What Remittance is – Remittance Explained
You’ve probably heard of remittance; people sending money or receiving money from abroad; perhaps you’ve done a few overseas money transfers yourself before. In simple terms, this is what remittance is all about. Sounds too simple? Well, it is on the surface.
The formal name makes the act seem more daunting than it is. If you need to send money or receive money from overseas, it pays to understand how money transfers work.
Here’s all you need to know:
What is Remittance? – From the very scratch
Let’s start from the basics, shall we? The term ‘remittance’ derives from the word ‘remit’, which means ‘to send back’. It is simply an amount of money transferred or sent from one party in a country to another overseas. These money transfers can be made to family and friends abroad, a supplier in another country, or for international B2B payments.
Remittance can be done physically, using an over-the-counter money transfer operator and cash pickup agent, or online using a virtual wallet, credit or debit card, or money transfer software or app. Remittance can be done via wire transfer at a bank or remittance company.
Remittance is commonly used to provide financial support for people back home, especially those in underdeveloped or developing countries. According to a 2019 World Bank press release, $528 billion out of the overall global remittance of $689 billion were sent to low-and-middle-income countries. India remains the highest receiver of remittance with over $80 billion remitted in 2018.
Since the late 1990s, remittances have sometimes made up a significant portion of a country’s gross domestic product (GDP). For example, 28.8% of Nepal’s 2013 GDP came from remittances. That number goes as high as 31.5% for Kyrgyzstan and 42.1% for Tajikistan. As such, the remittance industry is huge and involves a lot of players. Let’s take a look at the ways money transfer can be done.
4 Methods of remittance
There are several ways to send money overseas depending on what works for you:
Remittances via international wire transfer
A popular way to send remittances is by international wire transfer through your bank. Usually, a remitter sends money from a bank in his country of residence to a bank in the beneficiary’s country. The transfer goes through a network of banks called SWIFT to ensure the money goes to the right person. Now because of exchange rates and several bank service charges involved in these transfers, this method can be fairly costly.
Remittances via Cash / Cheque
Checks and money orders are common methods of remittance. This involves counting out physical cash or handing a cheque over a counter to a money transfer operator for your recipient. The cash method can be used even if you don’t have a bank account. Currency exchange rates and fees heavily apply with this type of transaction so it is always important to find out the real cost of remittance before using this method.
Remittances via online transfer
The modern and most convenient method of remittance today is through online transfer. This is transferring money internationally through remittance mobile applications or web platforms not necessarily affiliated with any bank.
PayPal was one of the first to offer online transfers back in 1998. Today, several innovative online remittance brands have emerged. If you’re new to online remittance, it might be a hassle figuring out the best brand to use.
For money transfer operators looking to automate and start servicing international payments digitally, try using the Money Transfer Application. Whether paying for supplies or transferring salaries to overseas employees, the Money Transfer Application is an all-in-one software suite designed to ease the intricate ways businesses move money, anywhere in the world.
Remittances via credit or debit card
Extra fees are usually charged if you choose to remit with a debit or credit card. A PayPal online transfer, for example, can cost 4% – 7.4% more using a credit card. Card transfers are not free. However, you can see the fees for a transfer upfront and decide whether to pay or not. In many instances, it may be wise to use other methods of transfer than paying additional charges for using cards.
Cost of Remittance
Fees do apply for remittance activity. These fees range from 3% to 14% depending on the medium of transfer and the money transmitter company. According to the World Bank, the global average cost of sending a $200 remittance is $14 – 7% of the amount sent. Banks are the most expensive transfer channel, charging an average of 11% in transfer fees in the first quarter of 2019.
Online remittance services and remittance apps charge less for money transfers; even as low as 3%. While paying through an app is convenient and faster, security remains an issue for electronic exchanges. Today, a lot of authentication methods are put in place to ensure online remittance is more secure.
The Money Transfer Application (MTA) is one of the bespoke remittance software that ensures optimal transaction and verification securities. For MSBs transitioning to online money transfer servicing, we recommend you adopt MTA as this software would guarantee customer trust in your secured and efficient processing of transactions and how affordable you provide this service.