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UNLOCKING THE POTENTIAL OF LOW-COST REMITTANCES IN DEVELOPING COUNTRIES

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DEVELOPING COUNTRIES

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.

 

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2022: A FUTURE FOR SIMPLE AND FRICTIONLESS CROSS-BORDER PAYMENTS

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Dima Kats, CEO, Clear Junction

Dima Kats, CEO, Clear Junction

 

Even after 18 months of stuttered lockdowns, businesses are still learning how to navigate the effects of the pandemic. However, in 2022 there is a lot more certainty surrounding how events in the future might unfold compared to the start of the series of lockdowns in 2020-2021 – when businesses had to accommodate ever-changing rules.

Ironically, the coronavirus pandemic may be a catalyst for a more globalised world in the near future, which will directly and quickly affect the world of finance and payments.

 

Activity in the fintech sector.

Fintech development flourished over the course of the pandemic. Reducing the need for face-to-face interactions was essential for maintaining economic activity during lockdowns. Many of the trends that are driving the increased economic activity in the fintech sector are a direct result of social distancing: the rise of digital payments, increased work-from-home arrangements, retailers diversifying their payment channels, and an increased use of autonomous finance. As a result of these trends, there has been a large number of fintech start-ups emerging.

Due to the growth of the fintech sector in the past year, there has been a significant increase in demand for industry professionals, and the effects of that demand will be playing out into 2022. This is mainly due to employees being re-trained during the pandemic for new roles, creating a more skilled and mobile workforce.

 

Cross-border payments.

There are currently three trends that are reshaping cross-border payments, and in a sector that is predicted to reach over $156 trillion in 2022, staying ahead of those trends may prove to be a lucrative decision.

The first trend is the changing consumer demands. Customers are less inclined to pay for banking services while still expecting them to be fast and intuitive. Alternative service providers that can offer the customer more of what they want while being faster, cheaper and more transparent will gain a competitive advantage over banks.

The second trend is the increase in trade with emerging markets. As the share of international transactions involving emerging markets grows, cross-border payment solution providers are focusing on these markets. Growth in these emerging markets is bolstered by free trade initiatives, while some countries have established protectionist policies that slow them down. Growth in emerging markets is expected to be at around 11% per year, while the overall growth of cross-border trade is estimated at just 5% per year.

The third trend is that the accessibility of mobile phones has increased. As people gain a larger online presence, there is more opportunity for people to make online payments. The percentage of mobile phones ownership among adults in emerging countries is at 83%, compared with just 62% in 2014. This figure is expected to increase even further, and subsequently increase the number of e-payments being completed.

 

Cryptocurrency in 2022.

We expect to see cryptocurrency develop even more mainstream appeal as it becomes less speculative and more widely accepted. This will cause banks to increase their investment in fintech, in conjunction with governments introducing new regulations to ensure that transactions that involve both traditional currency and cryptocurrency are safer. One of the most tangible effects of the pandemic was the need to use online payment solutions. In the same way, people are beginning to trust and realise that cryptocurrencies may be a feasible payment solution even in the post-pandemic world.

Consumers are increasingly dependent on digital devices, but over half of them prefer to make online purchases over a computer than a mobile device. Mobile screens on smartphones or tablets are smaller than desktop monitors, which leaves users feeling discouraged and less secure while shopping compared to completing transactions over a desktop.

Mobile shopping or M-commerce has benefitted from several innovations that encourage users to finish payments on their phones: instant checkout solutions like Apple Pay, the use of augmented reality to show consumers the products they are buying, and sites building mobile-friendly user interfaces. Due to these innovations, Insider Intelligence predicts that shoppers will inch closer to using their mobile devices as a preferred channel in the next few years.

 

Open banking and the need for collaboration.

As the industry grows and becomes more diverse, there will be an increasing need for partnerships and collaboration to take advantage of the emerging opportunities.

One direction we’ll be seeing them in will be in the form of open banking. Traditional firms are beginning to see open banking as something more appealing due to the opportunity for partnerships. The rise of alliances within the finance industry began to take place long before the ongoing pandemic. Currently, over 30 partner banks represent hundreds of fintech  relationships and financial services. We think firms who adopt open banking early and secure partnerships will reap the rewards compared to their competitors.  firms who adopt open banking early and secure partnerships will see themselves reaping the rewards compared to their competitors.

2022 will likely be the year that open finance starts reshaping financial services and the year that banks savvy up to the opportunities that open finance represents. With regulators in the EU and UK proposing measures to heighten data sharing principles across a broader set of financial products, 2022 will see many banks experimenting and evolving their business models toward a more open, collaborative platform approach.

The multiple challenges to the finance industry over the last year have highlighted the need for fresh thinking, to face the future with strength and confidence. Fintech partnerships can create a significant opportunity for levelling the playing field, streamlining internal processes, adding technological capabilities, and improving the end customer experience.

Companies like Clear Junction offer businesses a mix of these benefits and opportunities at one time. Continued and original collaboration and partnerships between fintech companies and banks are essential for the future of the financial services industry and the finance sector. The digital marketplace is indeed growing, and the future belongs to the financial institutions that can stay ahead of the curve.

I think we need to add some context about the Fintech industry over the last 12 months, and how the pandemic has actually affected the industry. Need for innovation etc etc how much money has been put into it etc. And then lead on the predictions around talents and retraining. Otherwise this byline reads as just a list of predictions, without adding the relevant context.

 

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CHRISTMAS IS COMING: WHAT MAKES A GREAT ECOMMERCE STRATEGY FOR THE FESTIVE SEASON?

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Christmas Gifts

By Laura Lough, Director of Ecommerce Operations at Digital River

 

There is no doubt the year 2020 presented an array of economic and personal challenges worldwide. But, there was a silver lining for the world of ecommerce. By necessity, the pandemic encouraged people to shop online, which grew the ecommerce industry rapidly. The outlook for 2021 is cautiously optimistic. While consumers may react to lifted social distancing restrictions with exuberant spending, they could also continue to hang on to their money over fear COVID variants might cause more economic upheaval during the winter of 2021-22. Experts are predicting another year of growth, but not at the breath-taking rates seen in 2020.

Whether the growth rate surges or stabilises, one thing is certain: new shopping behaviours learned by consumers because of COVID are here to stay. Contactless payments, mobile wallets and social spending all saw new consumer use in 2020, and consumers who appreciate their convenience aren’t likely to abandon those new habits.

There are some fundamentals that eCommerce providers must take onboard now if they want to have a successful holiday season.

 

Meet your customers’ high expectations

Gone are the days when fulfilment and supply chain were little-known ecommerce topics. Shipping delays due to a surge in ecommerce demand in 2020 as well as the Suez Canal blockage in March of 2021 brought fulfilment issues to the front page, literally.

Adding to the challenges are current lorry driver shortages and supply chain disruptions. The upshot is supply chain issues will continue to challenge ecommerce brands. Those ramping up closer to the holidays are likely to face some headwinds. However, whether you’re ahead of the game or playing catch-up, you can develop fulfilment strategies that will serve you well in the years to come, as supply chain issues are not going away anytime soon.

Laura Lough

Businesses can use their data to intelligently predict consumer behaviour, allowing them to be ready for surges in demand for different products and locations. Avoid costly returns by giving the shopper an overload of information such as product images, comparison charts and reviews. To simplify reverse logistics and appeal to your customers, consider partnering with third-party drop-off sites for brands that don’t have physical stores.

Most critically, brands must communicate clearly, effectively and transparently with customers. They cannot expect sympathy from customers if fulfilment issues outside of their control delay delivery. Customers have come to expect shipping that fulfils their needs and desires—not the needs of retailers.

 

Accessibility for all

Many ecommerce marketing best practices that were true pre-COVID will continue to hold true this season. Retailers must develop unique customer acquisition strategies and marketing collateral for each market they enter — translated content isn’t enough. They should also use local channels, and messaging should remain cohesive across channels.

It’s critical to incorporate social buying into your marketing strategy as more customers are engaging with brands on their preferred platforms, which are increasingly social. Mobile commerce is another critical component to your marketing strategy, and it’s important to develop an optimised and responsive mobile experience for your customers.

Another important consideration is making sure your D2C platform is accessible to those with disabilities. In addition, brands need to pay attention to how COVID has affected various areas of the world, so tailoring your messaging to local realities is critical.

 

Payment strategies as a tool for business success

Payment systems are so important for brands that they should constitute a strategy in and of themselves, rather than just a back-office tactic. Over the pandemic several payment systems have become business-critical:

  • Digital Wallets: Consumer use of digital wallets surged during the pandemic. Chinese shoppers made the bulk of digital wallet purchases. In the US, digital wallet usage was up nearly 24% over 2019 numbers.
  • BNPL: Buy now, pay later (BNPL) is another payment method that is quickly rising in popularity. Brands offering BNPL have reported a 45% increase in average order value when customers pay in four instalments.
  • Mobile: Consumers will continue to rely more heavily on their smartphones to make purchases in 2021 and beyond. It’s critical for brands to optimise the mobile experience with payment methods that allow shoppers to pay with one touch of a button rather than entering a credit card number.
  • Direct Debit: Direct debit is another payment method that brands should consider adding to their online store. In this scenario, which is most popular in Europe, the retailer withdraws money directly from a consumer’s bank account.

 

Lean on tech

Underpinning every aspect of an eCommerce strategy is data. Businesses must leverage their data by developing a comprehensive customer-centric system that includes the entire customer lifecycle, including search, payment methods, and sales and shopper support data.

eCommerce providers can boost conversion rates, improve customer experience and reduce false declines by using a local payments processor that understands each market you’re in. Ensure that your payments partners are using retry logic to automatically route payments in a way that maximises the likelihood of authorisation.

Retailers simply must prepare well in advance for a surge in traffic to their platforms. If 2020 is any indication, the number of shoppers transacting through your platforms at any given time can vary wildly. That’s why it’s critical to test your system well ahead of time to ensure it can handle the load and make the adjustments early. More than any time of year, a failure to prepare spells trouble.

Finally, companies should select their partners carefully. They should look to work with back-office experts with specific tech and market experience. Appropriate partners can facilitate your brand to deliver tangible results this holiday season, ensuring you finish the year with a bang.

 

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