India is the world’s largest recipient of remittances, followed by China, Mexico, the Philippines, and Egypt. In 2021, the country received $87 billion, up 4.6 per cent, according to the World Bank. The US was the biggest source, accounting for over 20 per cent of these funds. Cross-border remittances indicate transactions between individuals, companies, banks or institutions located in at least two different countries. With increasing global migration and use of technology, remittances have become faster, safer and more affordable.
One of the steps of the process for such payments is multiple levels of verification in each country. “International transactions involve several levels of change of currency, foreign transaction fee, and dealing with the exchange rate. The entire process involves technology and in recent times, technology in cross-border remittance has evolved significantly to offer better user experience and reduce money laundering,” says Naushad Contractor, founder and CEO of Fable Fintech, a fintech company specialising in cross-border remittance technology.
India’s remittances mainly come from countries in West Asia and the US. Majority of the outward remittances are sent to countries such as Nepal and Bangladesh. Cross-border remittances mainly happen through channels such as commercial banks, credit unions, post offices, money transfer services, Society for Worldwide Interbank Financial Telecommunication (SWIFT) and Rupee Drawing Arrangements. Remittances can take various forms, ranging from funds transferred through ‘formal’ or regulated institutions or channels (banks, neobanks, financial institutions and money transfer operators) to ‘semi-formal’ and ‘informal’ channels (hawala, cash carried in person, in-kind transfers).
Fintech companies and cryptocurrencies are revamping the way technology is used. Often, such transactions are high in volume but low in value. “In many cases, the formalities, paperwork etc., required for a ‘transaction type’ are the same irrespective of the amount. Hence, the large-value transactions become lucrative while the lower-value transactions become cumbersome for the bank (to process). Technology helps banks automate many of these processes and converts the ‘dislike’ into ‘like’ for such transactions. Moreover, the ability to transact 24x7 and across time zones is a huge benefit from a customer experience perspective,” says Contractor.
Growth Opportunities For Cross-Border Remittance
Global cross-border remittance is a growing opportunity, with payments volumes expected to cross the $156 trillion mark in 2022. However, new use cases are emerging every day. For example, a dentist importing a dental chair from Germany is also a cross border transaction. Travel, education and healthcare-related cross border transactions are some segments that are seeing high growth, says Contractor. Banks would require technology to cater to this growth, something that fintech companies provide, he adds.
Outward remittances are also a growing opportunity. “It is estimated that money transfers under the Liberalised Remittance Scheme (LRS) from India to foreign countries will be around $12 billion. This should grow at a minimum of 7 per cent annually, if not more,” adds Contractor.