The growth and cost of remittance

Remittance is usually considered as an exercise of money transfer from a country to another. In general such transactions represent two main categories. The one where a person is paid abroad for a service provided remotely or products shipped to the client, and the one where a foreign worker sends back money from the country where they work to the country where the family lives.
The flow is generally understood to be from a richer country or stronger currency to a poorer country or a country carrying a weaker currency then the one where the remittance is originated. The amount transacted globally in 2019 was close to $550 billion, up by nearly 5 per cent compared to previous year. The top five remittance recipient countries are India ($80 billion), China ($70 billion), Mexico (over $36 billion), the Philippines (around $34 billion), and Egypt ($29 billion).
Another interesting number to observe, is not the actual value of the transaction per-se as an amount, but rather as a percentage of the GDP for a specific country. If we follow this statistics, the top 5 countries receiving the highest remittances as a share of gross domestic product (GDP) in 2019 were: Tonga (38.5 per cent of GDP), Haiti (34.3 per cent), Nepal (29.9 per cent), Tajikistan (29.7 per cent), and the Kyrgyz Republic (29.6 per cent).
It substantially shows how deeply dependent is the country from incoming flow of cash thanks to foreign workers based in other countries. I notice that every time I go to Malaysia and I cannot fail to notice how the largest majority of the security guards seem to be of Nepalese origin. A third of the economy of Nepal is based on remittance.
In 2019, looking at the volume of money sent through remitting services, East Asia and the Pacific region recorded a growth of 7 per cent while South Asia skyrocketed to 12 per cent growth. Stronger economy and increased employment in the United States have driven the growth globally. Also, a rebound in outgoing transactions from some Gulf Cooperation Council (GCC) countries and the Russian Federation.
Remittances to the Middle East and North Africa grew 9 per cent to over $60 billion (data from 2018). One of the main reasons being Egypt’s rapid remittance growth of around 17 per cent also due to the country’s effort to promote fintech solutions. While we are waiting for finalised data from 2019, the growth in the MENA region is expected to have slowed down to 3 per cent.
Sending money abroad is a costly exercise and the industry of intermediating such service is really appealing to many fintech developers, eager to disrupt the market by bringing innovation. In 2019, the average cost of transaction based on a $200 remittance was 7 per cent, a high price to pay to get the money sent back to the family. In the Sustainable Development Goals (point 10.C) the United Nations indicates that the cost of remittance should be “By 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent”. Currently, only Southeast Asia seems to be in line with the goals set by the UN. In other parts of the world, especially in Africa, the cost of remittance remains as high as 10 per cent or above.
Remittance using bank transfer and other bank services remains the most expensive way at the moment, with recorded average transaction around 11 per cent last year. In some countries and with some operators there are additional premiums to be paid. It is always important to double check all fees that are computed in the transaction.
For instance I was sending $600 from Singapore to Uganda and I asked for a quotation to one of the world leading remittance operators. At first I was quoted a whopping SGD 80 (slightly less than $60), therefore a 10 per cent transaction. But the operator promptly informed me that I would have paid only SGD 2 if I performed the transaction via mobile app.
So I immediately downloaded the app and setup the transaction. To my horror the total amount due was still $660, not a penny less than what the agent quoted me at the kiosk.
Upon investigating I found out that it was all a gimmick. While at the kiosk I was quoted very high service fee and zero currency fluctuation, the mobile app did the exact opposite. The service fee was indeed only SGD 2, but the exchange rate provided from SGD (Singapore Dollar) to UGX (Ugandan Shilling) was dreadfully more expensive. Hence the total amount charged at the kiosk and the cost of performing the transaction via mobile app, was exactly the same.
Anyone sending money back home or simply paying for goods and services from other countries should always be mindful of the full cost of the transaction, including both the service fee and the currency exchange.