Remittances Overview

Remittances are commonly defined as the practice of foreign workers sending money across borders to relatives back home. Annual remittance flows to low & middle income countries increased by 9.6% last year and reached $529 billion… As of Q1 2019, the global average cost of sending $200 is approximately 7%. Whereas remittance costs across African borders or pacific islands remained above 10%. It is estimated that low & middle income countries lose out on around $30bn each year due to remittance fees. This is cash that is being directed back to families who often do not live in the best conditions and benefit from any extra funds they can get. Furthermore, these funds can often ‘multiply’ as they contribute to the improvement of the receiving economy.

The Importance of Reducing Remittance Fees

In countries such as Tonga, the Kyrgyz Republic, Tajikistan and Haiti, remittances contributed to around a third of these countries’ GDPs… Other countries such as Guatemala, the Philippines, and Senegal also had remittances that exceeded 10% of their GDP. Seeing these significant amounts in relation to these countries’ entire GDPs shows how important this issue is. Any remittance fee reductions towards these countries would have a significant impact on their economies.

Why the High Fees?

These high fees are often due to numerous reasons of which we’ll explain below.
Regulations – banks and MTOs (money transfer operators) have to make sure that any funds are not being used for money laundering or in order to aid terrorists.
Monoplies in the remittance industry – in many countries, consumers lack choice. For example, in many African countries, the national post office has an exclusive partnership with one MTO only. Due to access restrictions from rural areas, post offices are often the only infrastructure available for these types of services.
Cash based societies – dealing in cash also carries along costs which are passed on to remittance fees. Physical agents, amongst other operational costs associated with moving large amounts of cash have to be covered too. Therefore, the move to digital payments in these countries aids in lowering the overall fees.

FinTech Players

Azimo
This London-based FinTech entered the remittance industry back in 2012. Avimo seems to have the largest array of transfer destinations – you can send money to 195+ countries! However, you can only send money from European countries. Therefore if you’re sending money from the USA, Canada or somehwhere else outside of Europe, Azimo won’t be for you. Azimo adds between 0.1-2.25% to the mid-market exchange rate. There is also a transaction fee which varies a lot depending on which currencies are chosen and how much is being sent. However when compared to using traditional banks you can save around 90% for each transfer. With Azimo, you are able to send money to more or less anywhere in the world… Whereas competitors usually specialise in under 100 countries.

TransferWise
TransferWise is also London-based, and it’s a FinTech that’s been making the news all over. TransferWise was founded in 2010, 9 years later they have a $3.5bn valuation… TransferWise uses the mid-market rate, which you would find on Google or Reuters, for their foreign transactions. Their transaction fees also vary a lot however they are still incredibly lower than traditional banks. TransferWise customers can send from the largest variety of countries, not only from Europe. Customers can also send from from many countries throughout the Americas and Asia. Click this link to check out where you can send from and the fees involved. However, transfers can be made to around 80 countries, which is less than half of what Azimo can do.

InstaReM
InstaReM is the youngest of these main competitors, it was founded during 2014 in Singapur. InstaReM have the least currencies available for transfers. However, their transfer origins are not limited to just Europe, they can originate from a variety of countries. They claim to also use the mid-market rate, charging a flat fee instead.

WorldRemit
WorldRemit is also a London-based FinTech which was founded in 2010. They claim to be able to send money from 50 different countries, to 150 countries around the world. WorldRemit also uses the mid-market rate for transfers, however their transaction fees are a little higher.

GBP to EUR Comparison: £2,000 Transfer Test

As of writing, the mid-market exchange rate was 1.12959. Meaning that the maximum possible transfer of 2,000 GBP to EUR would be €2259.18 with €0 fees. The results are below:

€2231.14 – WorldRemit: €28.04 fees
€2248.47 – TransferWise: €10.71 fees
€2248.70 – InstaReM: €10.48 fees
€2249.42 – Azimo: €9.76 fees

It seems that WorldRemit is the only company out of these competitors which had considerably more fees. The rest were all between €1, when in relation to a £2,000 transfer, is rather minimal. However when you compare the fees by these FinTechs to a traditional bank, the differences are astonishing…

TransferWise conducted some research and formulated a table showing the fees involved when sending 2000 GBP to EUR from leading banks. Fees ranged from around £50 to £90 (approx. €55 – €100). Additionally, sending via Western Union, one of the most popular MTOs, cost around £200! The fees by these leading banks are 5-10 times more expensive than our top 3 FinTechs… That’s a big difference!

This new stream of FinTechs have drastically lowered remittance fees. So why send money by international wire transfer, when you can pay 5-10 times less in fees via one of these Remittance FinTechs?