Despite Expansion of Digital Financial Services Such as Mobile Money, Obstacles Remain to Expanding Their Use in Remittance Transfers
WASHINGTON — In a world where remittances are a cornerstone in the lives of countless people in low- and middle-income countries, a new era of financial inclusion is dawning, albeit not without significant challenges. Migrants and others sent an estimated $860 billion in remittances through official channels in 2023 — a revenue stream long recognized as an essential tool for economic and social development.
While financial technologies such as mobile money and cryptocurrencies represent a fraction of all remittance transactions globally, fintech holds the potential to shake up a rigid remittance industry long dominated by a few players that have imposed high costs — blunting the development benefits of money transfers. Remittance sending through mobile operators in 2023 averaged 4.1 percent of the funds transferred, compared to 12 percent for those sent through conventional remittance service providers or traditional banking channels.
Yet even as governments in low- and middle-income countries are increasingly open to innovation and experimentation with digital tools, the success of these initiatives varies and uptake can be slow because of regulatory uncertainties, trust issues and other factors, as a Migration Policy Institute (MPI) report out today details. Many migrants also prefer to keep using informal remittance channels, even when fintech is available, because black-market exchange rates are more attractive. In addition, important barriers remain to make these digital tools meaningful drivers of financial inclusion.
In Leaving No One Behind: Inclusive Fintech for Remittances, analyst Ravenna Sohst examines opportunities to use digital financial services for remittances, including a look at gendered aspects of these technologies’ impacts. Drawing on expert interviews, an expansive literature review and focus groups with users and non-users of digital remittance services, the report examines fintech use around the world. It pays particular attention to Nigeria and Sri Lanka — two countries that have high remittance inflows, with Nigeria adopting fintech to a much greater degree than Sri Lanka.
From barriers to access and disparities in digital and financial literacy to emerging risks such as the growth in fraudulent transactions, the journey towards greater use of fintech is complex, the report finds.
“Although fintech remittances are generally hailed as inexpensive, fast and accessible, in practice they depend on a broad set of enabling factors,” writes Sohst, who is a policy analyst with MPI Europe. “More work is needed to improve accessibility beyond the world’s main remittance corridors, where prices are already relatively low, and to enhance cooperation within regions.”
Collaboration among stakeholders in government, service provision and telecom is needed to drive meaningful advancements in financial inclusion through fintech, the report finds. It cautions that fintech should not be seen as an end in itself but rather as a strategy to advance development objectives where it proves the most effective tool to do so.
The report is the final publication resulting from a multi-year research partnership between MPI and the Swiss Agency for Development and Cooperation’s Thematic Section Migration and Forced Displacement to support the development of global solutions for migration-related challenges. The first explored how the COVID-19 pandemic affected recruitment and other costs for migrant workers. The second examined integration challenges and opportunities that small and mid-sized cities face when receiving significant arrivals of migrants and displaced persons. The third assessed the progress made toward fair and ethical recruitment of migrant workers.
Read today’s report here: www.migrationpolicy.org/research/inclusive-fintech-remittances.