Message from Jonathan Merry, CEO of MoneyTransfers.com
From international travel to retail, COVID-19 has hit every aspect of life around the world. In parallel, similar effects have been seen in the world of business, which has seen the biggest drop in activity since the great depression. However, the trajectory of the money transfer and remittance industry has been an interestingly polarising one, with the World Bank predicting the sharpest decline of remittances in recent history. They project that global remittances are to decline by almost 20 percent in 2020 due to the economic crisis induced by the COVID-19 pandemic and lockdown measures emplaced by countries around the world.
This fall in remittance payments is attributed to the following reason: ‘The projected fall, which would be the sharpest decline in recent history, is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country’ - World Bank.
It’s hard to ascribe just one cause to the downward trend in global remittance payments, and MoneyTransfers.com believes another contributing factor has been individuals being unable to leave their homes while under lockdown, meaning they have been unable to make it to physical stores to transfer funds. This effect has been noted in a variety of publications, and there appears as a result to have been a large change of user behaviour in favour of using digital channels to transfer money. Many of our partners operating in the money transfer and remittance space have noted this change, and it has interesting implications as to how the business of money transfers may be adapting to the current crisis.
Companies such as Paysend, TorFX, and CurrencyFair - who all target different customer segments in the money transfer market - all posted record-breaking activity in March 2020 as lockdowns descended across the world. At Paysend, for instance, March and early April saw an increase in both users and transfer activity by more than 15%. As COVID-19 doesn’t seem to be going away any time soon, the need for digital transfers is unlikely to fall, and it’s possible that as more people have access to these platforms the remittance industry could be saved from falling as much as the World Bank predicts. While most observers predict an initial uncertain & rocky period for money transfers, the long-term future is more open for discussion.
In this report, MoneyTransfers.com delves into what’s actually happening within the industry right now, and also what this might mean going into the future. Using our own data and insights from industry experts and thought leaders, we’ll take you through an in-depth look at what’s happening behind the scenes as money transfer providers grapple with the effects of the coronavirus pandemic.
COVID-19 and Market Conditions
The coronavirus pandemic has already caused huge disruption to the global economy and to people’s lives all across the world. With no clear end in sight, many industries are trying to assess what damage has already been done and come up with projections for how long the road back from the ‘new normal’ might be. The money transfer and remittance industry is no different in this regard. With the variety of factors that affect international transfers - from people’s incomes, to their ability to navigate lockdown in order to send cash overseas - it’s been a challenge to assess everything accurately from inside the eye of the storm.
The World Bank recently published dire warnings that the next year will see ‘the sharpest decline of remittances in recent history,’ with global remittance payments expected to fall by a fifth throughout 2020. These numbers are alarming, especially as remittance payments have become a key part of the economies of developing countries in recent years. In light of this forecast, it’s important to examine what’s happening on the ground to see how the industry is reacting and to see if there are positive signs of how the industry is meeting the coming challenge.
The World Bank predicts global remittance payments to shrink by 20%
The World Bank’s press release of 22nd April paints a bleak picture of global remittance payments. The bank projects a fall of 20% coming at the same time as other sources of investment in developing countries are looking more precarious.
According to the World Bank’s data, remittances to lower and middle-income countries (LMICs) boomed throughout 2019 to a peak of $554 billion. This surge meant that more money flowed into LMICs through remittance payments than by foreign direct investment in 2019 - demonstrating just how vital these transfers are for millions of people’s economic security. A perfect storm now appears to be brewing, as foreign direct investment into LMICs is projected to fall by more than 35% as a result of COVID-19, making it even more vital to prevent a significant drop in remittance payments.
There are reasons, however, to expect that the overall damage to the remittance industry might not be as stark as the World Bank is projecting. First and foremost will be if the global economy recovers faster than currently anticipated. The World Bank says of this projected fall in remittances, ‘is largely due to a fall in the wages and employment of migrant workers, who tend to be more vulnerable to loss of employment and wages during an economic crisis in a host country,’ and also notes that remittance payments are usually ‘counter-cyclical,’ with more money being sent when a crisis hits in migrants’ home countries. Depending on how badly COVID-19 ends up hitting economies around the world, this predicted drop could be mitigated as people are able to return to work.
Other reasons to think a drop of this magnitude can be avoided revolve around how the coronavirus pandemic might reshape how the money transfer market works. Throughout this crisis, we have seen many businesses that relied on physical transactions having had to adapt quickly to offer digital alternatives, and a similar picture is emerging for money transfers. Customers who had never previously transacted online have been forced out of shops and onto their computer screens, and data collected by MoneyTransfers.com and our partners hints that such a digital revolution may be occurring in remittance payments. It could yet be the case that funds are available to be sent, but it has taken a while for people to change their transfer behaviours.
What MoneyTransfers.com’s research shows
With the lockdowns that have swept across the world, pressure has been put on transfer providers who rely on cash payments to facilitate remittance payments. In the long run, this could bring about positive effects on the industry by moving more services online.
Through talking with leading money transfer providers and looking at our own internal data, it is clear that March was one of the busiest (and for some providers the busiest) month ever in terms of digital transfer activity. This provides an indication that many individuals are adapting fast to the ‘new normal’ - switching from physical to digital providers in order to send money across the world.
Remittance transaction value, Statista, May 2020
Money transfers and forex companies saw traffic spike in March
As the global economy began to fall in the first few months of the year, the opposite trend was seen with many money transfer providers. CurrencyFair, TorFX, and Paysend all noted large increases in activity during March and through early April, possibly indicating a change in user behaviour that could last well beyond the coronavirus pandemic.
TorFX Managing Director Nigel Fox said that March was the ‘busiest month since the company was founded in 2004,’ CurrencyFair CEO, Paul Byrne, also remarked on his company’s ‘record-breaking March’ as ‘transaction volumes were up 30% compared to original forecasts,’ and Ronnie Millar, Paysend’s CEO, similarly saw both transaction volume and active customers increase by 15% throughout March and early April. These figures all show a trend of people flocking to digital money transfer services to move funds as the pandemic was starting to take hold.
Not only could people sending money be forced to move online as a result of this crisis (something that will take time to come into effect and show up in remittance data as attitude changes don’t happen overnight), but the amounts that people are sending have also changed in recent months. Providers across the board have noted that while the number of users is going up, the amounts they are sending are going down; the challenge currently is to figure out exactly why this is.
One of the main reasons for this chimes with the data from the World Bank: people’s incomes are falling so there is less money to send; but this is not the only factor. The financial instability caused by the coronavirus has led to a significant drop in people making large purchases. Mr Fox of TorFX mentioned ‘a sharp decline in international property purchases,’ and there appeared to be similar trends towards smaller transfers noted by CurrencyFair and Currencies Direct.
CurrencyFair CEO Paul Byrne spoke of how, amid COVID-19, ‘plans to move home or abroad are put on pause, buying property delayed, weddings being postponed.’ Similarly, Marc Morley-Freer from Currencies Direct said that their data also indicated that ‘many international property purchases and plans to move overseas have been put on hold because of the current crisis.’ Balancing this out, however, Morley-Freer said that of the Currencies Direct customers surveyed, 84% said their money transfer needs ‘were the same as before the crisis,’ and Byrne noted from CurrencyFair’s data that ‘SME volumes are steady’ and that B2B payments to China from Australia and Europe have already increased by 13% as manufacturing resumes. This gives hope that there could be a faster economic recovery than many are assuming, and provides a clearer indication of how transfer behaviour has been affected by COVID-19.
The picture is still complicated, but it seems from the data our partners have gathered, a portion of the fall in global money transfer amounts is attributable to one-off large purchases being postponed or cancelled across the board. Add to this that it is still unclear how quickly the global economy will bounce back from this crisis and the fact that remittance payments are seemingly digitising at breakneck speed, and there are reasons to hope we won’t see the economic devastation predicted by the World Bank.
The wider picture: an industry going digital
Value of remittances worldwide from 2014 to 2023, by type, Statista.
Our partners are not alone in seeing these large spikes in user activity in March and early April - and this shift to digital payments is hardly surprising when one considers the hazards currently associated with paying with, or collecting cash. As outlined by the BBC, people collecting remittance payments from physical locations now often have to wait for hours in line, making it almost impossible to practice social distancing. So, how quickly can the remittance industry react?
As humans we are creatures of habit, and therefore a shift to transferring digitally will likely take time, but the urgency posed by the present situation appears to be already pushing thousands of people to digital platforms according to our partners’ data. When you consider, as CurrencyFair’s Paul Byrne explained, that ‘the biggest player in the remittance market, Western Union, relies on 85% of its revenue in the form of physical transfers,’ then it becomes clear that we could be about to see what would amount to a digital revolution in the way remittance payments are carried out (for more information on Western Union, see their press release of 18th October 2018, and data from macrotrends).
Indeed, this effect could even be enhanced as societies start to reassess the potential coronavirus-spreading risks of transacting in cash. COVID-19 could well be providing considerable push and pull factors to digitise the money transfers space and promote a move to cashless societies across the world. This could have a range of long-term benefits going into the future, and in the short term could provide a way to facilitate payments and mitigate the worrying projections by the World Bank.
This effect has already been seen to an extent in Jamaica, a country in which remittance payments account for around 16% of GDP. According to an article published in The Gleaner, initial projections of a 20% fall in remittances to Jamaica took only a couple of weeks to be revised down to the region of 10-15%. This would still represent a huge drop, but it is a promising sign that technological innovations could help limit the damage caused by coronavirus to global remittance payments. The article quotes Jacinth Hall-Tracey, managing director of Lasco Financial Services Limited, who ascribes this reduction in the potential remittance fall to people switching to digital platforms. She sees a future developing in which international remittance payments aren’t indicated by long lines at cash pickup locations, and we believe this would be a change for the better.
Increasing reliability and lowering prices
One of the key benefits that digitising remittance pathways could have is to ensure their reliability, as these corridors are often more precarious than people realise. To take the example of Somalia, 40% of people in the country rely on direct remittance payments for their economic security, and 80% of these rely on payments from a single individual. According to the London School of Economics’ blog, ‘The story of remittances in Somalia over the last 40 years is linked to the evolution of the Somali telecommunications and money transfer enterprises.’ Providing people with access to bank accounts and ways to get money aside from physical cash deliveries has been a crucial part of keeping these lines of support open in the country.
This effect is now going to be heightened across the world, as collecting cash payments will become less feasible, so it is essential that people move their transfer behaviours to stable online methods to avoid being cut off. This is also likely to entail innovations to provide people around the world with stable internet access and banking solutions, and a crisis of this magnitude could be the push factor in forcing these infrastructure improvements.
Once people move their money transfers to online platforms, there is also considerable scope to see the cost of remittance payments falling over time. This would enable people in need of financial assistance to receive more of the money sent to them. A recent article from the Oxford Business Group notes that money transfer providers TransferWise and Azimo have reduced the cost of transferring £120 from the UK to Nigeria to between 4-5% through the cost savings that can be made with digital transfers. The World Bank’s press release states that the average cost of sending $200 around the world is currently 6.8%, so figures like this are certainly a positive sign that a digital remittance landscape could drive down fees for those sending money home.
If the COVID-19 pandemic could move remittance payments ever more online, then in the long-term this could help ensure the availability of support and reduce costs simultaneously.
Moving forward: a new world of innovation
Photo by David McBee from Pexels
It’s impossible to know how the world will look after people come out of lockdown to survey the damage done by COVID-19, but there is reason to hope that we could be on the verge of one of the great periods of technological innovation. While it is undeniable and worrying that remittance payments are going to take a hit as a result of this pandemic, the exact size of the reduction in payments is hard to predict. There is reason to hope that increasing access to digital payment methods could hold the key to mitigating the hardship that will be faced by people around the world.
Beyond the increasing focus on digital ways of sending money, the currency crisis has seen renewed interest in purely electronic transfer methods such as digital dollars/euros and cryptocurrencies, which many have long touted as beneficial for sending money across borders securely and with limited fees. As the conversation around money transfers and remittances moves increasingly down these digital avenues, it’s likely that the industry could end up looking very different after the coronavirus has passed.
If more users are forced to adopt digital transfers due to COVID-19 related lockdown measures, it’s not unreasonable to believe that this change in behaviour could well stay after restrictions are eased. Conversations like these are only going to get louder as societies try to figure out how to keep functioning while limiting physical interactions. The world is changing fast, and it doesn’t look likely to stop any time soon.
MoneyTransfer data 2020
TorFX data 2020
CurrencyFair data 2020
Currencies Direct data 2020
Statista data 2020/2019
Google Trends March/April 2020