Remittances in an emerging economy: Philippines
A remittance is a simple transfer of money from Point A (usually from a worker overseas) to Point B (usually is a family in his home country). Next to international aid, money sent home by overseas workers to their families is one of the largest financial inflows to some countries and has been one of the key contributors to their GDP (Gross Domestic Product).
Data shows that there are at least 16 countries back in 2013 that had remittances contribute to over 15% of their total GDP:
Moreover, remittances around the world have been in a steady incline. In 2018 alone, worldwide remittance transactions rose at least 10% from the year before and amounted to over $689B USD. It has been one of the most used channels of sending and receiving money, regardless of what the reasons may be; whether for compensation payments, for supporting your family elsewhere, for paying for your bills, etc.. and this gave rise to a plethora of companies, most especially after the internet came out. And not surprisingly, developing countries are benefitting the most.
Take the Philippines as an example.
According to the World Bank, from 1977–2017, remittances averaged around 7% of the total GDP of the Philippines. To give you an idea, in the same period, the country averaged only around 3.8%-4.0% GDP growth annually.
All of these personal remittances equaled to at least $32.21B USD last 2018. That’s how big the industry is in the Philippines alone.
Now, with all that money, don’t you think we’d be able to transact easily? conveniently? cheaply?
Sadly, the answer is no.
Why is it such a pain to send money?
Normally, with the advent of new technology, processes tend to be smoother, less of a hassle. Regardless of the industry, when you involve technology in a process, it removes the unnecessary steps and makes everything more efficient. That’s right, to put it, technology equals efficiency.
Unfortunately, it has not been the case for sending money through remittances.
Sure, it may have been faster than what it was before. Sure, it may have been cheaper too. But the overall process is just too time-consuming.
Let me show you.
Step 1: Sender needs to go out of his house.
Step 2: Sender needs to go to a remittance center, he’s lucky if there’s a branch nearby, otherwise, he’d need to drive, or commute going there.
Step 3: Once in the remittance center, Sender would need to fill out a form and fall in line to send the money.
Step 4: Sender then is handed a copy of the receipt with a confirmation number for the transaction.
Step 5: Sender takes a picture of the receipt, sends it to his family back home.
Step 6: Family back home needs to go out of their house.
Step 7: Family back home would then need to find a remittance center. (again, their lucky if there’s a branch nearby)
Step 8: Once in the remittance center, family back home would need to fill out a form, fall in line and present 1–2 valid photo id’s to receive the money.
Step 9: Cashier validates the transaction and gives family back home the cash.
Sounds a handful, right?
It’s messy, time-consuming, involves too many processes, and has been that way for decades. The entire process has seen little change, let alone any innovation, even with new financial products available today.
But, What if?
There is a tremendous amount of innovation happening in various sectors right now, but most notably, Fintech, or Financial Technology, arguably has been the most talked about.
Take Bitcoin for example.
Bitcoin has created a phenomenon and was the most discussed tech last 2017, especially when it climbed up to $19,783 in value. Anybody and their moms would talk about bitcoin. But in essence, Bitcoin was just a way to transfer value from point A to point B. Sounds familiar?
Now, why is it not the same for remittance?
To tell you truthfully, no one knows for certain. I don’t think there’s anyone reason why the remittance industry has seen little innovation in the past decade. It could be because of financial regulation, to prevent money laundering. It could be because of consumer behavior, the process has seen little change in all its years and the users have adapted to it so religiously that they don’t want it to change. It could be a bunch of other things, regardless, we agree that the process is lengthy, to say the least.
But, what if there’s a way to change things?
The Future
We can all agree by now that, similar to the century-old real estate industry, the remittance segment is ripe for innovation. We have new banking facilities in place that can help us with this, or maybe the adoption of cryptocurrencies can solve this, who knows?
The Philippines, however, is in a very unique position wherein the cash inflow of remittances is still growing. That, combined with one of the fastest emerging start-up scenes in the region, maybe the ingredients we need for us to depart from the old ways and welcome a long-awaited market disruption.
But one thing’s for certain, whoever comes up with a solution and markets it first successfully will surely have a shot at capitalizing, and capturing, that $689B USD global remittance market.
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