- Remittances constitute a large proportion of global financial transactions.
- While many people send money home, the cost of making the transfers through traditional channels can be costly.
- PayPal is committed to making it cheaper and easier to send money home through technology, but governments and policymakers have an important role to play.
Sending remittances through mobile is, on average, 50% cheaper than using global money transfer operators.
Transferring Remittances Through Traditional Channels is Costly
- The World Bank estimates that globally, immigrants will send more than $600 billion in remittances in 2016.i The remittance market is a valuable external source of funding for many families around the world. The costs of transferring money through traditional channels have been relatively expensive. Reduction of remittance costs has become a strategic priority for the United Nations and through its Sustainable Development Goals it has set the target of lowering remittance costs to less than 3% (of the amount being sent) by 2030.ii
PayPal is Committed to Making it Easier and Cheaper to Send Money Home
- PayPal’s commitment to democratizing financial services includes revolutionizing remittances. In 2015, PayPal acquired Xoom, a digital money transfer product that leverages technology to make it easier to send money across national borders. Digital remittances can yield lower costs than traditional channels by providing greater speed, accessibility, ease of use and security.
- With Xoom, you can send money to 53 countries in a matter of seconds and users can fund their remittances using a card product or a bank account.
- Sending money overseas with Xoom/PayPal costs on average just 3.93% of the amount sent compared with World Bank data showing the average cost of sending a remittance is 7.45%.iii
- With global remittances expected to be $600 billion in 2016, according to the World Bank, a 3.52% cost savings from switching to digital remittances (7.45% less 3.93%) is equivalent to $21 billion in cost savings.iv
- Xoom has a product called Bill Pay, which enables an immigrant to pay utility bills for family back home directly in select countries. We found that these transactions were the cheapest, averaging just 2.87% of the amount sent.
- The GSMA (Groupe Spécial Mobile Association) released a report in 2016 that found sending remittances through mobile is, on average, 50% cheaper than using global money transfer operators.
- The report also found that mobile can particularly benefit low-income migrants who tend to make low-value transactions on a frequent basis. Average value of international transfers sent over mobile is $82 (June 2015), compared to a $500 average across all channels. [link]
Cost Savings from Digital Remittances Could Lift People Out of Poverty
- The Bank of Mexico reported that money sent home by Mexican immigrants was nearly $24.8 billion in 2015 overtaking oil revenues as a source of foreign income for the first timev; and 40% of Somalis rely on remittances to meet basic daily needs.vi
- Declining prices from digital remittances (like Xoom/PayPal) could lead to an additional 10% in remittances.vii The World Bank estimates that 767 million people live below the poverty line of $1.90 per day.viii The additional remittances provided by cost savings from digital could lift 29.9 million people out of poverty according to estimations by the UN Center for Trade and Development.ix
- According to the 2015 U.S. Federal Deposit Insurance Commission (FDIC) National Survey of Unbanked and Underbanked Households, 5.7% of U.S. households send money abroad & 2.4% send money on a monthly basis. [link]
4 Keys to Increasing Access to Remittances
- The vast majority of remittances go to developing countries, which in many cases lack the resources to fully unlock the benefits that digital remittances can provide. PayPal believes there are four pillars that need to be established to extend the reach of remittances to the underdeveloped populations in the world. Those pillars include Identity (government issued IDs necessary for identity verification), Connectivity (Internet access for all), Banking (cheaper digital banking and access for rural customers) and Literacy (financial education on how to move and manage money using digital tools).
Policymakers and regulators around the world can play a major role in lowering the costs of remittances by adhering to the pillars mentioned above. Governments should work to resolve the identity crisis by leveraging biometrics and data to reach the unidentified population. Public and private sectors can work together to lower the costs of internet access while creating innovative ways to reach rural populations. Finally, government should work with the private sector to use risk proportionate regulations to foster innovation in access to banking while also encouraging educational initiatives to drive greater financial literacy so the newly banked can learn how to best manage and move their money.