Mobile wallets increase financial inclusion in developing countries
Mobile wallets and their impact on money transfers
Access to financial services is key to reducing economic inequality, as are the cross-border remittances that support many families and communities in low- and middle-income countries. Many international migrants feel a deep obligation to consistently support the people they leave behind.
The money they send home – remittances – is often a critical lifeline for their families. International remittances to low- and middle-income countries were over $600 billion last year and are expected to grow to $630 billion this year, far exceeding development aid given to these countries.
The money received from family members abroad keeps food on the table for families, improves educational opportunities for many children, gives people access to healthcare, expands the resources available to small farmers and helps support small-scale businesses whose growth would otherwise be limited due to credit constraints. In developing countries where there are many workers but few opportunities for formal employment, remittances get people started on the road to self-employment. The evidence is strong that remittances help alleviate poverty for recipient families.
The impact of remittances goes further and can even improve the economic prospects of entire countries. In extreme cases, such as El Salvador and Honduras, remittances account for more than 25% of GDP. It is not uncommon for remittances to contribute more than 10% of GDP for many low-income countries.
Remittances are considered so critical that countries during the pandemic declared money transfer an important service so that customers could continue to send and receive money, despite restrictions.
Reduce the technological gap in financial services
Covid-19 hit the economies of developed countries so hard that analysts predicted that remittances would fall by 20%. Actually, the opposite happened. Globally, remittances to low- and middle-income countries increased almost 1% in 2020 and grew 8% in 2021. In Latin America, they increased 25% last year to $131 billion. Remittances to the region had not grown so much since 2003, when an increase of 30% was recorded.
What has changed with the flow of remittances to low- and middle-income countries is that more payments are being made to mobile wallets and directly to bank accounts. The forced shutdowns and travel restrictions during the pandemic led to a huge increase in technology adoption globally and began to turn the tide for Latin American countries that had lagged behind other regions in terms of economic inclusion.
In recent years, several Latin American countries have worked to reduce the technological gap in financial services. They lower barriers to entry and help overcome regulatory hurdles by setting up sandboxes and creating specific programs to help fintech firms navigate the regulatory and supervisory environment.
Colombia’s financial supervision has improved regulation and monitoring and promoted the financial sector among the general public, as well as implemented initiatives to promote the fintech sector.
In Brazil, the central bank launched an instant payment platform called Pix in late 2020 that allows money transfers day or night, without requiring credit or debit cards or confidential information. It is also free for individuals. All financial institutions in Brazil are connected to Pix and it is a great success. Ria launched service in Pix in June last year, and the growth in transfers through Pix each month has been in double digits since then.
Aid payments expand role in financial inclusion
In many cases, it was the digitization of aid payments during the pandemic that began to open a door to the financial system for many people. Almost 60 low- and middle-income countries as well as international aid organizations and NGOs have used digital payments to deliver emergency aid during the pandemic.
Brazil’s government used Pix to distribute Covid-19 relief, resulting in 70 million new accounts in a country that has an estimated 34 million unbanked adults. In Colombia, the government began distributing emergency benefits to mobile wallets in March 2020 and continues to pay subsidies to wallets. This encourages Colombians to join the financial system. The number of Colombians with a bank account grew to 86% in the first half of 2020, up from 82% at the end of 2019. Twelve years ago, the IMF estimates that only half of Colombians had access to all kinds of financial products. As for Ria, we are seeing impressive growth in mobile wallet payments in Colombia.
Fast, seamless payments across borders
The high demand for technology resulting from the pandemic increased technological adoption worldwide. This meant that technology that already existed but had not been implemented on a large scale was suddenly in demand due to lockdowns and social distancing. This accelerated several trends in the payment ecosystem in general and changed what people expect from digital payment services.
Consumers and businesses are now demanding faster, easier and cheaper payment options. As a result, authorities in several countries have recently established or are working to introduce real-time payment schemes for domestic payments. There has also been progress on the international front with real-time payment arrangements being established between pairs or groups of neighboring countries. However, much work remains to speed up cross-border payments for all.
Meanwhile, technology is speeding up cross-border transfers and also helping to reduce costs. The digital expansion of money transfer operators means that a greater number of bank accounts and mobile wallets can be accessed in more remote parts of the world through a wider variety of channels than ever before, giving more people the tools to help them build a better future.
About the Author: Rosario Escarpita is the CEO of the Americas for Ria Money Transfer, one of the largest money transfer companies in the world. She is responsible for the development and expansion of Ria’s products, services and network in America. Escarpita has more than 18 years of experience in the money transfer industry, joining Ria in 2010 and previously serving as Vice President of National Sales for GroupEx Money Transfer.
