico and the Philippines ($34 billion each), and Egypt ($26 billion).


Remittance Growth by region

East Asia and Pacific

The World Bank recorded growth in remittance inflows to East Asia and Pacific from 5% in 2017 to almost 7 per cent 2018, reaching $143 billion. Remittances to the Philippines rose $34 billion with growth in remittances proving slower due to a drop in private transfers from the GCC countries.  On the other hand, after a dull performance in 2017, Indonesia increased by 25 percent.


Latin America and the Caribbean

2018 saw remittance flows into these regions increasing by 10 percent, reaching $88 billion as a result of a strong U.S. economy, says the World Bank.  Mexico re3ceived the highest inflows in the region, posting around $36 billion, up 11 percent from remittance revenue of 2017.  Columbia, Ecuador, Guatemala, Dominican Republic and Honduras posted 16, 8,13, 10 and 10 percent respectively.


Middle East and North Africa

According to the World Bank, driven by Egypt’s rapid remittance growth of around 17 per cent, this region grew 9 percent to $62 billion in 2018.  This upward trend is expected to continue, although at a reduced pace of 3 percent in 2019 due to moderating growth in the Euro Area.


South Asia

Remittances in South Asia doubled from 6 percent in 2017 to 12 percent in 2018, driving by stronger economic conditions in the United States and an upswing in oil prices which impacted positively on outward remittances from some GCC countries, says the World Bank.  India’s remittance market grew by more than 14 percent, where a flooding disaster in Kerala likely contributed to this figure, with migrants probably sending extra financial assistance to their families in need.

Pakistan saw a moderate growth of 7 percent, due to significant declines in inflows from Saudi Arabia, its largest remittance source.  Bangladesh on the other hand enjoyed a surge in remittance inflows at 15 percent in 2018.


Sub-Saharan Africa

Benefitting from strong economic conditions in high-income economies, Sub-Saharan Africa enjoyed an almost 10 percent growth, reaching $46 billion in remittance inflows, according to the World Bank.  Looking at remittances as a shar of GDP, Comoros is in top position with the largest share, followed by Gambia, Lesotho, Cabo Verde, Liberia, Zimbabwe, Senegal, Togo, Ghana and Nigeria.


Key Players in the Remittance Market

According to the Global Remittances (Money Transfer) Market: Industry Analysis & Outlook (2019 – 2023) Report, key drivers for market growth are decreasing remittances costs and increasing the number of international immigrants. Other contributing factors are the increase in the number of refugees each year, looking for shelter and better livelihoods in other countries who send a high amount of remittances to their families residing overseas.

The key players in the remittance market include the big money transfer operators (MTOs), namely: PayPal Holdings, Western Union, Euronet and MoneyGram International, all of which have huge volumes of cross border transactions.  However, with the awareness created from international organizations, pressurizing Banks and MTOs to reduce remittance fee, impacting on their revenues.  This in turn creates a window of opportunity to invest in new entrants who can offer lower remittance fees as a tangible differentiator, allowing them to compete with the bigger, established companies.


Remittance Costs

Decreasing remittances costs and increasing number of international immigrants are the key drivers for market growth. Additionally, the number of refugees increases every year seeking shelter and better livelihoods in other countries. These immigrants and refugees send high amount of remittances to their families residing overseas.

In terms of competition, key players of the market include PayPal Holdings, Western Union, Euronet, and MoneyGram International. These firms have huge volumes of cross border transactions. But many international organizations are pressuring the Banks and MTOs to reduce remittance fee, affecting their revenues. This is allowing new entrants to position against the existing players as new entrants can lower remittance fees as a tangible differentiator.

According to the World Bank The average cost of remitting in South Asia was the lowest at 5.4 percent.  Although this is below the global average cost of sending $200 remains high at 6.9 percent in the third quarter of 2018. Reducing remittance costs to 3 percent by 2030 is a global target under Sustainable Development Goal (SDG) 10.7.Remittance costs across many African corridors and small islands remain above 10 percent.  Increasing the volume of remittances is also a global goal under the proposals for raising financing for the SDGs.

Even with technological advances, remittances fees remain too high, double the SDG target of 3 percent. Opening up markets to competition and promoting the use of low-cost technologies will ease the burden on poorer customers,” said Mahmoud Mohieldin, Senior Vice President for the 2030 Development Agenda, United Nations Relations, and Partnerships at the Bank.

Currently banks are the costliest remittance channels, charging an average fee of 11 percent in the first quarter of 2019, according to the World Bank.  This is followed by post offices at over 7 percent, with remittance fees tending to include a premium where national post offices have an exclusive partnership with a MTO.  The World Bank reports that this was on average 1.5 percent worldwide and as high as 4 percent in some countries in Q4 of 2018.


Solutions to lowering remittance costs

Lead author of the Migration and Development Brief and head of KNOMAD said: “Remittances are on track to become the largest source of external financing in developing countries. The high costs of money transfers reduce the benefits of migration. Renegotiating exclusive partnerships and letting new players operate through national post offices, banks, and telecommunications companies will increase competition and lower remittance prices.”

The Brief reports that ongoing de-risking practices by the banks, involving the closure of bank accounts of some remittance service providers are impacting on the increase of remittance costs.  The Brief does, however, report progress towards the SDG target of reducing the high recruitment costs paid by migrant workers, especially for lower-skilled workers.

The World Bank quotes Michal Rutkowski, Senior Director of the Social Protection and Jobs Global Practice at the World Bank as saying: “Millions of low-skilled migrant workers are vulnerable to recruitment malpractices, including exorbitant recruitment costs. We need to boost efforts to create jobs in developing countries and to monitor and reduce recruitment costs paid by these workers,”.

The World Bank and the International Labour Organization are collaborating to develop indicators for worker-paid recruitment costs, to support the SDG on promoting safe, orderly, and regular migration.

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