Remittances: Growth in the Face of Global Challenges 

You are likely to find them just about any place you go in both developed and developing countries. Some are in search of a better life, others are escaping economic hardship or violence, some have risked it all for the chance of a better future.  

There are about 287 million international migrants globally, a number that has more than tripled over the past 50 years and which is expected to keep growing in the future. This means that, currently, one out of every 30 people is a migrant.

They are seldom alone in the world. Often, migrants have left behind families and loved ones in their countries of origin, and the connection with that other life remains strong despite distances.  

The funds migrants send back to the people they leave behind are called remittances, and they play a crucial role in the development and economy of low and middle-income countries. They also have the power to change the lives of remittance receivers, who use the money sent from abroad to cover basic needs like food, education, health, and to build a brighter future. 

Remittance senders know how important the money they send home is to the people who receive it, which is perhaps why remittance senders consistently find a way to continue sending, despite obstacles. 

Food and fuel costs affected many countries throughout 2022, yet international remittances continued to grow, rising 8% globally, to reach a record of $647 billion. The growth of remittances is consistent over time, rebounding quickly from the impact of economic and health crises. 

1. Global impact of remittances

2. Progress on reducing the cost of sending remittances

3. Inflation’s impact on remittances

4. The factors shaping migration corridors

5. Filling the educational gap through remittances

6. What mobile money can do for development

7. Growth in mobile wallets worldwide

8. Real-time payments

9. Advances in digital identification

10. Conclusions

1. Global impact of remittances 

For families that receive remittances, a consistent flow of support from loved ones working abroad can have a life-changing impact. Even when economic conditions and a rising cost of living restrict the amount of money that working migrants can send home each month, having extra cash reliably in-hand can mean that families have more food on the table, kids are able to stay in school, and small businesses can save up for crucial investments to build toward future growth.  

The consistency with which migrants provide their support to loved ones at home also makes a difference at the macro-level. In many developing countries, international remittances add up to billions of dollars annually and account for a significant portion of gross domestic product. Though any one migrant may send only a modest amount home each month, the cumulative impact of money sent from diasporas working abroad far outweighs that of international aid or foreign investment in low and middle-income countries.  

2. Progress on reducing the cost of sending remittances 

Remittances are by far the most powerful development tool available to low and middle-income countries (LMICs). In fact, personal remittances flowing into developing countries from abroad amount to nearly four times the volume of development aid these countries receive each year.   

When, in 2015, the United Nations introduced its framework to promote peace and prosperity worldwide, the Sustainable Development Goals, it put the eradication of poverty first on the list of goals for 2030 and a target to help reach that goal: reducing the cost of cross-border money transfers to 3%.

Reductions in the cost of sending remittances can make a meaningful difference in the funds recipients who are in need receive, meaning there is more money available to cover the basics like food, medicine, and educational expenses. In many cases, remittances help recipients and their families pull themselves out of poverty.  

At the end of last year, the global average cost of sending remittances was 6.24%, down from a peak of nearly 10% in 2009. The highest rates continue to be for cash transfers originating from and destined for Sub-Saharan Africa and the lowest, for transfers processed entirely through mobile money platforms.

3. Inflation’s impact on remittances  

Despite the supply-chain shocks and energy price increases that hit the global economy last year and caused inflation to peak at 9.4% globally, remittances to low and middle-income countries continued to grow, nearly at pace with inflation. The increase highlights the resilience of remittance senders and their determination to keep sending despite economic hardships. 

Two-thirds of international migrants are living in G-20 countries, the developed and emerging economies that together generate 85% of global GDP. When increases in food and fuel cost impact the developed world, the effect hits the poorest groups in those countries the hardest, since a greater portion of their income is spent on the basic goods that are often most affected by inflation, like energy and food.  

Meanwhile, inflation itself doesn´t impact all countries in the same way. In large emerging economies like Brazil and Mexico that are energy producers, the effects of inflation are more nuanced. In countries where food represents a larger chunk of consumer spending, higher food prices put more pressure on consumption in general, slowing economic growth.  

In times of economic hardship, remittances provide a much-needed cushion for people living in many developing countries and remittance senders know how important the money they send is. That may be one key reason why they find a way to continue sending no matter what headwinds they face.  

Remittances to low and middle-income countries continue to grow over time despite peaks in inflation, in line with global GDP.

4. The factors shaping migration corridors 

Nearly 10% of global remittances are sent to households in fragile and conflict-affected countries, providing an economic lifeline to families devastated by conflict, natural disasters and economic instability. These conditions have collectively pushed more than 60 million people to cross international borders in search of a more secure environment.  

Yet, for many international migrants, alternative destinations also represent economic and educational opportunity, allowing them to further their employment prospects and better support their families back home. Together, these factors are increasingly driving migrants to settle in new locations that offer more favorable conditions and a chance to enjoy a better everyday life. 

Conflict

With more violent conflicts than at any time since the Second World War, the current geopolitical environment is fueling displacement and the forced movement of people on an unprecedented scale. 

Of the 108.4 million currently displaced by violence, those impacted by the war in Ukraine feature heavily. As of March 2023, more than 8 million Ukrainians were living in other European countries with particularly large diaspora communities emerging in Poland, Germany and the Czech Republic. Aside from these movements, the ongoing fighting is also wreaking havoc on global food supply chains, worsening food security, and causing more migration around the world.  

However, despite the scale of the conflict in Ukraine, Africa remains the most volatile continent with more than 35 armed conflicts currently taking place. Continued violence, such as the recent outbreak in Sudan, is exacerbating existing challenges like poverty and the lack of critical infrastructure, pushing more migrants to risk everything in search of stability. With long-running disputes over the Nile’s water flows and recent environmental disasters, the Horn of Africa will likely see considerably more migration in the years ahead. 

Environmental migration

While environmental migration is not a new phenomenon, the warming of the atmosphere and oceans is increasing the frequency of natural disasters, leading to more displacement and migration away from high-risk zones. Pakistan’s recent floods displaced over 8 million people in the course of just a few weeks. The hit to Pakistan’s economy as a result of the floods is likely to further increase the country’s already large diaspora community of 11 million. 

Global weather patterns are also creating regional climate hotspots that are increasingly vulnerable to droughts and desertification. The Horn of Africa is one of those hotspots, and recent droughts, the worst in 40 years, have caused farmers and their families to leave their previously arable land in search of another source of income. Evidence of this can be clearly seen in the increase in movements toward the Arabian Peninsula. In 2022, the number of incoming migrants increased 64% with the number of women and children travelling to the peninsula also rising sharply. Lower crop yields from severe droughts are likely to worsen the economic picture of climate hotspots, compounding the existing reasons for migrants to leave. 

Economic aspirations

Approximately two-thirds of international migrants are economic migrants, meaning that the promise of employment, better opportunities, and a higher standard of living remains the major driver in international migration. 

Throughout Asia, Europe, Africa and the Americas, economic migrants are increasingly moving between neighboring states on the same continent in search of a better life. For instance, with economic opportunities in their country severely limited, an estimated 7 million Venezuelans have opted to migrate abroad, with the vast majority choosing to remain within the continent.  

Elsewhere, intra-African migration has grown from 13.3 million in 2008 to 25.4 million in 2017, and the introduction of the African Continental Free Trade Agreement (ACFTA) in 2021 is expected to deepen regional integration over time as barriers to trade and migration are gradually removed. An open Africa would eliminate some of the risks involved with undocumented migration and forge new migration patterns, increasing the number of intra-African migrants to 41 million within the next seven years. 

5. Filling the educational gap through remittances 

The role of remittances in providing access to education is crucial; many families experiencing hardship rely heavily on remittances to make sure their children can continue attending school. Remittances have been found to significantly increase education expenditure in low and middle-income countries. They also help kids stay in school even when the money is not used directly for educational expenses, as the extra funds in the households can effectively reduce child labor and, consequently, increase children’s school attendance.  

Regardless of their country and its state of development and wealth, children all over the world experienced setbacks in their education because of the coronavirus pandemic. A recent study by Brown University shows how disruptive the years of the pandemic were on kids’ education in the U.S. Compared to 2019, both math and reading test scores decreased dramatically after the pandemic among students in grades 3-8, showing a bigger decrease than during any other natural disasters to date.

The learning crisis caused by COVID-19 lockdowns and school closures was especially disruptive in the developing world, where children were already facing educational inequality. School shutdowns impacted not only children’s education but also their health, nutrition, protection against abuse and freedom from child labor. 

Compared with those in developed economies, schools in low and middle-income countries remained closed longer, mitigation strategies were often not up to par and students didn’t have as much technological support. As a result, the global learning poverty rate in low and middle-income countries grew from a pre-pandemic estimate of 57% to 70% of 10-year-olds unable to understand a simple written text.

The lingering effects of the pandemic on education may be reflected throughout the working years of the generation of students that lived through it, which is currently expected to lose up to $21 trillion in lifetime earnings.

In 2022, UNESCO estimated that around 244 million children were out of school due to unequal access to education. Remittances can help level the playing field of schooling access and quality. The importance of remittances for children’s education in low and middle-income countries is life-changing, and key to the future and prosperity of a country. 

6. What mobile money can do for development 

Long before the pandemic pushed people to embrace digital transactions, digital payments were on the rise. Between 2018 and 2021, they grew 13% each year globally, while in emerging markets the increase was 25% each year. That growth was fastest in Africa and Asia and is expected to continue thanks in part to the growing popularity of mobile wallets. 

Increasingly, mobile wallets are taking the place of credit or debit cards in digital transactions. Beyond being used to make payments at retail locations, wallets offer users access to other financial services, such as storing funds and making transfers. Increasingly, governments and aid organizations are using wallets for disbursements. 

But the most powerful attribute of mobile wallets is their ability to put basic financial services within the reach of people who have traditionally been underserved by the financial sector. And nowhere has their growth been more impressive than in Africa where the popularity of mobile services is attracting attention. Investments in African fintechs reached a record $287 million in 2021. More than a quarter of these investments were concentrated in the payments and remittances sector.

Growing investment in financial compliance 

Like any emerging trend/ technology, the explosion in digital payments presents unique benefits, as well as risks. Consumers and businesses may be unfamiliar with how the product or service works. Often, criminals and other bad actors take advantage of vulnerabilities not yet detected by authorities or experts to engage in fraud or other illicit activities.  

According to the U.S. Government Accountability Office, banks spend an average of $15 on “Know Your Customer” (KYC) requirements per new account, or between 0.4% and 2.4% of their total operating expenses. The cost of financial crime compliance across all financial institutions was $274 billion, with the cost per organization rising by double digits since 2020. Financial institutions like Ria Money Transfer invest a lot to protect themselves and their customers from financial crime.  

U.S. consumers reported fraud losses amounting to $8.8 billion last year, according to the Federal Trade Commission (FTC). The more than 30% increase over 2021 makes consumer fraud the world’s fastest growing industry. Globally, consumer fraud is estimated at $30 billion.  

Financial institutions, payment service providers and consumers can do a lot to prevent fraud and illicit financial flows, but governments around the world can have an important impact in the fight as well.  

Trust opens doors for economic development

Pakistan’s removal from the Financial Action Task Force (FATF)’s “greylist” is expected to lead to opportunities to advance financial inclusion in the country. Pakistan was put on the list after alleged association with terrorism finance, but the efforts by authorities to foster an environment of greater compliance and international trust is expected to boost the overall economy by encouraging international investment, while also expanding the offerings that international financial service providers and fintechs make available to people throughout the country. 

Throughout the developing world, stemming financial flows linked to organized crime, corruption, terrorism and other illicit activities would make an important contribution to economic growth, not only because of the investment it would foster, but because of the increased tax revenue it would likely generate. With this in mind, governments are also increasing their ability to trace and recover assets related to crime. Assets that are then used to support development.

Digital payments and mobile wallets are providing the means to advance financial inclusion like never before. Only governments and regulatory authorities can ensure that new payments methods are used in a way that benefits society and promotes economic development overall. 

7. Growth in mobile wallets worldwide 

Efforts to extend financial services to those who have traditionally been left behind – among them many women, people living in poverty, and in rural communities – have greatly accelerated in the past decade thanks to increasing technological availability and adoption. In particular, expanded internet access and a surge in popularity of mobile wallets have brought financial inclusion within reach for millions whose needs traditional banks have been ill-equipped to meet. 

This digital transformation in developing and rural economies was already underway when the need for rapid digitalization created by the pandemic pushed things along significantly. The percentage of the world population regularly using the internet more than doubled from 2011-2021, reaching above 50% for the first time in 2019. Access to the internet in communities that did not previously have it can offer a host of benefits, including new educational possibilities, telehealth service for communities without a medical professional nearby, access to information and social connection, and the possibility to utilize digital financial tools such as mobile wallets to save, send, receive, and budget money.  

Uneven growth across developing regions 

The need that mobile wallets fill in the global financial landscape can be seen clearly in the areas where they have been adopted most enthusiastically. In Sub-Saharan Africa, for example, 33% of adults have a mobile wallet account, more than three times the global average of 10%, and the more than 200 million active mobile wallet accounts in the region comprise more than half of the global total. 

All mobile wallet transactions south of the Sahara had a total value of more than $830 billion in 2022, the equivalent of nearly half of the region’s entire GDP and about two-thirds of the total value of mobile wallet transactions worldwide. Governments have started to take notice of how much of their respective country’s economic activity is taking place through mobile wallet transactions, and several – including Cameroon, Ghana, and Benin in 2022 – have implemented new taxes on mobile money transactions as many nations try to compensate for inflation and the lingering economic impacts of the pandemic. 

In other regions, such as East Asia and Latin America, progress in mobile wallet adoption has been much more uneven, with adoption rates in some countries comparable to that of Sub-Saharan Africa while neighboring countries see adoption below the 10% global average. The uneven speed of the global adoption of mobile wallets among developing economies is influenced by several overlapping factors: 

• Unreliable access to mobile internet service remains a challenge for many, especially in rural areas, coupled with a lack of familiarity with digital tools that could be addressed through outreach and education.  
• In some regions, competition from traditional banks and financial institutions, or low adoption among merchants and service providers, diminishes the perceived value of a mobile wallet among consumers.  
• Inconsistent regulatory environment between countries can create barriers for migrants and others looking for cross-border digital financial tools. 

Mobile wallets and financial inclusion 

The widespread accessibility and popularity of mobile wallets in many regions has helped spur significant progress in financial inclusion. Between 2011 and 2021, for example, the number of people in Sub-Saharan Africa with an account at a bank or mobile money provider grew from less than a quarter to more than half, and among women, it grew from about one-fifth to just under 50%.  

Beyond serving as a substitute for cash in day-to-day transactions, mobile money accounts serve as a gateway to other financial services that can help those in precarious financial positions achieve greater economic stability. Four out of every ten people worldwide who reported receiving at least one digital payment in 2021 also reported using that same digital wallet to save money, and a similar percentage used their mobile wallet to borrow money from a financial institution.  

Still, there is more work that needs to be done. Despite significant growth in account ownership among women worldwide, which grew from less than half in 2011 to nearly three quarters in 2021, women still trail men in account ownership overall. In low and middle-income countries, women are 7% less likely to own a mobile phone than men and 28% less likely to have a mobile wallet account. Mobile phone access and education programs aimed specifically at women in developing economies could be one step toward closing this gap. 

Mobile wallets and remittances 

As mobile wallets become more and more a part of everyday life for millions around the world, many migrants are choosing digital tools to send their support home to their loved ones. While remittances to low and middle-income countries increased by 8% in 2022 to a total of $647 billion, the share of those remittances sent digitally grew by 28% compared to the previous year, though it is important to note that some transfers conducted digitally on the sending side may still be paid out in cash on the receiving side or vice versa. 

The ability to send money internationally through a mobile wallet is contributing to the effort to lower the price of sending remittances. While the overall average price of sending remittances was 6.24% in the fourth quarter of 2022, the average price of digital remittances was just 4.71%.

8. Real-Time Payments 

Real-time payments (RTP) systems, which allow for near-instantaneous payments, are becoming an essential part of life for millions of businesses and consumers around the world. Four new RTP services were launched in 2022, bringing the worldwide total to 64.

The ability to send money from one account to another in mere seconds is a boon for both individuals sending money to friends and loved ones as well as for businesses, who have increasingly begun offering direct account-to-account payment, in addition to traditional card and cash payment, as an option for customers. These direct payments often mean lower fees for vendors and increased convenience for consumers. 

Despite their speed and reliability, many RTP systems are limited to operating within national borders due to regulatory hurdles and lack of international coordination between financial entities. In other cases, specific agreements enable payments between two participating countries or within regional economic groups. Ria’s network is a notable exception thanks to the global scale of our payment network, which enables us to control both the sending and receiving end of transactions sent through our network and ensure that the vast majority arrive in real time. 

9. Advances in digital identification 

One of the core problems to further expanding access to mobile wallets is the need for a reliable and verified method for people everywhere to identify themselves. An estimated 850 million people worldwide do not have any official form of identification, without which, they are unable to open an account with a financial institution.

The requirement to have a valid form of ID in order to open a bank or mobile wallet account is in place for good reason. Financial institutions of all kinds, from bank to fintechs, must comply with Know Your Customer (KYC) rules that, among other things, seek to limit the ability of criminals to use their financial tools in the service of a crime, be it fraud, money laundering, the financing of terrorist activity, or something else altogether. 

Still, this requirement means that those 850 million people without formal IDs are unable to achieve financial inclusion until they are able to get some kind of documentation that proves their identity. In many countries, governments are turning to digital solutions to help close their identification gaps. 

India’s Aadhaar system is a good example of both the possibilities and the challenges of digital identification. The program has granted digital identity documents to 1.3 billion people in the world’s most populous country since it began in 2009, facilitating access not only to financial accounts but also to welfare and unemployment benefits. Along the way, the program has had to overcome roadblocks and criticisms, including concerns over privacy of personal information and challenges with the consistency of individuals’ biometric data over time. 

Overcoming hurdles like these will be key to making digital identification a workable solution for people without documentation around the world. In addition to bank and mobile wallet accounts, a reliable and portable means of digital identification can help improve access to government benefits, health and educational services, job opportunities, and much more. 

10. Conclusions 

Despite a challenging environment for migrants in a world still reeling from a devastating health crisis, the subsequent shocks to the global economy, and the disruptive impact of violence throughout the world, remittances to low and middle-income countries continued to grow throughout 2022.  

Migrants who have left their home countries whether to seek a better future, or because they simply don’t have a choice, maintain strong ties to those they leave behind and consistently send money home, in spite of the headwinds they face.  

Remittances are critically important to the lives of millions of recipients, who use them to cover the cost of basic necessities. They also make important contributions to the economies of many developing countries. 

The growth of digital payments is making it easier and more affordable for migrants to send remittances home.  International payments infrastructure must be safeguarded from ill uses so that individuals, families and nations worldwide can make full use of the potential of remittances as a tool for financial security and economic development. 

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