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How technology is reimagining remittances

By John Kunze

Money transfer is an industry ripe for innovation. Global remittances represent an estimated $600 billion opportunity, yet today this primarily cash-based system of sending money abroad can be time-consuming, unsecure and expensive.

So, what are remittances and how is the evolution of payment reinventing the archaic model? Let us start at the beginning.

Understanding remittances
A remittance is a transfer of money to a friend or family member in another country. Millions of people across the globe depend on this money, which is often used for basic household goods, food, housing, education and healthcare costs.

In fact, remittances have constituted the single largest source of foreign exchange in developing countries since 2000, so much more than international aid.

But for many, traditional remittances mean waiting in line for several hours just to get money wired to pay bills, and they almost always come with loads of fees.

What are the industry barriers?
Traditionally, remittances have been an area rife with fraud leading to consumer confusion about which services to trust.

Valid money transfer services compete to distinguish themselves from unregulated channels, which are more subject to abuse, and sometimes linked to money laundering and terrorist financing.

Commercial monopolies, outrageous fees and opaque transfer records plague the remittance market. These informal transfer systems present significant regulatory challenges due to the lack of transparency in the transactions, especially online, where you do not have the luxury of meeting a customer face-to-face, making it easier for criminals to falsely identify themselves.

Digital remittances services have to be able to identify risks and minimize fraud without bogging down the consumer with a long, tedious process to verify identities and send money.

When sending money, opt for companies that are committed to securing your financial information and employ proven technology to protect and secure your personal information.

Additionally, money transfer services sometimes struggle to break into new markets and have to keep up with often-fluid local laws and regulations, which can be complicated and labor intensive.

The benefits of remittances vary among countries according to the relevant national policies and regulations – for example, foreign exchange controls – and the structure of the local economy and financial sector. However, technology is helping to break down these barriers.

The remitter’s choice between the various channels of fund transfers is greatly influenced by speed of delivery. However, some companies are changing this by making the movement of money instant, and according to the beneficiary’s expectations.

How is technology redefining the remittance landscape?
The rise of mobile and digitization of money are the two biggest opportunities that are changing the way we manage and move money.

Mobile phone usage is rampant, even in developing countries.

According to eMarketer, the number of smartphone users worldwide will surpass 2 billion in 2016.

For individuals around the globe, mobile phones and Internet technology can help reduce the cost and effort associated with sending money back home.

One of the biggest areas within that has been money transfers, where people who live in one country or city use basic cellular services such as SMS to initiate, send and receive payments to family members.

Mobile technology is helping to break down these barriers – making remittances more convenient, secure and affordable.

For instance, consumers can easily and quickly send money transfers with a swipe on their device.

The latest technology also demonstrates convenience and peace of mind while making secure money transfers, anytime, anywhere, showing that users receive SMS alerts when money has arrived – or a refund in the rare case money does not arrive.

Another key development has been digitization of money.

We are in a period of profound transformation: how people shop, how merchants sell and how people interact with financial institutions. The very nature of money itself is changing.

Digital remittances can help people everywhere make their lives easier by allowing them to do what they want with their money, more securely, efficiently and affordably.

BASIC MONEY transfers are just the beginning, and some companies are reinventing this model, bringing it into new territory with cross-border bill pay and mobile reload. They are making inroads into regions such as Sub-Saharan Africa and South Asia, helping to improve lives across the globe.

Cross-border money transfers represent an important next frontier in the journey to truly democratize financial services for more consumers around the globe.

John Kunze is vice president of Xoom, a San Francisco-based brand of PayPal. Reach him at [email protected].