Global remittances hit a record $613 billion in 2017, up from $573 billion in 2016, following a two-year decline. That growth is poised to continue at a healthy, but steady rate: Business Insider Intelligence expects global remittances to grow at a 3.4% compound annual growth rate (CAGR) to reach $750 billion by 2023.
Digital remittances will drive the overall industry moving forward. Digital growth will be fueled by factors like rising smartphone penetration, increasing demand for digital transactions, and an overall need for faster transfers. Business Insider Intelligence expects digital remittances to grow at an 11.5% CAGR from $225 billion in 2018 to $387 billion in 2023.
Competition is rising between legacy giants and digital-first startups competing for the same segment of young, digital-savvy customers. These consumers are entering the cross-border transfer space for the first time, which is creating a highly competitive dynamic in the industry as legacy and digital players look to win share.
To win this audience, legacy and digital players need to focus on the four areas consumers value most in remittances: cost, convenience, speed, and safety.
Remittance providers need to target two areas — the cost of transferring and pricing transparency — to meet the cost-related preferences of this audience.
Cutting costs is paramount for firms to see adoption of their services. In mid-2016, the cost to transfer $200 from the US to the Philippines was 5% at both Western Union and MoneyGram, and 2% at Remitly, but by mid-2018, that declined to 2% and free, respectively. However, firms need to implement these changes across corridors — the same transfer between US and Colombia became costlier in the same period at Western Union, but not at Remitly, for example — or they'll risk losing out on valuable business.
Introducing cost transparency is imperative in building loyalty. Remittances will never be fully fee-free. But when fees are offered, providers can build in transparency so that customers know exactly what they’re paying for and where it’s going, which could offset some of the tension payers feel related to unknown fees.
Providers can take several steps to make their services more convenient to attract this segment.