29th July 2022

Global remittance has undoubtedly proven to be a lifeline for many families. However, it is also true that international remittance services are costly since they include a slew of hidden fees that both senders and recipients are generally unaware of, such as fluctuating foreign exchange rates. But why are remittances so expensive? One of the reasons for the high prices is that banks perceive remittance to be a high-risk market. Secondly, international remittances necessitate many credits and debits across accounts, with the money eventually being transferred from the sender's country to the beneficiary's country. These non-bank remittance services offer competitive rates when compared to banks. However, the expense involved in establishing and maintaining agent networks is significant, and it is usually offset by imposing additional fees on customers.

Sending money across the border, whether through banks or non-bank remittances, is expensive. If there’s a way to lower this expense, it can have a massive impact on the migrants' families.

There appears to be a solution in the form of Fintech, which has emerged over time. Many businesses within the space have piqued the interest of venture capitalists. In total, TransferWise has raised over $390 million through seven rounds of funding. WorldRemit, on the other hand, is a UK-based company that has raised over $230 million in nine fundraising rounds. Similarly, InstaRem, a Singapore-based startup, has raised over $18 million in venture capital. The arrival of these and other Fintech businesses has altered the international remittance landscape. Fintech remittance services are preferred by people throughout the world.

Unbanked But Still Finance-Savvy

For people getting involved with a financial system for the first time, there may be a lot of financial firsts, such as getting a rental contract, opening a bank account, or starting a business. Because they are unfamiliar with the system and the new language, they are likely to make blunders. While there was support for integration in the labour market, we discovered that there was none when it came to financial concerns. Fintech solutions, on the other hand, can fill this void in the context of immigration. Companies like Leaf, a virtual bank that enables refugees to save and transport assets securely across borders, and Now Money, a digital bank for migrants in the United Arab Emirates that enables them to send remittances easily and affordably, have played a part in banking the unbanked in recent years.

Discrimination and misunderstanding are at the root of the problem. It's critical not to view refugees and immigrants as a single entity. These newcomers may have had little experience with traditional banking systems, but they are often successful entrepreneurs, skilled savers, have developed assets, and have vast social networks for borrowing and lending during difficult times. The issue is that much of it took place outside of formal financial institutions, and these abilities cannot be transferred to countries with more formalised financial systems. This is where fintech can help to bridge the gap between traditional banking systems and technology. It can assist consumers in establishing credit histories and, more importantly, in areas such as remittance and lending.

Having Access To The Gig Economy

It's possible that you know someone who works in the gig economy, or that you've worked as a part-time or full-time gig worker yourself. Uber drivers, delivery drivers, designers, Airbnb hosts, consultants, and babysitters are just a few examples of gig jobs. Many fintech firms have seen the rise of the gig economy as an opportunity in recent years, recognising gig workers as high-potential consumers.

Furthermore, today's digital networks make it easy for gig workers to find work using a smartphone. According to the Pew Research Center, 16% of Americans had made money via an online gig platform as of 2021. The popularity of the idea of work-life balance, which encourages people to seek more flexible schedules, is also fuelling the growth of the gig economy. Exponential expansion, on the other hand, has drawbacks and leaves a lot of holes. One of them is that standard financial services aren't designed to meet the needs of gig workers.

The steady rise in the number of financially reliable potential clients who are underserved by traditional banks is what fintech companies have observed in the gig economy. It's a combination of a lack of competition and the capacity to assist millions of people with achieving a higher standard of living. Customers are attracted to fintech firms due to flexible payment options, lower fees, speed, and the convenience of a well-designed interface.

These organisations can target narrow categories of gig workers and develop more personalised offers since they have a lot of data on them. At the same time, businesses don't have to spend a lot of time or money on user acquisition because their customers are happy enough to tell their friends and acquaintances about them.

Financial Inclusion Through Fintech

Fintech can democratise access to money and bring the globe closer to financial inclusion in a world where access to financial services and high-speed broadband internet is not universal or affordable. Fintech has shown potential in sectors such as Government to Person payments and cross-border transfers in addition to mobile money.

Global remittances, in particular, may undergo a total metamorphosis as a result of technological advancements. Cross-border remittances are worth $600 billion and can outnumber official development funding. The average global cost of sending these amounts in cash is 6.8%, but a digital transaction costs 3.3% and eliminates liquidity difficulties.

However, digital disruption is nothing new, and we have long been able to obtain movies, food, and transportation at the push of a button. However, the financial sector may be affected differently, owing to:

a) The potential impact on financial integrity and stability.
b) New entrants with unconventional business models that do not fit neatly into existing legal frameworks and are difficult to monitor.
c) The implications for consumer protection.

As a result, governments throughout the world are grappling with how to strike the appropriate balance between encouraging innovative fintech and safeguarding the financial system. Innovative technologies, despite their utility, are not without risk. Fraud, data leaks, and exposed customer finances are just a few of them. Responsible financial innovation must strike a balance between opportunity and innovation while also protecting customers.

Tearing Down Some Common Money Problems That Migrants Face

Prepaid payment platforms are flexible and work in real time, providing reporting, monitoring, and auditing while streamlining operations and resources, allowing organisations to make payments to refugees quickly and securely. These platforms can help people access financial services and prevent financial exclusion.

EVOLET is an E-Wallet in Malaysia that provides companies with secure income administration and migratory workers with financial access, control, and savings on essential needs. EVOLET creates financial accessibility for the unbanked. In Malaysia, the majority of unbanked migrant laborers receive their pay in cash. The risk of theft is significant, and there are issues with safekeeping, as well as the difficulty of proving payroll data. Employers have a safety concern about paying employees with cash. EVOLET creates financial accessibility for the unbanked while also negating employers' worries about paying in cash.

The flexibility of such platforms can allow for highly customisable programmes, enabling a variety of configurations to suit the needs of the government or NGO. This means that the best possible prepaid solution can be delivered to end-users across the SEPA zone, as there are no issues with changing locations or currencies when crossing borders. Furthermore, prepaid solutions eliminate cash from immigration centres and minimise the logistical and security problems that governments confront when it comes to transportation.

Because prepaid cards can be issued and filled rapidly, they can dramatically reduce the time it takes for charities to disburse funds, allowing aid workers to focus on providing tangible support to migrants.

EVOLET is a digital wallet app for migrant workers.

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