Opportunities anticipated for remittance businesses

Apr 27 2022
Business Insights Remittance

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After taking a considerable hit at the start of the pandemic, Australia’s digital remittance industry is ready to rebound. And the sector is able to respond to rising demand thanks to new payments technology.

In 2020, almost one-third of the Australian population was born overseas. That’s 7.6 million immigrants sending an estimated A$21bn in remittances from Australia each year. While US$4.4bn in remittances were sent from Australia in 2020, this number is projected to grow significantly in the coming years.

On top of record global investment in Australian fintech, the sector is supported by government policy on innovation and growth.

The shifting landscape of cross-border payments is driven directly by the rapid change in consumer demands as fast, cheap, safe, and convenient digital payments solutions are growing.

Pandemic impact and recovery

Australia’s border closure at the start of the pandemic led to a dramatic reduction in working holidaymakers and temporary skilled migrants. As Australian remittance prices are already high by global standards, it’s no surprise that the outward flow of remittance from Australia dropped by 42.16% between 2019 and 2020.

Despite this fall, the impact of the pandemic has reinforced the importance of remittances to low and middle-income countries, particularly in the Indo-Pacific region. As Australia enters the recovery phase and promotes stronger remittance corridors with Pacific Island countries, the transaction value of digital remittances is expected to show an annual growth rate of 6.59% to be worth US$3.04m by 2025.

The pandemic has also sparked growth and innovation in mobile wallet technology giving many people access to remittances and other financial services for the first time. Mobile phone ownership among adults in emerging economies has grown to 83%, and the number of mobile wallet transactions rose from 36 million to 68 million in the first 12 months of the pandemic. During this period, the total value of these transactions doubled from A$1bn to $2.1bn.

Despite the economic downturn caused by the pandemic, global remittances totalled US$702bn in 2020 according to data from the World Bank.

Importance of remittance to broader regions

Accounting for as much as 30% of a country’s GDP, remittances can be the financial lifeblood for the families of migrant workers. A study of 10 developing Asian countries from 1981 to 2014 found that a 1% increase in remittances reduced the poverty gap ratio by 22.6% and the poverty severity ratio by 16%. This direct impact on families, communities and economies makes remittances one of the most important sources of external funding for low and middle income countries.

With Covid-19 having a disproportionate impact on these countries, the critical lifeline enabled by remittance is more important than ever. However, Australia’s traditional remittance channels are slow, inconvenient, expensive, inaccessible and falling short of consumer needs for transparency. As more of the underbanked population gains access to digital payment tools and the number of cashless transactions in developing countries rises, new payment technologies are shaking up Australia’s remittance industry.

The pandemic has impacted remittance corridors on both sides for the first time, and according to World Bank data, the average cost of remitting funds from Australia was 7.22% at the start of 2021. As high remittance costs are likely pushing millions of families below poverty lines in difficult economic times, Australia supports the G20 National Remittance Plan and the 2030 Agenda for Sustainable Development.

These initiatives aim to reduce the cost of remittance to less than 3% of each transaction by 2030, while promoting the use of technology that enables people to send money to their home countries in a safe and cost-effective way.

Regulatory considerations

Despite its economic and social importance, Australia’s remittance industry is considered high-risk for a number of illegal and threatening activities, including terrorism, drug trafficking and money laundering.

To mitigate these risks, protect their customers and enhance the industry, all remittance service providers in Australia must be registered with AUSTRAC and comply with obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF Act).

These obligations include:

  • Staff onboarding for safe data handling.

  • Identifying and monitoring customers.

  • Identifying and reporting suspicious activity and security issues.

  • Adopting a case-by-case approach.

  • Threshold transaction reports for remittances over A$10,000.

  • Keeping registration and enrolment with AUSTRAC up to date.

Some remittance providers may also require a financial services licence (AFSL) from the Australian Securities & Investments Commission (ASIC). In addition to issuing licences, ASIC also has an innovation hub that helps fintech startups achieve compliance in Australia’s evolving regulatory landscape.

In addition to tight security, Australia’s remittance industry regulations are moving toward a minimum standard for price transparency. Following a 2019 report by the Australian Competition and Consumer Commission (ACCC), most remittance services are now providing customers with reliable online price calculators.

Future predictions

As more people are predicted to travel and move to Australia for work or study in the next few years, the international flow of money will increase, driving growth and innovation in the remittance industry. With robust growth projected to 2025, here’s what the industry can expect to see:

1. Increasing collaboration with fintech.

To compete in the rapidly evolving sector, collaborations with fintech will continue to play a significant role in the cross-border payments sector. These partnerships can facilitate seamless data exchange with financial institutions, telcos and local partners to support an uninterrupted flow of remittance.

Combining agility and advanced technologies with brand recognition, industry knowledge, compliance frameworks and an extensive customer base, fintech and remittance providers can work together to meet evolving consumer demands and scale.

2. More SMEs are relying on digital remittance services.

The rising demand for fast, safe and affordable cross-border payments is also driven by the trend towards remote work and growth in the gig economy that have been accelerated by the pandemic. Increasing numbers of Australian businesses will need fast, safe and affordable services for sending cross-border payments to global freelancers and remote employees working overseas.

3. The remittance industry will become more competitive.

On top of the push for greater transparency, remittance companies will become increasingly competitive for low fees, tight security, speed and simplicity. With a trend towards greater efficiency and effectiveness, sending cross-border payments could become as fast and easy as sending a text message.

4. The adoptions of crypto payments by the remittance industry.

In an experimental move intended to save US$400m in remittance fees every year, El Salvador became the first country in the world to accept bitcoin as legal currency in September 2021. Tonga — the most remittance-dependent country in the world — is now considering bitcoin as legal tender in what may become a trend among the Pacific Islands.

Crypto will almost certainly play a role in the future of remittance in Australia — the question is, to what extent?

5. UX will be at the centre of innovation.

As remittance customers have uniquely strong emotions tied to their experience with a remittance service, user experience (UX) factors will be at the centre of innovation in Australia's digital remittance industry.

With global remittance flows to low and middle income countries expected to increase by 2.2% to reach US$565bn in 2022, Australia’s booming fintech industry is set to lead the way with innovative remittance solutions.

Australian remittance providers that partner with companies such as Zai to bring automation, payment orchestration and embedded finance to the cross-border payments sector will thrive in the marketplace.

To find out how, get in touch or download our guide below on how payment automation can help your business be more competitive and grow your market share.

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