The Future of Remittance – The trends and strategies that will shape 2021

The World Bank predicted that global remittances would decline by 20% as a direct result of the COVID-19 pandemic in 2020. It remains to be seen if there is any truth to that shocking figure but one thing is for sure – the sector suffered in 2020 and continues to do so in 2021. The question is, are we already on the road to recovery? And if not, how do we get there?

We spoke to three of our clients and partners from three different regions to gather their thoughts and gain some global insight on what lies ahead for the money transfer industry in 2021 – Hugo Cuevas-Mohr, President & CEO of Mohr World Consulting, Walter D’Cruz, CEO of Moneo Solutions and Nadeem Qureshi, CTO at USI Money. Our very own associate sales director Oussama Kseibati quizzed these thought leaders on the key strategies, the technological innovations that might start to emerge and how traditional agent-based MTOs should be reacting to them.

A year of recovery

Oussama began the discussion by reminiscing on how 2020 was a year that necessitated a wider move to digital finance for the entire financial sector: “For remittance, this meant an increase in the use of digital solutions for cross-border payments.” This included a shift to a surprising number of traditionally cash-based agents using digital means to serve clients, with around 60% of domestic and international cash transfers taking place online.

So the stage has already been set. But according to Hugo, if 2020 was a year of forced change then 2021 is going to be a year of resilience and leaning into the challenges posed by anomalies such as COVID-19 and Brexit. From where he stands, the remittance sector has already proved itself to be a resilient force. Indeed for Hugo and Mohr specifically it has been a very challenging time. Their target market is Filipinos sending money home and many Filipinos working in the UK have seen their incomes reduce or disappear completely in the last 12 months as they tend to work in medical and home care sectors.

He explains: “The era of COVID-19 is an uncertain one and that uncertainty is one of the main issues for the global remittance industry, especially when trying to predict recovery. However, despite the issues, the money transfer industry has seen a lot of recovery and migrant communities are continuing to send money to their families, regardless of changes in their own employment situation.”

Nadeem agrees and asserts that: “Despite the decline last year, the money transfer industry is a resilient one and is a sector which will certainly improve a lot faster than many others.” They also both agree that while they feel recovery is indeed already on the cards, we’ll need to wait until we see the data before we draw any solid conclusions.

Strategies for success

Of course, while the sector might be incredibly resilient, it is also far from bulletproof. This means there are going to need to be some solid strategies to help traditional agents-based actors adapt to the digital push of 2020. The primary trend from which all other trends seem to emerge is a mass migration into the digital realm. This will be particularly relevant for small-medium MTOs, as they will have the flexibility to push further into digital solutions as the industry continues its recovery.

For Nadeem, however, he feels it’s the medium-large institutions that will be leading the way. He explains: “Many of these larger MSBs will be down-streaming activities, hoping for increased access to expanding pay-out networks and other digital solutions, such as e-wallets. As the industry recovers and the needs of larger business begin to grow again, the MSBs will also be looking for new ways to grow too, and this will heavily centre on the digital push.”

Oussama then turns the focus onto blockchain and cryptocurrency, stating: “As a direct result of the pandemic some currencies are going to be more volatile and people could seek safe havens in cryptocurrency, which is something many banks are already doing.”

Walter agrees on this increase in blockchain adoption, which is being fuelled by the mainstream capital markets. He adds: “The popularity and interest surrounding blockchain has been growing for several years now but in 2020 we had begun to see it really explode. As well as the obvious focus on cryptocurrency such as bitcoin, blockchain is also being used by enterprise governments and financial institutions to assist with seamlessly managing the exchange of value.”

Hugo, meanwhile, believes that there will be increased pressure on MTOs for transparency when it comes to fees and FX rates and that blockchain will definitely help with this. And with major names such as JP Morgan already throwing their hats into the ring, blockchain could very well end up being the major player that catalyses recovery as we move deeper into 2021. He also feels that we’ll be seeing more companies working internally to lower costs and more partnerships and integrations by year’s end.

Derisking and the challenger bank solution

According to Hugo, 2020 was the year of the digital tsunami and 2021 is going to be the year of the blockchain and cryptocurrency tsunami and he feels this is going to have a major impact on derisking, which is worse in some countries than in others but is still a global problem. He does also believe, however, that challenger banks might be the solution as long as they are properly integrated with fintech.

He says: “The position of banks as integrators of other services might be making it easier for other banks. This industry has to rely on these partnerships between the new banks and the fintechs and allow them to create solutions together. COVID has certainly pushed that forward, which I guess you could say is something of a silver lining.”

Above all, however, he believes that it’s creativity that is pushing the industry forward and he is inspired by all of the new players doing the groundwork in that regard. Indeed, he feels that’s where the potential for blockchain comes in.

Oussama asks whether there are “solutions out there with companies acting as an aggregator to open up space as a quicker route to market for smaller MTOs and whether or not the big banks will change their attitude towards MTOs accordingly.” He adds: “With HSBC being fined £1.2 billion as a result of derisking recently, it’s unlikely the larger banks are going to shift their viewpoint but challenger banks are coming through to fill that space.”

According to Walter: “The reason they won’t support MTOs is that you’re not only essentially taking their business away by cutting into a piece of their pie but in their eyes, the risk involved is greater than the value that MTO might bring to the table and that’s all down to the fact there’s a lack of transparency between the bank’s compliance and the MTO.”

For Nadeem, meanwhile, he can see major bank attitudes towards derisking getting worse as the cost and the risk in terms of the fines is just too great compared to the benefits. However, he believes the challenger banks might offer a solution here. He explains: “The challenger banks entering the market are not necessarily going to solve the problem but the smaller MTOs looking for partners are going to have a much better chance at finding partnerships with these challengers than their larger counterparts.”

Then, of course, there is the impact of Brexit to unpack and digest. Generally speaking, our talking heads concluded that there is no need for MTOs to panic as long as they can learn to adapt. There are certainly going to be losses for any MTO based in the UK or Europe that deals with those markets, but London will remain a major financial centre and the centre must hold. For more on their thoughts, you can read our full piece on what Brexit means for the remittance sector – https://www.remitone.com/brexit-is-a-done-deal-but-what-does-that-mean-for-the-remittance-sector/

Will 2021 be the year of innovation or survival?

Walter feels 2021 is going to be more about simply “getting through it” than anything else, but that doesn’t mean he’s without hope. He explains: “I don’t necessarily think this year will initially be about the deployment of new technology. A lot of businesses are still recovering from the fallout of the pandemic so they don’t necessarily have the resources available to do a complete revamp.”

The improvements, he feels will be in an “explosion of partnerships,” because fintechs don’t have the resources to do everything alone, whether that’s compliance, risk or customer service. So they will need the help of both larger partners and the ‘little guys’, such as MTOs. He continues: “More connections and lower costs are going to be the case, broadly speaking for 2021 and it’s concepts like the RemitONE ecosystem that are going to help add value across the whole chain.”

Hugo agrees that 2021 is going to be a year of partnerships and collaboration and a shift in mentality across the board. He argues that MSBs should “forget about doing everything themselves. Everything will be almost modular because, particularly for the smaller companies, somebody else will be able to do one specific thing better and cheaper than you can.” Right now it would appear that we’re living in a world of APIs and developments that are great for small companies which can lower their costs and gain access to these solutions, whether that’s blockchain or something we haven’t even seen yet.

Nadeem, meanwhile, speaks of an e-digital compliance evolution: “When you have a sector with a large amount of competition it’s always going to be about who can provide the best user journey. Digital footprints are starting to grow and Fintechs are challenging regulators and pushing them to improve things, whether that’s through something as advanced as iris scanning technology or as simple as syncing their platform with social media to onboard customers more efficiently.”

As Oussama sums up: “It’s going to be a year of smaller MTOs challenging the way things are being executed from a more modular approach through blockchain or other methods and we will continue to see this evolution going into 2022 and beyond.”

A beacon of hope

Throughout the talk, our experts also touched on several other more specific topics regarding the regulatory uncertainties in the Nigerian market to the general emerging markets in the African continent and the cost of acquiring new customers. To see the whole discussion for yourself, you can do so right here.

But the session ended on a resolutely positive note. Our experts spoke of advice for start-up money remittance businesses with no prior experience of the business and suggested that it was still a sector ripe with potential as long as these aspirant start-ups were willing to learn, read, research and understand the market.

They also reiterated what appeared to be the crux of the discussion – that all the different strands of the financial sector need to start working together and forging deeper connections if they hope to succeed and thrive in 2021. That will lead to greater transparency, lower costs and more innovation and RemitONE’s deep ecosystem and malleable compliance network is the perfect middleman to help build and maintain those connections.

For more information or to speak to one of our experts please email marketing@remitone.com

Brexit is a done deal, but what does that mean for the remittance sector?

To say 2020 was a challenging year would be something of an understatement. If the pandemic wasn’t enough, we were then thrown headfirst into a Brexit deal that potentially threatens all UK businesses which trade with the continent. We’re on the other side of a very long, complicated and messy divorce but there are still so many things to unpack and digest, particularly as far as the financial sector is concerned.

Back in 2016, when the referendum result was first announced it was a shell shock to the money transfer and wider financial services industries. But that was almost five years ago now and while London certainly doesn’t look set to be dethroned as a world business capital any time soon, there has certainly been a minor exodus as the UK becomes more of an isolated island.

The immediate ramifications of Brexit

Before the ink could dry on the referendum result, money service businesses across the country began to prepare their backup plans. Of course, those that only served customers in the UK would remain unaffected, as would those operating as SPIs. But those operating under the category of APIs that had a large customer base or agent network in the continent had to apply for new MSB licenses from scratch.

Back in 2017, we posited that it would be the change in banking passporting that would have the most significant impact on money transfer and the wider financial services market. Passporting rights in the years before Brexit helped UK businesses to expand into EU states quickly and at minimal cost and post-Brexit, those privileges would be all but expunged.

Making sense of the Brexit fallout

The immediate fallout of the 31st of December was, as was predicted, that MTOs lost passporting rights. This had a major knock-on effect, with all the MTOs that had accounts within Europe and were safeguarding their funds. A month or so later, we’re now seeing those accounts either being closed or laboured with exorbitantly hiked-up SEPA payment fees.

The UK is also going to find itself fighting for itself as far as regulations are concerned. The European payment regulator that oversees the SEPA payment network will have no interest in fighting for a country that essentially tossed it to one side, after all.

The vast majority of UK-based MTOs will undoubtedly have lost European clients over the last 12 months and most European MTOs will have lost many UK-based clients too. Indeed, all MTOs that rely primarily on inter-European banking will probably lose many more in the ensuing months.

The impact has been compounded by the COVID-19 pandemic and subsequent global lockdowns. One thing this has done, however, is catalyse a deeper digital penetration in the money transfer sector, with estimates that the digital hold on the sector grew from 20% to 30% from 2019 to 2020. That means remittance software and fintechs are going to play a larger role going forward. But that’s not necessarily a bad thing and it might not be the only silver lining.

Is there a plus side for remittance?

While it might have moved on from the EU from a regulatory perspective, the UK is still an important part of the payments network and London will remain well-positioned for money transfers. Indeed, for MTOs with a higher volume of foreign exchange transfers, London is still arguably the best place to do the business thanks to its abundance of high net-worth individuals and the number of major international businesses that call it their home.

We’ve also seen many companies abandon the UK for greener pastures and some European countries (such as Spain and The Netherlands) have greeted these companies with open arms. Other companies, particularly smaller ones, have turned to mergers or partnerships with larger competitors to be able to access their European clients.

Thankfully, as the UK was wise enough to adopt the PSD2 open banking regulations back in 2018, the businesses that could afford to expand into other EU states could do so without being tangled up in miles of expensive bureaucratic red tape. But it’s still an expense that many smaller MTOs could have done without.

Then there are those who have proselytised the idea of pivoting away from Europe entirely. Michael Kent, the Cofounder of Azimo, for example, believes we should be looking towards Africa, where remittance is proving to be a crucial lifeline in the absence of governmental pandemic support.

According to RemitONE CEO Anwar H Saleem, however, there is no need for MTOs to panic as long as they can learn to adapt and lean into the changes. He explains: “London has always been a major financial hub for Europe and this is not going to change any time soon now that we’re no longer a member of the EU. It will, however, push those businesses that remain in London to innovate and lead the way. RemitONE are already committed to charting this new course with confidence.”

Can UK money transfer businesses survive Brexit?

While it didn’t end up being the highly prophesied ‘no-deal Brexit’ for most, for the financial services and remittance sector, it might as well have been. With no agreement on the regulatory equivalence between the EU and the UK, there is still a lot of work to be done.

For those operating in both the UK and the EU, there are certainly some tough choices to be made. But ultimately, it’s going to be up to the UK and the MTOs that have chosen to stay behind to ensure it remains relevant and doesn’t lose its standing on the global remittance stage. Whatever the next few years have in store for us, the best thing any MTO can do is arm themselves with the facts and prepare for every and any eventuality.

If you’re uncertain about the future and are looking for support regarding licensing issues post-Brexit, RemitONE is ready to take your call. Using our industry-leading bespoke and secure money transfer software, we can help any established firm or new entity looking to establish in the UK or Europe to navigate the increasingly complicated logistical and regulatory waters spun up by Brexit.

For more information or to speak to one of our experts please email marketing@remitone.com

AI: Empowering Fintech and Money Transfer Firms

From its humble start in the 1950s to the extensive uses now frequently seen across all industries, Artificial Intelligence (AI) has very clearly grown into one of the most innovative and game-changing technologies. It’s becoming increasingly evident that the role of AI, especially within financial services and the digital realm of remittances, has become crucial for providing improved services. Even over the last decade, AI has continued to evolve, reducing and even eliminating manual processes for the financial services sectors.

Machine Learning and Security

Enabled by predictive power, pattern recognition and enhanced communication functionality, AI is proving it has the potential to boost financial services and transform the way these services are delivered to customers. AI could empower Fintech firms to have more informed and bespoke products and services, internal process efficiencies, enhanced cyber-security and reduced risk.

For example, in the payments industry, AI is currently being used for sanctions screening and fraud prevention – a process underpinning money transfer organisations. Until recently, many organisations screened for sanctions by checking data stored in mass databases. Although this technique is routinely used by most financial services firms, in recent years we’ve seen that AI can be applied to this activity as well as other fraud prevention processes. Learning through experience, the AI technology can begin to better understand the backend data in order to search more quickly and efficiently, ultimately resulting in fewer false positive results.

The Future of AI: Improved End-User Experience

In the next few years, we predict that the financial services industry will certainly begin to see an increased use of AI surrounding security and compliance, as well as other backend processes. However, it is also becoming more evident that money transfer operators (MTOs) could soon be incorporating AI on their frontend applications (mobile apps and online portals) to enhance customer experience.

For example, we’ve already begun to see instances of machine-learning powered ‘chatbots’ offering 24/7 support and guidance to MTO customers. Using natural language processing, these chatbots – amongst other AI-driven voice-based services – will be able to understand queries and provide solutions, enhancing the overall end-user experience.

In addition to this, a less obvious area for AI use we could be seeing in the near future is for managing the rates and fees charged to remittance customers or end-users. By applying machine learning, MTOs could begin to make predictions based on a variety of factors (including existing data, patterns and even seasonal changes) in order to help customers set their rates and charges more effectively.

Where Will AI Go Now?

It’s clear to see that AI and machine learning are beginning to drive a wide range of processes, both within the digital remittance realm and beyond. The outcome of this increase in automation is the opportunity for many companies to work more precisely and efficiently than ever before.

As a result, we can confidently predict that the financial services industry will be seeing a lot more of AI driven technologies. But what would you like to see from the remittance industry going forward?

If you’d like more information about the power of AI within Fintech or would like to engage in a discussion about the future of machine learning, please get in touch at marketing@remitone.com

RemitONE Proud Platinum Sponsor of IMTC World 2020

We’re thrilled to be sponsoring and participating at IMTC World, 16-19 November 2020. The conference is the largest international money transfer, cross border payments and fintech event globally. This year’s online event is packed with sessions featuring the industry’s most prominent leaders, executives and pioneers.

RemitONE CMO, Aamer Abedi will be joined by, Nadeem Qureshi, CTO, USI Money; Richard Spink, Senior Business Development Manager, GBG ; Sidharth Gautam, Head of Sales, AZA and David Lambert, Commercial Director, Transact 365 for what promises to be one of the most informative panel discussions: A New Normal: Getting digital ready for post-pandemic recovery.

Participants will learn how to leverage digital technology to achieve business continuity during the pandemic, transform customer experience, ensure compliance and obtain a remittance bank account. Join the discussion in the Tropical Room at 13:00 GMT on Tuesday 17 November to take part.

Anwar H Saleem, CEO of RemitONE shared “We’re excited to meet with those looking for an opportunity to add value to their business and look forward to re-connecting with current partners. IMTC World is crafted around critical business discussions led by industry experts. We’re proud to participate in this top-tier event.”

Visit our Booth #P2 at the IMTC World, online, from 16-19 November 2020.

Join the event here – https://web.cvent.com/event/1e534a43-8f77-4b6f-af97-a69ccc023f4d/

About RemitONE

RemitONE is a technology and business services firm that breathes innovation and excellence into the money transfer world for all types and sizes of organisations including banks, money transfer operators, micro-finance institutions, telecom firms and start-ups. Our technology allows you to manage your entire money transfer business and connect with our extensive client and partner network worldwide. Our consulting services have an impressive success rate for money service business license applications and alternative bank account solutions.