How Digital Assets are Changing the Global Remittance Market, And How to Invest In It

A colorful array of international currencies
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The term remittance refers to the payment of money to another party, typically in another country, but the term is most frequently used in the context of migrants working abroad sending money back home. Global remittances are increasingly digital and the industry has grown alongside that fact, allowing the sender to put funds straight onto a recipient’s card, mobile device, or digital wallet. In this piece, we will look at this industry and the technological innovations that are driving companies forward, and what investors should watch for.

What are Remittances?

As mentioned above, remittances refers to the transfer of money from one party to another, and digital remittances are cross-border money transfers made over the internet by the migrant population. Remittances are so important globally that June 16 is the International Day of Family Remittances, recognizing the contribution of over 200 million migrants to help improve the lives of around 800 million family members back home.

Legacy providers in this segment include banks, post offices, and specialized money transfer services such as Western Union (WU) and MoneyGram International (MGI). In the past, these services charged comparatively high fees, which allowed digital transfer companies such as Transferwise, Worldremit, and Remitly (RELY) to win a meaningful market share by offering reduced transfer fees. This is possible due to optimizing the use of digital infrastructures to bypass much of the cost. However, in the face of growing competition, Western Union and MoneyGram have seriously stepped up their game in recent years.

Digital remittance providers are a significant financial benefit to underdeveloped countries, but the feasibility of cross-border transfers from one individual to another is highly dependent on the cost. Online remittance service providers can charge lower fees and make sending and receiving money much easier, particularly by making a bank branch visit unnecessary.

The Global Remittance Market

The global remittance market is rapidly changing, growing both in size and complexity, with increased competition and regulatory changes. Total global remittances have been growing at an accelerating pace:

  • $36 billion in 1980
  • $59 billion in 1990 (64% increase)
  • $125 billion in 2000 (112% increase)
  • $473 billion in 2010 (278% increase)
  • $714 billion in 2020 (51% increase – affected by the pandemic)

The transaction value in the total Remittances segment (versus the total remittance market) is projected to reach $132.40 billion in 2023. The transaction value for digital remittances is expected to show an annual growth rate (CAGR 2023-2027) of 6.73% resulting in a projected total amount of $171.8 billion by 2027.

The need for a digital shift is clear. The cost of sending $200 internationally averaged 6.3% in Q3 2022, according to the World Bank’s Remittances Costs Worldwide Database. Digital services consistently cost less, regardless of the remittance destination, ranging from the lowest transfer fees of 2.38% for digital versus 3.05% for cash in South Asia to the highest of 3.99% for digital versus 5.74% for cash in sub-Saharan Africa.

Which Economies Depend on Remittances?

In 2021 Lebanon became the world’s most remittance-dependent nation, with incoming payments accounting for nearly 54% of GDP. An estimated 15%-30% of Lebanese households in 2022 relied on remittances as a source of income, up from 10% in 2019. These were the largest recipient nations of inflow remittances (by U.S. dollar value) in 2021, according to Statista:

  • India with $89.4 billion (4.9%)
  • Mexico $54.1 billion (4.3%)
  • China $53 billion (6.4%)
  • Philippines $36.7 billion
  • Egypt $31.5 billion

Overall the regions of South Asia, East Asia, and the Pacific are the biggest receivers of remittances. These were the leading countries by U.S. dollar value for migrant remittance outflows in 2021, according to Statista:

  • United States $74.6 billion
  • Saudi Arabia $40.7 billion
  • China $22.9 billion

Why Focus on Remittances Now?

The majority of remittance recipients still have to pick up their money in cash, which adds an estimated 1-3% to every transaction. Many of these recipients are forced to do this because they are one of the estimated 1.4 billion unbanked adults worldwide. Digital remittances can help reduce costs and increase transaction speed by putting the funds directly onto a card or a digital wallet for the recipient. As the global remittance market continues to grow rapidly, the demand for more cost-effective and efficient solutions will increase.

The recent crises in crypto and digital assets will likely result in increased regulation and oversight, but that will lead to greater acceptance and utility in the coming years as this new technology moves further into the mainstream. In addition, some of the new players in the space came into the public markets during the heady valuations of 2021 and have seen their share prices become much more attractive since then, despite the overall market weakness.

Remittance Companies

These are some of the publicly traded companies growing their digital remittance businesses.

Euronet (EEFT) in 2021 (latest annual report) reached 439 million mobile wallet accounts. Using its Ria app (powered by its Dandelion payments platform), users can send money to people in 165 countries in real time. Money transfer accounted for 46% of total revenue in 2021, including a 25% growth in U.S. outbound transactions and a 21% growth in international-outbound transactions.

While MoneyGram was initially slow to shift its business model towards digital, giving new entrants opportunities, it was the first to use blockchain technology at scale for cross-border payments (while Bitcoin did use blockchain technology at scale for cross-border payments, BTC is primarily a currency rather than a money-transfer company). Out of the over 200 countries the company serves, over 100 are digitally enabled versus websites in just three countries in 1997. The company’s Digital Channel includes mobile wallets and debit card solutions. Global money transfer services account for over 90% of its revenue. Digital revenue rose from an estimated 2% of total revenue in 2011 to 32.5% in Q4 2022, representing a YoY growth of 33% in the fourth quarter. The company has seen 12 consecutive quarters of double-digit growth in its digital business. In May 2021, the company launched a partnership with Coinme to enable the cash funding and payout of digital currency purchases and sales. By January 2022, it had purchased approximately 2% of Coinme. In 2021 the company also partnered with Emergent Technology to enable cash funding and payout of the purchase and sale of digital gold.

Payoneer (PAYO) was founded in 2005 and went public in June 2021 via a merger with a SPAC with an implied valuation of $3.3 billion at closing. It allows clients to send and receive funds using an e-wallet and provides cross-border transactions in 200 countries and over 150 local currencies. It is used by companies such as Amazon (AMZN), Alphabet (GOOG), and Walmart (WMT) to send payments.

Remitly was founded in 2011 at BeamIt Mobile, a search engine for remittance services, but quickly shifted to remittances and changed its name in August 2012. It began trading on the Nasdaq in September 2021 and today serves immigrants and their families in over 170 countries. It has seen profound growth in revenues of 103% YoY for 2020, 78.5% for 2021, and 42.5% for 2022, reaching $653.6 million. The company works with everything from WeChat to traditional banks.

Western Union saw its digital money transfer revenue grow 22% to over $1 billion in 2021 (latest annual report), versus around $850 million in 2020 and $600 million in 2019. Its digital money transfer revenues rose to 24% of total C2C (consumer-to-consumer) revenue, up from 20% in 2020, with the number of digital money transfer transactions growing 32% YoY in 2021. C2C is the core of WU’s business, representing 87% of 2021 revenues.

Wise (WIZEY), formerly TransferWise, is a UK-based foreign exchange financial technology company founded in 2011 and went public via a direct listing on the London Stock Exchange in July 2021 with a valuation of $11 billion. In the first half of Wise’s current fiscal year, 50% of transfers were instant, versus 39% in Q2 FY22, and the company’s average fee was 0.64%. Its customer base grew 40% in fiscal Q2 YoY, and the value of funds move rose 49% in H1FY23 versus H1 FY22, resulting in a 55% increase in revenues.

Bottom Line

Remittances are a vital lifeline for many families and critical to the economy of some developing nations. With central banks around the world raising interest rates, many emerging markets will be hardest hit because their debt is often denominated in U.S. dollars or euros. Rising rates are making those currencies more expensive relative to the domestic currencies of these emerging markets, creating another headwind to growth when the global economy overall is showing signs of slowing. This will likely mean that the developed nations, particularly the U.S., will outperform on a relative basis compared to these economies, which translates into a greater need for global remittances. However, digital remittance technologies are making the transfer of those vital funds faster and less expensive.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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