COVID-19 and the Growth of Digital Money Transfer & Remittances

May 2021

Fintech & Payments

Susannah Hampton

Senior Analyst

The pandemic has proved a significant growth catalyst for the digitisation of remittance services, with the closure of money transfer agent locations as part of national lockdowns, and users turning to digital solutions out of necessity.

Many of the major international remittance players – both those players with physical branches and agent networks, and digital-only players – have posted significant growth in their customer bases for 2020 and increases in the use of digital solutions. 

With the pandemic, has come an acceleration in the adoption of digital methods of money transfer, with regulatory changes being introduced to encourage the use of digital payments. With the rise of digital payment adoption in emerging markets has come a significant uptake in eWallet payments instead of cash. Whilst many players have seen overall revenue declines as a result of the fall in remittances, all major international remittance players, both traditional and digitally native, reported growth in digital revenue in 2020.

With the strong growth of digital-only remittance providers, established players, such as Western Union and MoneyGram, have been forced to invest heavily in their digital offering. With the additional pressure applied as a result of the pandemic, these players have struggled to see top-line growth, despite the success of their digital offerings. As a result, there is potential for these non-digitally native players to seek to forge partnerships to strengthen their capabilities, grow user bases and increase transaction volumes. In addition, potential mergers and acquisitions are being mooted. The acquisition of one player by another may prove a way to achieve the top line growth, profitability and broader reach desired.

The use of mobile money has been steadily growing within low- and middle-income economies, particularly those who see a low proportion of banked individuals. According to a report from the IMF, during the COVID-19 pandemic, mobile money has served to support the provision of financial services; allowing emergency financial support to reach those most economically impacted by the pandemic. In many emerging and low-income economies, governments are offering direct support to citizens in the absence of being able to directly protect jobs. The two key developments in the mobile money landscape have been instant payments and social payments.

Free to the user, instant payments represent genuine progress in terms of capabilities over previous solutions, such as digital wallets and money transfer apps, and therefore pose a significant threat to established P2P payment options. As such, money transfer apps will need to revisit their charging structures urgently, in order to ensure that they are still appealing. 

However, it is important to note that digital wallets with P2P functions, like PayPal, are very well established with users and therefore represent strong competition for instant P2P payments. For instant payments to gain traction, the main challenge involved will be one of marketing and customer awareness. For consumers, the perception is that bank transfers are slower than these apps. Therefore, banks adopting instant payments schemes should build compelling app experiences around these capabilities and back this up with large-scale marketing campaigns to users, to ensure that solutions are leveraged to the greatest extent possible.

Social payments, by their nature, incorporate aspects of social media, and transactions involve the exchange of usernames, email addresses or mobile phone numbers, rather than bank account or payment card information. Such payments have already seen huge growth in use via mechanisms, such as PayPal and Venmo, but are also poised to see broader use across platforms, such as WhatsApp.