The global Covid-19 pandemic has changed how people transact and interact around the world. But one thing that never changed was the connection that people have to their family and those they love, no matter how far away. The cross-border money transfer industry had one of the more unexpected reactions to the pandemic over the last year. While the World Bank predicted a 20% decline in consumer cross-border payment flows at the onset of the pandemic, they walked back their hypothesis when 2020 remittance data showed only a 1.6% decrease from 2019. Why did this happen, and what can we learn from it across the greater financial services industry?
Max Alvisini is Senior Vice President Europe CIS & Africa at Western Union.
Cross-border consumer payments, or remittances, are sent for a variety of use cases. People send money to provide for family in their home country, to invest or support their own assets in another country, for emergencies – including healthcare or as gifts. Throughout the pandemic, those needs didn’t change. If anything, they became more acute as people endured health crises or were out of work due to lockdowns. The world bank predicted that remittance senders affected by lockdowns in their residing countries – perhaps unable to work or to enter a money transfer location – would be less able to send funds home and reduce the overall remittance market.
However, what they underestimated was the strong connection that remittance senders have to their home countries and their commitment to the people they support. Remittance principals saw an initial decline in the early days of the pandemic, but as we’ve seen through the reported earnings of global money transfer providers, these have quickly rebounded and continue to increase even as the pandemic continues.
A key element of this recovery was the technology in place prior to the pandemic that supported online money transfer sends and direct-to-account delivery. Just as customers began adopting contactless shopping, grocery delivery and streaming entertainment at a higher rate during the pandemic, they also gravitated towards online solutions for financial services. Sending money online from accounts has been made possible by money transfer operators for years, and nearly all public MTOs reported a significant increase in transactions across their digital channels in 2020.
Optimized cross-border payment solution
Cross-border payments from financial institutions (FIs) are typically sent via wire transfer which has significant customer experience challenges, including fee and FX transparency, slow delivery speeds, and a lack of tracking information. Prior to the pandemic, many FIs only offered this service in-person at their branch locations. Now, financial institutions are seeing the value in embedding an optimized cross-border payment solution into their online banking experience, or risk losing market share as customers take their transactions away from banks to money transfer providers. To accomplish this, they have two choices – either invest significantly in a global solution, or partner with an industry expert to enable more transparency, more pay-out options and faster delivery speeds for P2P cross-border payments.
eKYC
Even more critical to the success of online money transfer solutions was the emergence of eKYC (electronic Know Your Customer) compliance capabilities in several countries that had previously required in-person consumer validation. These shifts were made possible by changes in regulations which allow eKYC to coexist with in-person validation channels as an additional way to approve customers for cross-border transactions.
Transparency and instant payments
To further streamline cross border payments, in particular with partnerships between money transfer platforms and financial institutions, FIs must continue to accelerate adoption of ISO 20022 standards and real-time payment schemes in local markets. These allow for the development of additional APIs and overlay services that help introduce new products to market in an efficient way. Transparency in cross-border payments, paired with the rollout of instant payments and direct access for non-banks to the payments system together could work to increase the speed and reduce the cost of the transaction – benefiting the end customer.
Furthermore, in order to fully understand what customers want, it is crucial to have an on-the-ground presence with employees who are fully immersed in and understand the local culture: sitting thousands of miles away crunching numbers just does not compete with this. Local teams help influence how the products and solutions are built to best meet the needs of customers on both sides of the transaction. Developing markets have been consistently delivering better GDP growth rates than those in developed markets – inclusive financial innovation is a win-win.
As the world begins to recover from the Covid-19 pandemic, the financial services industry is well positioned to support customers’ new ways of working – online, in person, with real-time speeds and high transparency to the end consumer. Partnerships between money transfer experts and established financial institutions help bring these solutions to more customers so that they can continue to support the people they care about around the world.
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