Remittance Channels: Formal vs. Informal

Before money transfer operators stepped into the scene, migrant workers relied on travelers to send money back to their loved ones.

Migrants would prepare small packets of cash and attach letters detailing for who and for what the money was for.

Then, they would find a traveler or remittance carrier. It could be a friend, a neighbor or an informal agent.

Now, thanks to money transfer operators, we live in an age where moving money is easier than ever, putting the informal remittance market into perspective.

For the global community, whatever happens with remittances is important. It is a sector that moved through formal channels over $500 billion last year according to the World Bank.

So, let’s look at the inner workings of formal and informal remittance channels.

The problem with informal remittance channels

Although it is still common practice to send remittances through informal channels, migrant workers should be aware of the many drawbacks.

It is true that these informal agents might be doing the job for free, especially if they simply happen be visiting their families and have easy access to your parents’ house.

However, there is a lot at stake. With informal channels, there is no guarantee that the funds will be delivered as money can be easily lost or the sender could even get robbed.

Or what about the countless scams that go unregistered and are untraceable?

And that’s saying nothing about when you need to send money urgently, when it just can’t wait until next month’s trip.

The importance of affordable and accessible formal money transfer services

In countries like Haiti and Nepal, over 20% of their GDP depends on remittances. When migrant workers help their families, they are also improving the economy of whole communities and nations.

This is why it’s imperative to offer them better options for sending money.

A good money transfer service is one in which senders can benefit from the speed and security they need for a low cost.

This means the sender is sure the money will reach its destination and that his or her beneficiaries can have the money within minutes.

Encouraging competition and opening up markets are ways in which governments and businesses can help money transfer operators offer an even better service and price.

Even if a migrant worker still decides to go with informal channels, the option should still be available to them.

Ria’s responsibility is to continue offering a reliable and convenient service, and we will not rest until we’ve connected people in each and every corner of the world.