Digital remittance in the global economy and why it cries out for robust eKYC
Remittances are the most evident form of emigrants’ economic contributions to their homelands. However, sending money abroad has always been a heavy and costly task, complicated by the burden of middlemen lengthy processes or red tape, tons of manual paperwork, and sneaky hidden charges. Fortunately, the evolution in the industry over the past few years has eliminated these obstacles and provided individuals and all-size companies with faster, cheaper, and better-quality solutions.
To say that, the development of digital remittance means not just a new way of money transfer but also an essential part of the global economy’s growth.
Life is funny, Bees make honey
The concept of remittance is not new. People have been travelling the world for thousands of years, either for trade and commerce or as a part of forced labour migration. It wouldn’t be an exaggeration to say that the necessity of moving money and doing it quickly, safely and as cheap as possible — has always been a part of human history. From the times of the Roman Empire and Chinese silk road to the industrial revolution in Europe and the “New World”— often not just families but entire countries were heavily dependent on remittances received from their emigrated citizens.
For many centuries, carrying funds by owners, sending by post, or entrusting cash to a third party were the only options to transfer money over long distances. The invention of the telegraph made the bank wire transfer a new prominent possibility. It was a true breakthrough in money transfer history that made remittances a commonplace aspect of economic migration and a hot topic on the global development agenda.
In the 20th century, money transfer businesses flourished as never before, with companies like Western Union and MoneyGram promoting a new business model for remittances based on a system of international agent networks.
With the spreading use of the internet, online-only remittance service providers appeared on the scene. They have eliminated the burden of big-budget agent networks and physical office locations. However, today, the market share of digital remittance is not as large as it could be comparing to the volume of remittances sent via “traditional” cash-in agents.
Optimistic Math. Numbers, Numerals and Digits.
Yet, the global digital remittance market (GDRM) has grown progressively in recent years thanks to the rapid technological progress and overall modern trends of automation and digitisation.
According to the recent research reports, the global industry’s market size was valued at USD 17.69 billion this year and is expected to surge at a compound annual growth rate (CAGR) of 13.3% from 2021 to 2028.
Traditionally, North America was the industry dominator since 1983, having more than a 30% share of the global revenue and therefore leading the market. Well…not anymore.
Due to investment in innovation and technology, along with the increased income of the population — in 2021, India and China have captured a major share of the global digital remittance market.
Today, China is the number one digital remittance player In APAC. The country’s focus on the adoption of mobile banking and mobile-based payment solutions undoubtedly propel regional and therefore global market growth. Singapore is another big player in the region predicted to have the highest CAGR of 21.1 % from 2021 to 2026. India is expected to develop at a rate of 19.3 % over the next five years.
The European digital remittance market is also steadily growing. Using the advantage of open borders, people are relocating to different cities and countries in search of employment and education. As a result, the demand for cross-border transactions constantly increase. The EU remittance market size is expected to expand at a CAGR of 16.3% (2021-2026).
Unbeatable Advantages of Digital Remittance
Unlike other industries which have been driven to digital transformation by a necessity to keep up a competitive edge, the remittance sector has been relatively slow to step into the future enhanced by modern technology. The loyalty of the customers and the trust that traditional cash-based remitters have built among them is still very high.
Under COVID-19 conditions, however, this situation is changing. Global lockdown restrictions have significantly reduced or even totally removed the possibility of visiting a physical store. So, it is the consumers’ “new pain” that is driving digital transformation needs in the remittance sector and leading to new product launches.
Without evil there is no good, they say. For digital remittance service providers, global pandemics has presented a great opportunity to demonstrate the ease, accessibility and longevity of the service they provide.
Let’s have a closer look at the consumers’ benefits from the use of digital remittance systems.
Faster funds transfer
The majority of the digital remittance providers offer either instant or at least same-day money transfer.
Cheaper than traditional way
Digital remittance services typically have a better exchange rate and a lower transaction fee which reduces the whole transaction cost.
Easier to use
Due to the newest methods for electronic ID verification and more convenient, sending methods, digital remittance services are very easy to use.
Compliance and AML Regulations
While the remittance industry is evolving, so do the techniques that criminals use to exploit it.
Money remittance is an attractive target for criminals for plenty of reasons: from global discordance in regulation to the criminal opportunities exposed by digital remittance services.
It has been more than 10 years since the Financial Action Task Force (FATF) identified specific vulnerabilities to money laundering and terrorism threats related to digital remittance, pointing up the necessity to have appropriate AML measures in place.
Today, remittance service providers from the FATF member countries are obliged to implement risk-based AML compliance programs with the following features:
- Customer due diligence: Remittance companies must conduct CDD checks to ensure that all their customers are who they claim to be. Customers showing a higher risk of money laundering, such as politically exposed persons (PEPs) must pass enhanced due diligence (EDD).
- Transaction monitoring: Companies must monitor customer transactions for suspicious activity that might indicate money laundering, including transactions above reporting thresholds, unusual transaction patterns or transactions with high-risk countries.
- Screening: Companies must screen customers and transactions against international sanctions lists and watch-lists. Customers should also be monitored for involvement in adverse media stories.
- Compliance officers: Remittance companies must hire compliance officers with a level of expertise enough to supervise their AML program.
- Training: Employees must receive AML training to be able to detect potential money laundering activities.
BASIS ID and Remittance business
To deliver ongoing AML compliance quickly and efficiently, remittance service providers should consider implementing rigid eKYC and AML software to cope with their data-related needs. Of course, the solution can be designed in-house but it is more wise and productive to let the professionals do the job right.
BASIS ID’s award-winning AML software adds speed and accuracy to the compliance process and easily scale with a company’s needs while simultaneously adapting to changes in legislation and constantly evolving criminal techniques on an ongoing basis. This is the reason why remittance service providers from all over the world choose BASIS ID.
One of the recent partners affiliating with BASIS ID is Kemit kingdom, a Swiss start-up company founded by Swiss Africans with years of experience in the banking and FINTECH industry in Africa and Switzerland. Their latest innovative project called Wakanda Messenger is aimed to be Africa’s own social network and messenger app with remittance services integrated within it.
BASIS ID’s goal is securing the use of the financial instruments provided by the platform; and ensuring that it stays fully compliant with international KYC, AML, PSD2 and GDPR standards.
Understanding the company’s demand for robust, fail-safe and customer-friendly digital identity verification (IDV) software, along with the support of African documents, BASIS ID provides an advanced verification solution designed particularly for Wakanda’s needs. Together with the recognition of all existing types of paper based IDs, passports, driving licenses and other government-issued documents, It has a flexible architecture and the ability to enhance onboarding flow.
The global economy is gently gliding away from cash and with many cash-based remittance solutions forced to close due to COVID-19, the future is definitely digital. What money transfer providers have to understand is that it gives them an incredible opportunity to prove their value for the end-consumers and the world financial scene at large.
Studies have proven that remittance not only helps to reduce poverty in developing countries but also leads to an increase in domestic spending. And if there’s one thing we need in the global economy right now — it’s people spending more.
Borders might be closed but migrant workers and their families still depend on remittance. In this way, an easier, cheaper remittance solution has never been more vital than now.
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