Remittances with purpose

Every year, about a billion migrants send money to their families in remittances. This simple act plays an incredibly crucial role in the economies of low to medium income countries. As the pandemic continues to alter consumer behaviour, it has also changed the way people send money abroad and is widely believed will also greatly impact the frequency and volume of remittance which would otherwise be sent this year. So far however, this is not playing out in the data being reported.

Currently, several countries around the world continue to see record remittance inflows. In Pakistan, remittances reached $7.3 billion in the last three months, 37 per cent higher than the same period last year, a spike that the country’s central bank has attributed to the gradual re-opening of businesses in countries across the Middle East, Europe and the US.

But this surge is unlikely to last, with the World Bank expecting remittances to fall by 20 per cent this year to $445 billion, the sharpest decline in modern history. This, according to the global body is a result of the economic devastation brought on by the coronavirus pandemic, which has led to rising unemployment and salary reductions especially among migrant workers.

The GCC is the world’s biggest source of outbound remittances, migrant workers typically send 80% of their wages back to their home countries and economic decline in this region will have wider implications on the economies of low to medium income countries. There is a sense that the layoffs witnessed in the early days and indeed throughout the pandemic have affected remittances, with many construction companies having laid off labourers or put their contracts on hold.

Earlier this month Arabtec Holding, the construction company that helped build the world’s tallest building, the Burj Khalifa in Dubai, announced it was going into liquidation, threatening thousands of jobs, many of them migrant workers. Thousands of labourers and workers have already left the GCC, heading back to their home country and are sending their savings and end of service payments back.

Many on the ground are hearing anecdotally that in certain cases migrants who are based in the Middle East are driving large flows to Asia, they’re getting their last service payment, they know it is coming to an end, so they’re moving money out.

Digital Remittances – with purpose

Increasingly, this money is being sent digitally. During the lockdown periods, banks and exchange houses were either shut or had their working hours reduced, making it difficult for people to send money abroad as easily as before. This pushed many to digital services, and the remittance houses worked to make their services available online. But burdened by legacy, traditional remittance houses have struggled to make a seamless transition to the digital world and in their place, fintech companies offering peer-to-peer money transfers are thriving.

One such company is Denarii Cash, a mobile money transfer app for expatriates in the UAE, which saw growth of 535% in downloads of its application and expanded its services to 11 countries during the lockdown to the Philippines, India, Pakistan, Bangladesh, Sri Lanka, Nepal, Bahrain, Kuwait, Egypt, Jordan and Saudi Arabia. Demand was so high for its service, that it claims to have waitlisted 1.1 million users, compared to just 57,000 active users prior to the coronavirus.

Other startups offering money transfers have also emerged including Mamopay and Rise in the UAE and Flick in Egypt, whose founder is targeting the GCC-Egypt corridor which was valued at $18.8 billion in 2019.

“The current situation has given us a great opportunity to develop these solutions. Customer behaviours have changed, and many Egyptians are looking for new ways to send money and pay digitally,” says Flick’s founder and CEO Ahmad Zalat.

As remittances become more digital, particularly on the receiving side, it will lead to remittance for purpose. Typically, remitters send a bulk sum which is taken out in cash by the recipient and distributed/spent accordingly. But sending money directly into a digital wallet allows remitters to send smaller amounts and provides them with more control over what the money is used for, be it airtime, data bundles, gift vouchers, and more recently, bill payments on Ding’s infrastructure.

This is remittance for purpose where instead of sending $100, they send $20 in airtime, or pay a bill or add credit to an account for a local pharmacy. The money is going to the service it will be used for.

According to UAE-based fintech startup Rise, 93% of people who send remittances have no control on how the money is spent, which has led to tensions between senders and spenders in up to 75% of the cases. The company recently launched a new service, Xare, a mobile app that enables people to share their accounts and credit cards with friends and family while maintaining control over how the money is used.

Super Apps – stay a while

There is a trend in several emerging markets for the development of super apps. Following the models of WeChat in China and Gojek in Indonesia, these platforms enable users to purchase a variety of services and products from the one platform. They also all have an integrated mobile wallet, which can be topped up.

These companies are trying to create these financial super apps and mobile payments is their route to doing that, it’s a very well-trodden path and it centres on capturing the market. The idea of selling multiple products to the same customer while you have them in your ecosystem gives them more reasons not to leave.

The companies looking to bolster their presence and offer more services are hoping it will lead to greater sustainability and longevity of their platform. If you acquire one customer and sell two or three products to them as opposed to a one time a month remittance product, that’s what is really of interest to companies in the super app space.

It is a way to offer convenience in order to drive more value, which opens up new opportunities for third party operators like Ding to access these new ecosystems.

In the Middle East, Careem has been leading the charge for the development of a super app. While its mobile wallet remains a peer-to-peer closed loop wallet, which means credit cannot be cashed out, the company is partnering up with service providers to join its platform so users can purchase products and services using the Careem Wallet. In Egypt, micromobility startup Halan is also aiming to become a super app and in Algeria, Temtem recently launched its own super app with the ability to make money transfers.

At Ding, we’re seeing a lot of companies adding remittances and top-up to their offering. Companies are trying to put diverse services on their apps to support their customer’s other daily needs. Remittances may well be something which big retail companies will be looking at very soon.

However, one thing Careem and other fintechs back in the Middle East is the regulatory environment. Even though the environment seems ripe for disruption, it will happen slowly because of regulatory hurdles.

Such regulatory challenges for fintech companies will benefit the traditional exchange houses who already have the necessary licences. Moreover, regulatory challenges with cashing out will likely push people more towards purpose-driven remittances, like sending mobile top-ups which have become a necessity in today’s world.

People want to stay in touch with their loved ones, by giving their loved ones access to be on the internet, so they can be connected to the outside world – particularly relevant at a time like now.