Superapps give a new purpose to remittances

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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 behavior, it has also changed the way people send money abroad and is widely believed will also greatly impact the frequency and volume of remittances which would otherwise be sent this year. But 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% higher than the same period last year, a spike that the country’s central bank has attributed to the gradual reopening of businesses in countries across the Middle East, Europe and the U.S.

But this surge is unlikely to last, with the World Bank expecting remittances to fall by 20% this year to $445 billion, the sharpest decline in modern history. This drop is the 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 global organization said.

Countries in the Gulf Cooperation Council (GCC) including Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE are the world’s biggest source of outbound remittances. GCC 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 laborers or put their contracts on hold.

The Burj Khalifa tower, center, stands among city skyscrapers, in Dubai, United Arab Emirates, on Tuesday, July 23, 2019. Photographer: Christopher Pike/Bloomberg

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 laborers 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, and as they’re getting their last service payment they know it is coming to an end, so they’re moving money out.

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 providers worked to make their services available online. But burdened by legacy technology, traditional remittance companies 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.

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 spent accordingly. But sending money directly into a digital wallet allows remitters to send smaller amounts and provides them with more control over how the money is used, be it for 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 over how the money is spent, which has led to tensions between senders and spenders in up to 75% of the cases.

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 one platform. They also all have an integrated mobile wallet, which can be topped up. 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 monthly remittance product, that’s of greatest interest to companies in the super app space.

Fintech companies in this emerging area may face regulatory challenges, whereas traditional exchange providers are likely to 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 – a need that's particularly relevant now.

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Remittances P-to-P payments Cross border payments Economy