Remittances play an exceptionally important role in the modern world. For many countries, they provide over 25% of GDP. The Philippines is one of the many countries where millions of people rely on overseas money transfers from working relatives. And these people know from painful experience how unfair and unbalanced the remittance industry is, because a large part of that precious money is lost to fees and currency exchange margins.
At least this is how it used to be. Money transfer companies that are getting bigger and more popular today have revolutionized the industry making a huge impact on people’s lives and entire economies.
How Much Do Remittances Matter for the Philippines?
Remittances affect the lives of millions of people in the Philippines because over 10% of the country’s population work abroad and send money home to support their families. In 2016, for example, the worth of remittances to the Philippines reached $26.9 billion, which equals nearly half (48%) of the country’s merchandise export, reports The National Business.
This money goes to pay for education, food, accommodation, and other ways of improving the quality of life. This means that it’s poured into the economy, so these funds work to improve the lives of all residents, not only those who receive remittances directly.
About a quarter of remittances go into savings, which are then used to make significant improvements to the quality of life. This does not only offer immediate benefits to the economy but also helps the younger generations get more opportunities and prevents millions of people from sliding into poverty.
In this way, remittances directly affect the future of the entire nation, and people of the Philippines aren’t the only nation for whom this is the case.
High Cost of Remittances: A Global Problem
It’s easy to see that remittances are making a huge impact already. However, these money transfers could make much more of a difference if only they were less expensive. For example, you might lose up to 11% of the payment when sending money to the Philippines from the US.
There are places where this number is even higher, and yet people use these services anyway. They are necessary, so many workers have no choice but to accept the fact that a significant portion of the money they make will go to the money transfer provider instead of their family.
Considering the fact that the total volume of global remittances goes well into tens of billions, he losses also amount to billions. Those are the money that could be working to help developing countries develop and solve so many problems.
Money Transfer Companies That Help Solve the Problem of Remittances to the Philippines
The best news for the people of the Philippines and the world at large is that this sad situation with expensive remittances is starting to change. Today there are many businesses that offer cheaper international money transfers. Some of the best remittances companies even go as far as to offer fixed pricing rates with extremely low margins for currency exchange. The leaders among these are TransferWise and WorldFirst, which have literally revolutionized the industry.
TransferWise has margins of 0.5-0.7%, depending on the currency and as of a little while ago, WorldFirst offers an even better deal with fixed margins between 0.5-0.15% depending on the total volume of transfers in a year. When TransferWise first came out with its fixed low rates, that were lower than the market average, it pushed the competition in the industry so far that the average margin lowered to accommodate those rates. Now, WorldFirst might be triggering the same reaction.
However, for al that these two fintech companies are giants of the rapidly-growing industry of affordable and fast online money transfers, they aren’t the only businesses that help millions of people who rely on remittances worldwide. Other companies offering similar services with their own advantages include Azmio, Moneycorp, Currencies Direct, and Payoneer. There are dozens more and new appear regularly. Some of them, like Veem and FlashFX, even venture into using blockchain in their transfers.
Are Money Transfer Companies Enough to Make a Difference for the Remittance Industry?
Money transfer companies are making a difference, however, the UN reports that remittances remain too expensive for a great number of people worldwide. The main problem for them is that these amazing and affordable money transfers are unavailable in their regions. Therefore, they have no choice but to settle for expensive and overall inefficient transfers.
To see the scope of the situation better, just think that the majority of money transfer companies allow making payments to about 50-70 countries on average, and you actually have an opportunity to make those payments from about 20 countries. In the meantime, one of the leaders among money transfer companies that provide expensive services, MoneyGram, allows making payments to over 200 countries.
In order to make more of a global change, remittance companies need to grow and expand to make sure their network covers every corner of the planet. And while this kind of thing is still a few years away, it’s definitely possible. The changes are happening now that will keep pushing the money transfer industry to evolve and become more flexible and affordable. As the competition in the industry grows, businesses have no choice but to drop their rates, and to compensate for this they must increase transfer volumes. This means that they must expand to new locations.
Luckily, the globalization, which is responsible for the increase in remittances, is making this process of expansion easier. Most importantly, local governments recognize this issue and start changing their legislation to allow for easier money transfers coming from abroad.
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