The impact of high remittance costs on international remittance and how to reduce it  

Millions of people travel to other countries in search of livelihood and work hard to earn money for their families. However, their families generally live in their home countries. They send money back home, known as remittance, through some international money transfer method. However, this process involves some charges, which are generally very high because the payments are made from one country to another, which also includes currency conversion.

In this blog, we will discuss how high remittance costs impact the economy and how we can focus on reducing remittance cost. 

So let’s dive in:

Why Remittance Costs Are Higher than Other Fund Transfer Methods?

Generally, remittance charges are not monitored or managed by any government entity. For this reason, the market may decide on these rates independently. Here are some factors that contribute to high remittance rates:

• Limited Competition: The market is generally dominated by a few large organizations, barring new players from entering. Due to this, the competition is low, and the large players dominating the market may charge higher fees.
  
  

• Regulatory Barriers: The remittance market has complex compliances and regulations, which increase operational costs. This cost is then passed on to the migrants in the form of a higher remittance fee.
  
  

• Lack of Financial Infrastructure: Most developing countries lack financial infrastructure, such as banks, branches, and ATMs. This further impacts the cost of remittance.
  
  

• Currency Exchange Rates: Since the currency market is prone to fluctuations, currency exchange rates change frequently, leading to higher remittance charges.

How to Reduce Remittance Costs?

Though it is tough to control the remittance rates for any individual, financial institutions, international organizations, and governments can work together to prevent it. Here are some steps these bodies can take to reduce the remittance costs:

• Promoting Competition: Introducing new players in the remittance market would increase competition, thus forcing the dominant players to reduce their remittance costs. We have seen this happen in many fields, especially in the telecom sector.

• Leveraging Technology: Technology can be a great tool for reducing the remittance fee for your cross-border payment platform. Digital wallets, mobile payment transfers, and blockchain-based financial solutions can reduce operational costs, which in turn reduces remittance costs.

• Improving Financial Infrastructure: Since infrastructure plays a crucial role in remittance rates, establishing new bank branches and ATMs can enhance remittance access and eventually reduce costs.

• Regulatory Reforms: As discussed above, complex regulations and compliances increase the operational costs for remittance service providers. Streamlining these compliances and regulations would reduce operational costs, and this saving can be passed on to customers.

• International Cooperation: Governments and international organizations can collaborate to control the remittance market. They can apply standard rules at the global level, limiting service providers' ability to impose arbitrary charges.

• Financial Literacy: Educating migrants about the pros and cons of remittance and other channels can also be very helpful. This way, migrants can make an informed choice, reducing the risk of fraud and costly mistakes.

There are many more ways financial bodies and government institutions can control high remittance charges. However, implementing these steps can significantly reduce the charges.

Conclusion

Remittance is no longer a choice but has become a necessity for millions of migrants working in other countries to earn their livelihood. However, they face this trouble every now and then, as they have to pay a large amount of their hard-earned money in the form of remittance charges. 

You can minimize these costs by implementing a robust cross-border remittance solution into and business. Plus, taking the above-mentioned steps would ensure they do not have to sacrifice their funds, along with boosting the economies of all the countries.