Remittances: Sending Money Into A Black Box
Posted on Feb 23, 2015 by Iñigo Rumayor
Every year, 192 million immigrant workers around the world –about 3% of world’s population- send more than US$404 billion to support their families back home; this figure is expected to grow to more than US$516 billion by 2016. Remittances currently play an extremely important role in the economies of many countries by contributing to their economic growth and to the livelihoods of the recipient families. For some receiving countries, remittances can be as high as a third of their GDP.
Our Flawed Focus
However, there are major flaws in the process of supporting families back home and while there are numerous, all the attention on the problems have been focused on reducing the fees for sending money.
In 2008, during the G8 summit, the global leaders pledged to reduce the average fees from 10% to 5%. In the last five years, there has been a wave of new technologies like Bitcoin, and numerous startups aiming to fulfill the promises of reducing the fees of sending money.
Although reducing high fees will save millions of dollars to immigrant workers who send money every month, it will do little to improve the way immigrants support their families back home. Immigrant workers religiously send money on a monthly basis for the peace of mind of putting food on the table and keeping the lights on for the people they love, yet they don’t have a way of knowing whether those funds are being used for their intended purpose.
Senders often don’t even know if the right person picked up the money. Rather often a recipient will ask a relative to pick up the money for them, as they are worried for their security walking home in a developing country with a very large sum of money.
The Black Box
The current remittance process can be compared to sending money into a Black Box. Immigrant workers send cash back home, thinking that it will enable food to be purchased and bills to be paid, but they really have no way of knowing if their hard earned cash is being spent as they intended. Once they send the money, this control goes out of their hands to the people to whom they send it.
Frequently, this lack of transparency can lead to conflicts from sender and recipient, as a sender cannot get the reassurance that the money is being spent as they intended. A long time ago, Thatsdominican.com even created a video discussing how widespread this problem is in the Dominican Republic.
Making Remittances Transparent
In an attempt to preserve the value of the efforts immigrant workers make, we’ve created Regalii. Our customers used to send money back home to pay for the electricity, water, or cable bills just to find out one month later that the bills had not been paid. Now, through Regalii, we have allowed immigrants to take care of their family’s basic necessities directly. It is our hope to give the control back to the sender and to allow immigrants to take care of their loved ones as if they were back at home.
Regalii is part of the new disruptive technologies that are aiming to facilitate remote payments, which allow customers in one country to purchase or pay for goods in another country. These technologies give control back to the sender when transferring funds from one country to another. Some of the companies using these technologies are: Peertransfer, which allows international students to pay their university tuition directly from their home country; and Ding, which allows customers to recharge their family’s phone account from anywhere in the world. The remote payments industry already accounts for more than $2BN per year in international top-ups and more than US$1BN in tuition paid by international students only in the US.
Bill payment already accounts for more than 15% of the basic basket for the immigrant workers’ families, which makes the cross-border bill payment market at least twice as big as international top-ups market. With the ability to provide transparency to the remittance process, direct payments will continue to be a hot subject in the remittance world for 2015.