Lorenzo Pellegrino, CEO of Skrill, NETELLER and Income Access at Paysafe
According to the World Bank, 1.7 billion adults around the world remain unbanked. One of the main reasons why this figure remains so high is because adults in developing countries feel they don’t have enough funds to justify opening an account. Without enough finances to make any significant transactions, keeping your money in any form other than cash doesn’t seem worth it. Often, people don’t have the documentation required to open an account either.
In developing countries one of the most effective economic factors helping people to grow their wealth to warrant opening a bank account is remittances. The World Bank reports that economic migrants sent $689bn home in 2018, of which $462bn was sent to low- and middle- income countries such as India ($79bn), and Mexico ($36bn). The data shows that more finance was injected into low- and middle-income countries via remittances than foreign direct investment ($344bn).
These results clearly show why migrants sending money back home is a vital step towards promoting financial inclusion, establishing a personal finance foothold, and contributing to the economic growth of regions around the world.
However, the negative perception surrounding many cross-border payment methods could be affecting the potential positive impact that remittances can have on regional growth. The most pressing problem facing people who want to send money home is that many methods of remittances rely on the recipient having a bank account. This eliminates one avenue of remittances for those that wish to send money home to loved ones in developing countries. If a desired recipient of a remittance doesn’t have a bank account, opening one often isn’t easy.
Of course, there are other options available to those wanting to send money back home to those that don’t have access to a bank account. However, these options are typically less sophisticated, and the costs of these money transfer services can be unnecessarily expensive.
As we gain more insight of the full economic potential of the remittances market, we start to see that the full picture can only be seen if recipients receive the maximum value of the transfer. This then allows people in the remittance community to have more flexibility and motivation when it comes to accessing financial services, but also be able to inject more value into their local economy through spending. By compromising on the monetary value they are sending home, the impact remittances might have on regional economies is limited.
Ultimately, for economic migrants to maximise the benefit of the finances that they are transferring overseas, using a remittances solution that is both low-cost and is user friendly and that isn’t designed around a traditional bank account, is crucial.
Developing the gig economy in growing regions
If companies were to remove transaction fees from the remittance process, both migrants and regional economies stand to benefit. One of the fastest growing employment sectors in developing countries is freelance specialists selling digital services such as website design or coding to overseas companies that want to outsource. For this form of the gig economy to be feasible and successful, service sellers must focus on firstly making invoice settlement as efficient for overseas businesses as possible, and secondly remaining competitive in the rates they charge.
Avoiding traditional overseas bank transfers that involve a lot of sensitive financial information to be disclosed and stored is one method for enabling a more efficient settlement process. Where an email address is the only piece of information needed to make a transaction, both the buyer and the seller are free from the rigmarole of securely collecting and recalling multiple pieces of personal data.
When it comes to staying competitive, one tactic service providers in developing countries can use to keep their rates low is maximising the value they receive when being paid in a foreign currency. Where a freelancer is losing a percentage of their fees to marked up foreign exchange rates, they may be compelled to pass the cost on to the business commissioning the work. Likewise, the business will have to take up the cost of the transaction fees; where this is substantial the overall expenditure increase makes the freelancer a less attractive proposition.
Paying invoices for overseas freelancers by bank transfer might become too costly; so much so that businesses will start to think twice before outsourcing outside their own borders. And the greater the volume or value of the work a business wishes to outsource, the greater the probability the high cost of settling invoices with cross-border payments becomes a factor.
The gig economy is already playing a considerable part in boosting the growth of economies in many regions across the globe. Low cost cross-border transactions can play a huge part in helping this industry flourish. The immediate and trickle-down effects of growing this sector would be highly effective in promoting financial inclusion and prolonged economic growth.