In the last five years, the world of financial tech start-ups seems to have zeroed in on what was previously a fairly uncompetitive market: remittance transfers from migrant workers. Azimo is a mobile and internet-based remittance service based in the UK that offers an alternative to traditional money transfers. It’s specifically geared toward migrants and offers low fees in comparison to banks and some of the bigger money transfer services. Similarly, Remitly lets users make “instant direct deposits” between a network of banks in three countries. Low rates – an average of 2 percent – and a process free of forms and agents are drawing investors, and as the largest independent remittance company in the US, the company has seen massive uptake in the last two years. Their messaging feature, where sender and receiver can communicate directly, is marketed as a unique way for migrants to make sure that funds are received safely and securely.
TransferWise, another UK-based company, is probably the coolest of the cool money transfer start-ups. Its anti-establishment message, campaign for bank transparency (#StopHiddenFees), and emphasis on customer service have helped its popularity to shoot up in recent years. Users receive benefits by sharing about TransferWise on social media or referring a friend, and the media seems to love their origin story. There’s also TransferGo, PayPal’s Xoom, and Chapulin – the list goes on and on, and after a while the competing marketing about lower fees, convenience and security start to blend together. (For an actual comparison of these services, check out Save on Send, a third-party site which allows users to compare transfer fees based on country, amount of money, currency, and sending and receiving methods.) Most of these sites do know how to cater to a large audience, combining features that might appeal to lower-wage workers like airtime top-off for mobile phones with numerous transfer method options.
Back in 2012, a New York Times article featured interviews with migrants who felt forced into paying the high fees charged by Western Union, MoneyGram and other large money transfer services, with no mention of alternatives. Either the Times just didn’t do its research, or there really has been a transformation of the remittance market in the last four three years. Still, it seems that Western Union maintains its hold, and the company has made its fair share of new-user-attracting technological innovations in recent years despite predictions that these smaller, newer companies will be the future.
Along with making fees lower and apps fancier, some companies have ventured beyond the typical money transfer model. As outlandish as it may sound at first, bitcoin has made its way into the remittance market with companies that specifically focus their services on low-wage migrants sending remittances to home countries. Most likely, migrant workers using these services aren’t concerned with the typical perks of bitcoin. They “don’t care about cryptocurrency or the blockchain or the coming financial revolution,” but are drawn to services like Africa’s BitPesa or Rebit in the Philippines because they simply cost less than non-bitcoin transfers. This form of money transfer is still fairly experimental, and only really possible on a large scale if individual receiving countries can determine a system of remittance method that fits best. While the popularity of bitcoin money transfer has grown, particularly in Africa where mobile payment has become commonplace, some companies have abandoned a focus on remittance for the “unbanked” and now market towards business-to-business exchanges. Many companies who start out with the idea that they will improve the remittance experience for migrant workers find the money transfer business difficult and either close up shop or broaden their focus.
Bitcoin enthusiasts get excited about the idea that individual businesses are autonomous and need no central agent in order to transfer funds, but again, unless these companies can sell bitcoin for its practical benefits rather than some subversive ideology, migrants workers are unlikely to want to try something unfamiliar. And because these companies are usually country or region-specific, migrants who aren’t from Africa, India or the Philippines won’t be trying bitcoin transfers just yet. The anonymity that has made bitcoin so popular for online transactions also means that law enforcement would be unable to trace funds used for criminal enterprise, so law enforcement is not a fan. And there’s an argument to be made that bitcoin remittance models don’t actually end up cheaper for senders. There’s also a bit of start-up cynicism to be had; as some have pointed out, so-called “FinTech” start-ups might market a message of social good (heart-wrenching stories of struggling migrant workers are common in pitches to investors) while in reality they are targeting “tech-savvy consumers in major metropolitan areas of top global remittance corridors.” Some companies, however, have chosen to go the opposite direction, narrowing in on specific communities of migrants – like Filipinos in Singapore who get paid in cash – and building a platform that just feels like another money transfer platform but uses bitcoin on the backend.
While governments aren’t endorsing bitcoin, they are undertaking campaigns to encourage migrants to use formal channels to remit their money – both so that the funds can be tracked and for safety and security reasons. But despite all of these technological advances and the myriad alternatives that exist for sending remittances, as long as one has access to a mobile phone or the internet, many migrants still choose to use informal channels for money transfer. If migrants trust the agent or hawala (also known as hundi) that is transferring the funds, they can often save money by sending money this way. Neither side of the transaction needs a bank account or even a smartphone, and the sender can get money directly to a recipient in a rural area simply by visiting an immigrant owned shop. Even more informal is informal cash transfer in which funds are actually transported via a friend, family member, or neighbor back to relatives in the home country. Although this method sounds insecure, it likely carries no fees, and can be dependable if the carrier is trusted and the sender isn’t in a hurry. The informal nature of both of these types of transfers makes it difficult for policymakers and economists to quantify the total amounts of remittances that are transmitted, and in some cases it is estimated that unrecorded flows could be as much as 50 percent larger than formal ones. Those most likely to use electronic transfers are the usual suspects: young, wealthy, and educated. Migrants also tend to be more likely to use informal channels if they have irregular legal status and if they are migrating for shorter periods of time.
Perhaps a market now saturated by alternatives makes it even more overwhelming for a migrant worker to use something new, especially if he or she doesn’t want to risk a bad choice. Workers might not have the luxury of time or ability to research the best rates or update the newest apps. Or perhaps these new FinTech developers are missing another, less tangible, reason that some migrants continue to send cash through individuals: cultural perceptions of “making it” abroad. The physical hand-off of money makes it clear to those who see it that the sender is committed to supporting his or her family and is on the path to prosperity. The cash transaction also sends an emotional message to the recipient, one that reinforces a relationship and that may not be the same when the funds are received through a screen or a bank teller. Regardless, the tech world has finally caught onto the enormous economic impact of remittances, and hopefully it isn’t just a trend.
Cover image by Erict19 under CC license.